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Airlines Confidential

Hosted by Ben Baldanza, former CEO Spirit Airlines & Scott McCartney, former Wall Street Journal Aviation Editor/Columnist “The Middle Seat”. Top stories, discussion, listener questions, and passenger complaints are all addressed head-on in each episode.

Speaker 1 (00:04):

Airlines Confidential with Ben Baldanza and Chris Chiames is made possible with the support of Pratt & Whitney whose GTF engines are redefining aviation, learn more @pwgtf.com. AeroData, the leading edge in flight performance data, visit aerodata.co, AeroData is a Garmin company. Sidley Austin, the destination law firm for leading airlines and aviation companies, visit sidley.com/aviation. And Seabury Securities, global reach, global scale, seaburysecurities.com. We also welcome your business’s support, [email protected].

Ben Baldanza (00:54):

Welcome to Airlines Confidential, Ben Baldanza here, hope our listeners in the US had a very good Thanksgiving and glad to see everyone is out of their food coma by now and ready to get caught up on the airline news.

Chris Chiames (01:11):

And Chris Chiames here as well. Ben, I know you traveled over the holiday, what did you see out there?

Ben Baldanza (01:16):

Well, we took a easy round trip from Washington down to Fort Myers and back. The flights were on time, they were very full, the airports were very full. But I have to say, Chris, that there was a very positive, I would say almost festive atmosphere everywhere we were. Even though it was crowded, even though the security lines were long, even though the last people on the plane didn’t have a place to put their bags in the overhead bin, everything that happens when flights are so full, there were no anxious or yelling situations, no fights, everybody just played by the rules. I know two flights aren’t the whole industry, but I got lucky and the two flights I took did quite well.

Chris Chiames (02:18):

I traveled Tuesday from Miami to Dallas, it was uneventful, it was crowded, like you said. And then I took my daughter to the airport at DFW Wednesday morning and we were expecting a bad scene and it was, again, busy and bustling, but nothing major to report as far as delays or crowds or lines. So hopefully, our listeners experienced something similar to that.

Ben Baldanza (02:44):

Well, I certainly hope so. And I know there was a lot of travel this Thanksgiving, so as the week wraps up, we’re going to have to see what the stats really look like, Chris.

Chris Chiames (02:58):

Well, that’s a good segue to some airline news discussion. We’ll talk a little bit more about the operation over the past week and then we’ll also move to our guest interview with Mark Ross-Smith, the CEO and founder of StatusMatch, to talk about airline loyalty programs.

(03:12)
Here in the US, we historically described Thanksgiving week as the busiest travel week of the year, although July 4th week has been catching up on that status. But Thanksgiving 2020 was no doubt very busy, the TSA, the Transportation Security Administration said it handled 2.4 million passengers on the Wednesday before Thanksgiving exceeded only by Sunday, November 27th when an estimated two and a half million passengers were processed, which broke the single busiest travel day since the pandemic, which was this past July 1st, 2022, like July 4th week. I saw some estimates that air travel was at 99% of where it was for Thanksgiving week of 2019, so the airports are busy, as we said, airplanes were crowded as we said. But Ben, how do you think the industry did overall?

Ben Baldanza (04:03):

I think they did pretty well, Chris. After a last year of not enough people and all sorts of operational mess up, some of which caused airlines to blame air traffic control and vice versa, even got Secretary Buttigieg of the DOT involved in saying, let’s make this better for everyone. My sense is that, this Thanksgiving actually has worked pretty well, the rate of cancellations and the rate of significantly delayed flights from what we’ve seen up to now isn’t meaningfully different than what it’s been during a non-holiday week. So to handle all the people you just talked about over this very busy Thanksgiving holiday suggests to me that the industry is back on track. It’s also really exciting that air travel is at 99% or basically back to where it was pre-pandemic for this busy weekend.

(05:19)
One thing I’ve been wondering, Chris, is whether the change in work at home and the change in the way people think about their time with blended travel and bleisure travel, as we’ve talked about, whether that is changing the Thanksgiving week travel patterns at all, allowing people to maybe leave earlier than they otherwise would’ve if they went into an office Monday, Tuesday, and Wednesday. And so maybe we’re getting the volume of the holiday that we got before the pandemic. But it’s possible it was spread out over a little bigger timeframe, even if it’s just a couple of days, that could have made a big difference in terms of how the industry can handle it. So I don’t know if that’s true, but when we’re able to look back on the weekend and look at the stats of what the volumes were each day of the week, we might figure out whether there’s some change happening there too.

Chris Chiames (06:32):

Yeah, we need to watch that. As for Thanksgiving week, it was quaint or maybe nostalgic that the only issue was weather, not staffing, not ATC like you said, but it was just weather delays and weather related cancellations, which are apt to happen into the fall like we are now. Lots of rain here in the Texas area, I know there were delays at Houston and Dallas on Saturday of Thanksgiving week and I saw some delays out of Chicago, so there was weather and we can’t stop that. But it’s a good thing, like you said, that was the cause of the delays and not some of the other things that have been plaguing the industry these last 6, 8, 10 months.

(07:19)
Then there’s another airport ranking out, this one by the Wall Street Journal, in a battle of the West coast winds, in this case, San Francisco was rated the best large airport followed by Atlanta and Minneapolis St. Paul. And then Sacramento was the best medium-sized airport followed by San Diego and San Jose, so a California trifecta there. At the bottom of the list, Newark was the worst large airport and New York LaGuardia was the worst medium-sized airport, I see a trend here. The rankings are a combination of factors anchored by on-time reliability, convenience, and passenger amenities. So Ben, give us your 2 cents here.

Ben Baldanza (08:01):

I’ve not been to San Francisco in a while, but I saw this list. I have been to Newark and have to say that I understand this ranking for Newark. And LaGuardia, I’ve been to quite a bit and it’s unfortunate that that airport is ranked the worst medium size given all the work that’s going into that airport. And my guess is, as Delta finishes its build out, it’s going to end up being a better place and maybe more reliable of things. But it has been under construction for quite a long time.

(08:45)
Now that said, the way these rankings work always rates some things more than others. So if it’s based only on just operational efficiency, it’s not surprising to me that the very busy and heavily congested airspace around the Northeast is always going to score much worse than airports in the Midwest and the West coast.

Chris Chiames (09:18):

Like you, Ben, it’s been years since I’ve flown into San Francisco. What I think about at airport ranking system and on time reliability is a key factor, I was very surprised about San Francisco because they have been plagued for years and years and years with fog and other weather delays, they’ve had a good run where the weather has been pretty cooperative since the post pandemic era. But some of this was consistent with, we talked about the JD Power rankings in Atlanta and Minneapolis and some of these airports scored well there as well.

(09:50)
But all airports aren’t created equal, and so you can lay out a grid and you can come up with some objective measurements, but there are some factors you can’t control and then some that airports can control. Some of these are also the very costly airports for passengers in the context of the cost to get to an airport and how does that factor into ‘the convenience.’ So anyway, the list is out, some airports are going to brag about it and some airports are going to dispute it and kick the can down the road to Dexter’s rankings. But everybody has their favorite airport and their least favorite airport, and I’m sure it’s somewhere on this list.

Ben Baldanza (10:35):

That’s right. And if you win one of these rankings or do well, why not market it? When we get to the shout-outs this week, Chris, I’m going to refer to yet another ranking, so we’ll see when we get there.

Chris Chiames (10:52):

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Ben Baldanza (11:13):

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(11:51)
Chris, I’ve got to ask your reaction to a news item involving two of your former employers, American Airlines and Sabre, same topic we’ve discussed before, their history of litigation. Now American is suing Sabre to recover the attorney fees for over 11 years of litigation. What do you think of this, Chris?

Chris Chiames (12:20):

Man, I’m trying to choose my words carefully here. I would like to see these two parties in Judge Judy’s courtroom and have her render a decision. I think they just need to stop, that’s my personal opinion, they just need to stop this back and forth. No one has come out the winner, American got a favorable decision and the jury awarded them a dollar this past spring for damages. So as we talked about at the time, the jury said maybe there’s something fishy going on with regard to antitrust behavior, but no one was really harmed. And so now their law firm of O’Melveny & Myers is back at it with more litigation to recover the fees that O’Melveny charged American. So I think everyone’s just tired of this, that’s my opinion.

Ben Baldanza (13:16):

Everyone but the attorneys, Chris.

Chris Chiames (13:18):

Yes, there you go. And to our sponsors at Sidley Austin, I know you’re not a part of this litigation, not trying to trash lawyers, lots of lawyers as friends, but I think enough is enough here. Well, we’ll be right back to talk loyalty programs with Mark Ross-Smith, and that interview is brought to you with the support of Seabury Securities. It’s a Seabury capital group company that boasts a 25-year track record of advising aviation clients around the world. They are award-winning and widely respected team, has superior industry knowledge as well as unmatched depth of relationships with decision makers in industry, finance, and government. Explore their global reach and scale @seaburysecurities.com.

Speaker 1 (13:58):

Promotional consideration by the airchive.net, the hub of the history of commercial aviation, the airchive.net is now boarding. This portion of airlines confidential is sponsored in part by Sidley Austin from the ramp to the boardroom, the destination law firm for leading airlines and aviation companies transforming the skies.

Chris Chiames (14:23):

Welcome back to Airlines Confidential, we’re pleased to have as our guest this week Mark Ross-Smith, who is the founder and CEO of statusmatch.com, we’re going to talk about loyalty with Mark. And Mark, it’s early where you are in Malaysia, so thanks for joining us, welcome to Airlines Confidential.

Mark Ross-Smith (14:39):

Hey guys, great to be here, it is very early, but I do have a couple of coffees in hand, so I think we’ll have a fun conversation today.

Chris Chiames (14:47):

Great. Well, we always start off by having our guests give a quick self-introduction and also tell us about your expertise in aviation and travel and what StatusMatch is.

Mark Ross-Smith (14:58):

Sure. So currently, me and a couple of other former airline executives in the middle of the pandemic, we created statusmatch.com as our way to the airline … a couple of years ago, the airlines were a bit of a mess, so we thought, what could we create that could help the airline industry? Because loosely, the logic was, if we could shine a bit of a light in the loyalty corner of the world and if we can help the airlines recover faster, accelerate that recovery, that would in turn help us in our careers because we’re airline guys, we’re committed to the travel industry. So loosely, that’s what I was thinking.

(15:32)
But this all started really in about 2013 or so where I was living in Australia at the time, I had just sold a company that I’d worked on for seven years, it was a social network in the telco industry. So after that, I moved to Hong Kong at the time and I’d hit up Cathay Pacific there, obviously the biggest airline, and I asked them for a status match. Previously, I’d had top status with one of the big Australian airlines, actually it was one of the VIP status to it, flying a lot for business spending, gosh, I was riding on flights. And so I hit up Cathay for status match and they said, no, actually they offered me silver status, which is a bit of a result. And I thought, well, it’s a bit odd, why are airlines, why wouldn’t they want me as a customer?

(16:18)
And that kick started the whole journey into understanding customer acquisition for airlines, high value customer acquisitions, what airlines were currently doing, what they weren’t doing. And after that, I’d not worked for an airline at that point at all, I was just a frequent flyer, a hundred or so flights a year, a lot of business, first class travels part of business. And so I had just sold my business, I was unemployed basically at that point, I thought, what am I going to do next? I want cheap flights, I need to go work for an airline.

(16:49)
I started attending a lot of industry events, all the aviation events, all the loyalty events just as education really, because there’s no university to learn about airline loyalty. There is a lot of places you can learn about airline management, not specifically loyalty. So I went to a bunch of these events and I realized pretty quickly I thought, hang on, I feel I’d know a lot of this, and that was because I’d been a customer of airlines for so long, you see all the intricacies, how things work. And to a large degree, a lot of frequent flyers actually understand more about the airline and how things work, at least from a customer perspective, than a lot of people that work at airlines.

(17:31)
That really opened my eyes, but that’s really where StatusMatch started. From there, obviously, I then ended up joining Malaysia Airlines and running their loyalty program, doing extremely well, I made a lot of money for their airlines. Basically, treating the loyalty program as a startup because I wasn’t an airline guy, I was a startup guy, I was a tech guy, and treating it like a startup was really good for the airline, really good for members. Creating the campaigns, changing the program slightly in ways that customers would pay more for things that actually ultimately benefited the airline.

(18:05)
I had a lot of fun there, and then obviously, pandemic hit, started StatusMatch and today we’re working with six airlines, six major brands around the world on high value customer acquisition. And as we come to the, I’ll call the close of the pandemic, people have had their status extended for the last two or three years for free from most airlines, hotels, cruise lines, and that’s all coming to an end where airlines are looking to downgrade people for the first time. And obviously, that represents a pretty big opportunity for our business and for other airlines out there looking to give a lifeline to some of these people that might be losing status with their main airline.

Ben Baldanza (18:46):

That’s a terrific background, Mark, let’s start with a very basic question. Loyalty programs are used in lots of industries, but airlines seem to have the most robust programs out there and ones that people care about the most. Why do you think that is?

Mark Ross-Smith (19:05):

Well, obviously, airline programs are sexy. If you think about it, they’re selling something that’s highly aspirational, we’ll talk about most premium airlines for a second. They sell the dream, they sell beaches, and imagine you sell sitting on the beach in a hundred degree heat and you are drinking a cocktail, kind of thing. They sell that dream, they sell the aspiration of something that you may not otherwise buy, use your miles to fly here kind of thing, and it’s the whole free flights premise. Airline loyalty program’s been around for better part of 40 years, since late seventies, early eighties, and there’s been a lot of market education since then, which means anyone that’s over or under about 60 years old or so has grown up with them, has been trained effectively by airline loyalty.

(19:57)
On top of that, they haven’t really changed all that much, the structure of it is more or less the same as what it has been since mid-nineties kind of thing for most, not all programs. So with that in mind, loyalty programs for airlines is about driving key business objectives, so it’s about driving premium demand, a bit of revenue protection from top frequent flyers to keep them loyal with your airline. More recently, we’ve seen loyalty program in airline drive high margin cash flow from sales of miles to banks and third parties and stuff like that.

(20:36)
There’s also the whole layer of the co-brand credit card part of it, which ultimately acts as a brand introduction to the airline to get people to fly the airline for the first time, they get the credit card and like, I might fly the airline again now. Over the years, airlines have built this, I don’t want to say a moat, but they’ve built this really interesting business that taps on a few different areas of the core airline business to help different parts in different ways, but ultimately, to a frequent flyer, to you and me and millions of other people out there, it looks the same and it seems simple. And so because of the education over the years, we’ve been able to absorb that, understand it. And to be frank, retail, lots of programs just don’t have the same jazz, the same appeal because they don’t have these aspirational moments, there’s less emotional linking between the program and your transaction, the everyday spend. So hence airline loyalty programs, they’ve obviously been making a lot more money, they get a lot more attention, hence the robustness of these programs.

Chris Chiames (21:42):

Mark, I want to follow up on something you were just talking about, which is, during the pandemic we saw airlines using their loyalty programs as collateral for loans and other capital raising initiatives, which proved their value obviously. But explain how a loyalty program can have a standalone value separate from the airline itself?

Mark Ross-Smith (22:06):

You’re right, we’ve seen a heap of this in the last two years. It’s really come to light, so the value of airline loyalty business has been around for quite a while, but airlines, suddenly we got to see all these fancy SEC filings and got to see under the cover of some of the biggest airlines of the world, how they worked. Firstly, we need to understand where the value in the airline loyalty business is, and it’s really about high margin revenue. So in the American Airlines report, part of the SEC filing, I think it was 71, 72% gross margin on selling miles, which represents about 50, 52 net margin on selling miles. And they’re selling something which technically doesn’t exist, you can’t see it, hold it, touch it, taste it, it’s a digital currency and it’s high margin and they’re selling billions and billions of dollars worth of these things.

(23:01)
Put your airline hat on for a second, if an airline’s selling seats and getting 50 to 70% margin out every single seat sold, they’ll be making a killing. So this is something that the loyalty program’s able to do because of the value of the miles and the attractive of the miles underpinned by things like the network of the airline, you need to fly to a lot of destinations, you need a lot of partners, you need this whole ecosystem of loyalty that makes all that work. Fundamentally, the market values loyalty programs like a really good marketing of tech company, which is somewhere between 30 to 40 times profit earnings ratio.

(23:41)
If you are a really good airline and you’ve spent decades and decades and billions of dollars investing in great product and customer experience, you’re like a Singapore Airlines or something like that, or Cathay Pacific, at best Airlines can be valued, what, 6, 7, 8, 10 times on the market, which is about aligned with an automotive company but not that great automotive company. And so therefore, my thinking at least, is if you had a dollar of profit and you can decide where it goes, do you want it to go to your loyalty company or to the airline business? It’s going to be worth three to four times more sitting in the loyalty program. Even though there’s less revenue overall, it’s high margin revenue and the market’s going to value that money differently to if the profit’s sitting in the airline.

(24:26)
What that means is, obviously in the pandemic, to your point, is airlines have been leveraging the value of these loyalty programs because it’s just valued differently to the airline itself, they’ve been leveraging it for a security to secure loans. Actually, this was last month, Spirit raised another, was it 500 million I think or five 50 million new capital valuing their loyalty program at, I want to say it was $4.2, $4.3 billion on about 95, 96 million revenue, which is somewhere about, on the spot math here, 40 times revenue, something like that. And I think that 2022, projected revenue was about 200 million, which puts it about 20 times revenue valuation, which is not crazy really in the tech world if you think about it.

(25:22)
And so hang on, the loyalty program’s worth 4 billion and the airline itself is worth two currently, then does that mean the airline’s worth making of 2 billion? And that’s not really the case because at the end of the day, the airline needs a loyalty program, the loyalty program needs the airline, they need each other, they both need to exist. So you can’t just delete the airline and say, we are now a loyalty company, they absolutely need each other. So in my view, the loyalty or the marketing side of the business has virtually unlimited upside, it’s really limited by the number of people that are interested in the brand. Whereas, the airline is limited by its capacity and its revenue from selling seats and ancillary sales and stuff like that. So in my view, there’s just more upside in airline loyalty and I think that’s reflected in the market.

Ben Baldanza (26:14):

That makes a lot of sense, more with Mark Ross-Smith in a moment. Airlines Confidential is sponsored and bought by Sidley Austin, the destination law firm for leading airlines and aviation companies transforming the skies. From the ramp to the boardroom, Sidley provides the broadest range of legal services to clients on the most critical issues facing our industry today. Sidley combines the unmatched experience with top tier capabilities across a vast global footprint, visit sidley.com/aviation for more information. Mark, affinity credit cards are tied to many airline programs, why do you think this has become so common?

Mark Ross-Smith (27:06):

Probably because they make so much money for everyone. Funny that airlines and banks like making money, who would’ve thought? There’s a lot of scale obviously with any card bank credit cards. The biggest thing that we don’t talk about is brand introduction, so what you see is people that they fly an airline, they think, this is okay, and then onboard all the airlines are doing the credit card pitches these days and the pitches get this credit card, make it up 50, 60,000 miles when you get the card. And in your mind, you’re thinking, that’s a free trip to blah.

(27:45)
The math goes like this, maybe there’s no annual fee on the card, I pay 1, 2, 3, whatever the annual fee is, let’s call it 200 bucks, and I’m going to get me and my family of four a free round trip to Florida. And in your mind you’re thinking, well, it’s cheaper to do that than to pay for the ticket. So people get the card and they start spending on it, they start spending on everyday purchases, they go to grocery, they start buying things online with the credit card, and before you know it what they’ve done, they’ve locked themselves into the brand. Because they’ve got these miles from the signup bonuses, they’re now earning miles from every day spend. And when it comes time for them to book their next flight or their next travel, where do you think they’re going to go? They’re going to the airline where they have credit cards.

(28:36)
In a lot of ways, the cards act like, I call it a brand introduction, it’s a way to get new people that don’t have status yet into an airline, start building their points balance like crazy because if you’ve got a lot of points at one airline, you’re much more likely to book with that airline. So you’ve got this whole brand introduction, people that don’t have status, you’ve then got people that do have status and can start accelerating miles way beyond what they could do otherwise. And obviously, all this feeds into what we’re talking about before and that these are high margin products similar to ancillaries, and so it is just a lot of money in the game for everyone.

Chris Chiames (29:17):

As airline customers are collecting loyalty points, airlines and credit cards are collecting data on those customers. What are they using this data for?

Mark Ross-Smith (29:30):

I’ll share a couple of things with you. What I call a golden metric in airline [inaudible 00:29:37] spaces is share of wallet. So that is, how much is each flyer flying your airline versus someone else? And just because someone is a gold or a platinum diamond member with your airline doesn’t mean actually they’re a good customer in terms of, they might be splitting their business, they might have 50 flights with your airline a year, but also another 50 flights of competing airline. So they’re actually less loyal than, say, your cousin John, who only ever flies twice a year to go visit grandma in Texas, but that’s 100% of his loyalty. So when we talk about share of wallets, it’s about, John’s giving you 100% of business whereas this business traveler is worth more but actually giving you less. So that’s the top metric.

(30:19)
But I want to share an interesting story actually about maybe about how airlines are not using data. Just recently, I booked a flight on a big airline for my family and there’s four of us and I’m a gold member of this airline, which is the mid-tier on this airline. This is directly in the airline website, midway through the booking process, it’s trying to sell me lounge access for my five-year-old. So it’s like, you pay an extra, I can’t remember what it was, $30, $40 and you know can bring name into the lounge and I’m thinking, hang on a sec, kids are not treated as guests in lounge with this airline and this loyalty program. They’re basically trying to sell me something as ancillary that I get for free and I’m not sure how much value, 30, 40 bucks my five-year old’s going to get in the lounge, she’s not quite old enough to start drinking champagne yet.

(31:18)
In terms of how airlines are not using data, they could have sold me something else, you know what I mean? Elite members are much more willing to spend on other stuff, you just got to sell them the right stuff, you can’t sell them lounge access for their kids, which they already get for free. It’s a bit of a stretch to try and sell them extra bags and things like that because they tend to get extra baggage allowance anyway. In fact, to spin this around a bit, I think there’s a bigger opportunity in airlines doing really simple things with the data like this, for example. An airline in the marketing side, there’s all things like machine learning, propensity modeling to see what people are more likely to click on and what products they’re likely to buy, and partnering with third party data, combining that to see who doesn’t have your credit, there’s all sorts of cool stuff that’s been done in the background. But to be fair, I think some of the easiest, biggest revenue wins are going to be using data in small ways that impact the customer experience in a positive way.

Ben Baldanza (32:22):

Mark, one thing that’s always bugged me about airline loyalty programs, is that they often grant you a full year of status based on the prior year’s activity. When we started our program from scratch at Spirit, we had the idea to base it on rolling 12 month activity. How do you think loyalty programs could better link current loyalty rewards to more current activity?

Mark Ross-Smith (32:57):

Super interesting question. You got to start somewhere, right? The question is, what is the right model and what is the right model for each particular airline or loyalty? What are the core business objectives you’re trying to get to and how does a qualifying period, if we call that, maybe you want to go somewhere totally new with that, but is it a calendar year, is it a rolling 12 months? To your point, what is the best model? And I think it really depends, I don’t think there’s a magical answer, I think for a bunch of airlines and hotels and car rental, the calendar year works perfectly fine. Obviously, that puts a lot of people disadvantaged that have a lot of activity just one side of the year or the other. Not everyone has the same travel over and over and over, so that’s why the rolling years work quite well.

(33:51)
There’s some airlines out there that’ll give you status for two years upfront when you qualify for the first time, and then obviously reduce qualifications for that next year, whether it’s a year or a rolling calendar year. I like that because you’re in the club at that point, you get in and it’s like you can sit back a bit and go, I don’t have to work so damn hard to keep there again. Obviously, you need some boundaries and some structure in these programs. One of my colleagues I work with, he said he only ever really understood frequent flyer programs after he was working at a bank, and that how all these banking folks would mysteriously need to have group meetings in a faraway country just after Christmas, but had to be before new year. And so they all had enough miles to re-qualify for status for the following year.

(34:45)
And definitely, people value elite status, in most big airlines, somewhere between 30 and 40% of all ticket sales are driven by the top 5% of loyalty customers. And so these people spend more on high margin fares, they’re typically a better customers. And so in some ways, do you just create a program and the earning qualifications around it, do you just base off these people because these people are worth so much money to the airline? Or do you go chasing your infrequent, what’s the word, bleisure travel, I think it’s what I’ve seen, do you go chasing these people as the new type of frequent flyers? And I actually think there’s a balance, I think it’s both. In fact, you know what I’d really like to see, this is the first time I’m sharing this, I’d like to see like you choose your own adventure loyalty program.

(35:43)
I remember books as a kid and instead of reading through it, it’s like you’re reading in turns like, if you want to do this, you go to page 53, if you want to do this, you go to page 46, and you got to take the journey that you felt most comfortable with. And so what if loyalty programs was to do that? What if you could sacrifice miles earning? It’s like I don’t want to earn miles on my next 10 flights, instead, I want double status earning or vice versa. That way, you could start capturing the interest of business travelers that are less driven by miles earning and more driven by status earning. But at the same time, you could incentivize it the other way and give more miles to people that just know they’re never going to get the silver or the gold status, but you want to lock them into the airline in a different way. So I’d like to see more innovation in this area, innovation that ultimately I think would benefit both the airline and the passenger.

Chris Chiames (36:40):

Mark, as we wrap up, let’s get out of the airline business for a minute, but using your expertise, is there a loyalty program or a company that doesn’t have a loyalty program? Is there something you’d love to get your hands on to help them reimagine how they tap into the loyalty of their customers?

Mark Ross-Smith (37:01):

I think airlines 1, 2, 3, 4, and number 10 on my list, after that, I think automotive might be interesting because there’s a lot of similarities with airline. The way that most automotive companies are valued on the market is pretty similar to a typical airline. Car companies, they’ve got all these, what we call ancillary sales, there’s all add-ons for your car. We’re starting to see, was it BMW trying to sell digital subscriptions for heated seats in the cars now? So we’re seeing, you upgrade and get the next version of autopilot and you pay more, so there’s all these digital products coming into it. If I could draw a parallel to just ancillaries and airlines, again, it’s high margin revenue and I think this is something that automotive manufacturers could really get into, the high margin digital stuff, and how do you do that without pissing off the customers basically, right?

(38:01)
I think there’s a lot of overlap in terms of these two industries and where they could go. Airlines are just more evolved in this space and they’ve done pretty good job of that. And I think with the more EV coming into the market now, I think it’s probably a good time for car companies, car brands, I should say. It’s like, how do you really lock people in with your brand, not just for their lifecycle, they’re buying a car now and another one in three years or whatever, but how do you keep them for 10 years, 20 years, how do you do that? How do you build an ecosystem around that? And I think some loyalty proposition, it may not be called a loyalty program, it might be called something else, but how do you create something like that and draw a lot of parallels from the airline industry that traditionally have done really well from this activity?

Chris Chiames (38:49):

Well, as you say that too, I’m thinking like, when you buy a car or lease a car and you choose to keep going back to the dealership for the servicing, that would be a perfect time to be able to accumulate points and the loyalty of the customer to want to come back for their next car at that same place too. So there’s some very natural touch points for an automotive customer, like you said.

Ben Baldanza (39:16):

You could be nasty in that too, in that you could offer lots of points for the first couple of years you own the car and then start reducing the number of points as the car gets older to give you an incentive to come in and get a new car.

Mark Ross-Smith (39:34):

That’s pretty nasty.

Ben Baldanza (39:40):

Well, Mark, we really appreciate having you here. And like some of the innovative ideas you talk about, as the world the way it’s existing or evolving post pandemic suggests there’s going to be more leisure travel as a percent of total or more blended trips bleisure as you called it, things like that. So finding ways for these programs to be relevant to a broader group is really a good idea, and you had some very good ideas in that. Thank you so much, and best of luck to StatusMatch too.

Mark Ross-Smith (40:20):

Thanks guys, it’s been a lot of fun, I appreciate your time.

Ben Baldanza (40:23):

We’ll be right back with more Airlines Confidential in a moment.

Speaker 1 (40:27):

This portion of Airlines Confidential is sponsored in part by AeroData, the leading edge in flight performance data, visit aerodata.co, AeroData is a Garmin company.

Chris Chiames (40:41):

Thanks again to Mark Ross-Smith for his time on this week’s show. Now it’s listener question time, please keep your questions coming via email @[email protected] or visit airlinesconfidential.com and follow the prompts to submit your comment or question.

(40:57)
Ben, we talked a bit on last week’s show about the US DOT fines levied on five airlines for not issuing refunds as well as the confusing nature of refunds and airline credit rules. Blair from Pittsburgh has written us again about her frustration with American Airlines flight credits, hi, Ben and Chris, following up for my comments in August, it’s still next to impossible to use American Airlines travel credit due to hidden rules. This time, A will not let me use travel credit for a child, same as before, no one knows the rules, each representative gives a different answer. DOT regulations offer no protection here, booking a flight now takes all day.

Ben Baldanza (41:41):

Chris, I’m sorry about this to Blair, but I’m going to have to call this a wine and let me tell you why. When I read this complaint, I just googled American Airlines flight credit rules, that took me to a link on the American Airlines site that in very clear print, nothing hidden at all, said that the credit can only be used in the name of the person who earned the credit.

(42:16)
Now, that may be an unfriendly rule, customers may not like that rule, but it’s not hidden and I don’t think it’s surprising to me that American tries to keep it that way. So I’m not saying that I like the American rule that they’re so restrictive with the flight credit, but it’s not true that it’s hidden. And I’m surprised they would give you different rules each time when I was able to find the rule literally in under about 10 seconds. So I think American stuck to their rule this time, I get why you didn’t like it, I get why many people wouldn’t like it, but I don’t think it’s a hidden rule thing. So I’m going to call this one a wine. Chris, am I being too mean at a holiday time?

Chris Chiames (43:13):

No, when I saw this question come in, I thought the exact same thing, which is, a flight credit is generally only for the passenger involved. Vouchers when you’re voluntarily bumped and you offer to get off a flight and take that offer at the gate, many times those vouchers are transferable, so there’s sometimes consumer confusion. And I think Blair also got caught up a bit in so many new employees, especially in reservations, that they’re going to sometimes unfortunately give differing answers or wing it and they’re doing their best, but that’s unfair to the customer when they can’t get a straight answer. So I’m with her on the frustration level, but someone should have been able just to answer her question.

(44:07)
I’ve experienced it recently a couple of times where I thought I had a pretty simple request like my wife and I on the same P and R and we were going to have to change travel plans. So I went to split the P and R and they just turned our reservations upside down in the context of moving us from one class of fare to another. And when we looked back on our aa.com apps, it was very confusing what had happened until we sorted it out. But again, I was a little frustrated, but then I also could tell this was a new agent just in our conversation and I was doing my best to walk her through what I needed, but it didn’t go very well.

Ben Baldanza (44:54):

Chris, Annie from Colorado wrote in about a Frontier Airlines naming convention, she asked, Frontier recently transformed it’s the airport customer service department into what it now calls the airport sales and operations department, what do you make of this change?

Chris Chiames (45:19):

Ben, I couldn’t tell from this question if Annie’s a frontier employee or a customer, and I don’t know if that shades the purpose behind the question. Look, they can call the department whatever they want, I wonder how many people were involved in sitting around debating the same change. One of my first reaction though is, airport sales in the name of the department, and does anybody actually buy a ticket at the airport anymore? That just suggests that airport sales is a thriving part of the operation when in fact it’s really about customer service and airport operations.

(46:03)
But that being said, I thought the more interesting thing, this probably was announced after Annie wrote us, was Frontier announcing this past week that they’re going to eliminate telephone customer service and rely only on chat and bots and texting to respond to passenger inquiries. So they’re not the first major customer facing company to do this, my guess is, airline customers aren’t fully ready for this, but sometimes they have to be dragged kicking and screaming into the next wave of future technology. I know when kiosks were put in place and other kinds of things, some people had some issues with that, but the combination of this airport name change with the elimination of telephone customer service, I thought was an interesting combination. Ben, what did you think?

Ben Baldanza (47:00):

I thought it was interesting too. Now I will mention, Chris, that Frontier like Spirit before it, does make your ticket cheaper if you buy it at the airport because they assess a fee when you buy it online that the only way to avoid that fee is to buy the ticket from the airport. So it’s possible that Frontier does see more sales at the airport from that. If someone’s really trying to save a little more on their ticket, they might have more of that there. I don’t think that had anything to do with the change in the name of the department however.

Chris Chiames (47:47):

But Ben, I got to ask you, it shows my ignorance because I haven’t flown Frontier or Spirit in a very long time, but what’s the extra fee to buy online versus the airport? Why would somebody drive to the airport and incur the cost of parking and the extra hour to get to and from an airport? Airports are not like down the street, who really does that?

Ben Baldanza (48:12):

Well, I’m sure many of our listeners might know the exact answer to that. Last time I looked, I think Spirit called this the passenger usage charge, which wasn’t a particularly helpful name and you can blame me for part of that because it came about when I was there. But at the time, that I think was $7 and 95 cents a person assessed for a web or other way to buy a ticket and you could save that fee, which according to the DOT rules, if it’s required to buy, it has to be in the advertised fare, but if it’s not required, it doesn’t have to be. So creating that loophole, if you will, that you can avoid the fee by buying at the airport allows airlines like Spirit and Frontier to not include that fee in the advertise fare. I don’t think a lot of people do it, but if you want to save the most money you do, and so my guess is that a bigger percentage of customers at Spirit or Frontier buy at the airport than every other airline because of that.

Chris Chiames (49:36):

Well, I stand by my comment that I don’t know who would want to do that, but I guess somebody does.

Ben Baldanza (49:42):

Well, if I can tell you one of the funnier stories when I worked at Spirit that might open your mind a bit on this, Chris. There was a customer who got arrested at the Fort Lauderdale Airport because she was parked in the no parking area in front of the terminal. And apparently, the local police had asked her to move multiple times and she was frantically working at her laptop and didn’t move. And ultimately, they ticketed her and they asked her why she didn’t move. And she said, well, if I check my bag online, it’s $6 cheaper than if I go to the ticket counter, so I was trying to get my bag checked. And so that’s the person that would go to the airport to save the 7.95, Chris.

Chris Chiames (50:40):

I’m not going to say anything else, I’m just not going to. Let’s squeeze in one more question, Willard from Rhode Island wants to know our favorite airline jokes. I’m going to go first, what did the football player say to the flight attendant, Ben?

Ben Baldanza (50:55):

I don’t know, what did the football player say to the flight attendant?

Chris Chiames (50:59):

Put me in coach.

Ben Baldanza (51:01):

Well, mine is going to be, I asked the flight attendant if I could be moved because of the crying baby next to me, but apparently, you can’t do that if it’s your baby.

Chris Chiames (51:20):

It’s really time to go after all that. My original shutdown shout-out was going to be to SAS Airlines, which is flying the world’s longest narrow body flight right now, 4,074 miles from Copenhagen to Washington Dulles. But my real shout-out has got to be the Michigan Wolverines for beaten the pants off of the Ohio State Buckeyes last weekend, big win for the blue, very excited. And there is an aviation connection because that school turns out really great aeronautical engineers, so go blue and you know who I’m rooting for here.

Ben Baldanza (51:59):

Two good shout-outs there, Chris. Well, my shout-out, as I mentioned earlier, is to another ranking, and this is to the Star Alliance for winning Skytrax rating of the best alliance. Now, there are basically three big alliances out there as we all know, and we also all know that they try to do largely the same thing. And depending on where you’re going and where you’re starting and going to, one Alliance might make more sense than another.

(52:36)
But I was impressed with Skytrax methodology, and they looked at a whole range of things that people expect from the Alliance. Something as basic as connecting your bag when you’re fined partner airlines, and something even a little more subtle that the customer knows which ticket counter to go check into when they arrive at an airport. And with all those things they looked at, they felt that Star just did this better than Sky Team or One world. And so my guess is that Star has spent more time on these things. So my shout-out goes to Star for making it even a little bit easier for customers who are fined around the world on different airlines to just understand what’s going on.

Chris Chiames (53:30):

Well, with that, we’re going to shut this down. Thanksgiving’s behind us onto the holiday rush, everybody be good out there, and thanks for listening.

Ben Baldanza (53:38):

And thanks again to Mark Ross-Smith for some great insights on loyalty, and we hope to see you all next week on Airlines Confidential.

Speaker 1 (53:49):

This podcast is produced by Mass Media, [email protected].