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travelandhopitality

Since the pandemic, airlines and hotels have taken a huge kick to the stomach. But now, it seems they can’t get out of their own way. Delays, poor service, and inadequate staffing, all in the face of massive demand and booming revenues. The result? Record low customer satisfaction and defections.

Joining us from Singapore is Mark Ross-Smith, founder of Travel Data Daily and CEO of StatusMatch. Mark has 20 years of experience leading loyalty programs in telecom and travel, most recently at Malaysian Airlines. In this episode, he explains why loyalty programs are not only hugely valuable to airlines, but are in some cases THE value, with important lessons for marketers everywhere. Listen in as Mark explains the extraordinary power of loyalty programs and the financial benefits of “selling the dream.”

Speaker 1 (00:02):

Welcome to WVU Marketing Horizons, hosted by Ruth Stevens and Cyndi Greenglass. We’re grateful to WVU, who offers renowned online master’s degree programs in marketing communications. And this series is presented by the Reed College of Media as part of their ongoing marketing series. Thank you for joining us today.

Cyndi Greenglass (00:25):

Ruth, I don’t know about you, but since the pandemic, the airline and hospitality industries have just taken it on the chin and traveling has just become increasingly more difficult for all of us. And it’s been a real kick in the stomach between the delays we’ve had, the poor service, the lack of staffing, too much demand as we all decided to get back out there and fly. And we’re seeing unprecedented low customer satisfaction and defections. And we’ve been really fortunate that joining us today from Singapore is Mark Ross-Smith, who’s an author and founder of industry news site Travel Data Daily and CEO of StatusMatch. Mark has 20 years experience leading loyalty programs and telecoms and travel most recently Malaysian Airlines. So what do you think, should we invite Mark onto our show?

Ruth Stevens (01:25):

Isn’t that interesting? Hi Mark. Thanks for joining us.

Mark Ross-Smith (01:29):

Hello. It’s fabulous to be with you today.

Ruth Stevens (01:32):

Lovely. Well, we have a million questions about the airline business from a marketing perspective. Why is it as bad as it is today? And is there any hope of emerging out of this from a marketing perspective? Let’s hear it.

Mark Ross-Smith (01:52):

I don’t know what you’re talking about. Low satisfaction. Yeah. Flying is fun today. Don’t you like delays? I love them.

Ruth Stevens (01:58):

And cancellations.

Mark Ross-Smith (01:59):

Oh, low staff, cancellations. This is the best time to be alive. To your point, obviously the last few years have been pretty challenging for airlines, especially early on 2020. If we fast-forward today, a few things have happened, specifically today… Well, actually no, let’s rewind to mid 2020, 2021. Because there’s something really interesting here specifically on loyalty marketing. And that’s the airline loyalty programs, which we all know is collecting your miles and your status and your points and your free seats, that kind of stuff. All the airlines were, especially the big US airlines, they published their financials specifically from the loyalty program, not just the airline selling seats, but the loyalty program. And this was the first time the world really got a glimpse inside, under the hood of how it all works, all the financials. And the airlines were disclosing this because they had to because they were using it as collateral to secure government loans, obviously to survive. And what we sort of discovered is that these loyalty programs, wait for it, are worth more than the airline itself.

Cyndi Greenglass (03:07):

Oh my God.

Mark Ross-Smith (03:07):

Right. So suddenly it’s not this little marketing division that you have at an airline, suddenly it’s a marketing company that has a flying metal tube division.

Cyndi Greenglass (03:20):

I love that.

Mark Ross-Smith (03:22):

It’s the other way around. Right? There was one point, American, United, Delta, all their loyalty programs are worth anywhere between 22 and $30 billion.

Cyndi Greenglass (03:31):

Wow.

Mark Ross-Smith (03:31):

At the same time, the market cap of the airline was, of all three, somewhere between eight and 12 or something. So the loyalty program itself just worth more, obviously needs the airline to survive to hold that value, but it obviously used that as collateral to secure loans and some of those have been paid back and, you know, everyone’s happy. So keep that in mind. Fast-forward to today, and airlines, they’re totally creaming it, basically. They’re making so much money. I think it was United that said they had the highest revenue in history, last quarter I think it was? This is a combination of revenge travel and what they’re calling bleasure, which is a mix of business travel and leisure travel.

(04:15)
You might have seen some of the latest British Airways marketing campaigns. These are on billboards and stuff throughout the UK. It says things like, “Why are you traveling?” It’s got three check boxes. It says business is one, leisure is one, and the other one is to file the divorce papers. Or it’s always this quirky third option because sometimes when we travel, it doesn’t always fit into a box. It’s not always leisure, it’s not always business. It’s something else. You know what I mean? And so I think we’re starting to see airlines put… I mean, they’re just making so much money right now. Some of them are starting to reinvest that into quirky, innovative, new marketing campaigns because this gravy train of high yields and a lot of cash coming isn’t going to last forever. As we’ve learned throughout the last century of flight there’s ups and downs and airlines are pretty good at trying to smooth that out.

(05:14)
And they realize that this isn’t going to last forever. So you need to invest in what we’ll call the next… The fliers of tomorrow, we’ll call it, or six months from now, 12 months from now. So we’re starting to see a bunch of really cool innovative marketing offers come out because of that.

Cyndi Greenglass (05:30):

So who’s doing it really well? Can you give us some good examples of good loyalty programs, in your mind?

Mark Ross-Smith (05:38):

So airline loyalty programs have been referred to as the greatest marketing invention of all time. As Gary Leff, a blogger from View From The Wing, he said this, it was probably a decade ago. And that’s because in airline loyalty, they make a lot of their money from selling miles to banks.

Cyndi Greenglass (05:57):

Yeah, for credit cards.

Mark Ross-Smith (05:58):

Yeah, exactly. So you’ve got your credit card, you swipe your card. Every time you do that a bunch of people are making money, very small amounts on every transaction, but effectively your bank is buying miles off the airline and putting those miles into your account, your loyalty account. The airline sees that as cash up front, as revenue straight away. That just sort of sits in their back pocket for a while. They might use it to buy some stuff. There’s some accounting stuff for there, but basically they use that as working capital. And what means you’ve got the cash up front. You might not redeem these miles for what, 2, 3, 5, 10, 20. Some of these miles never expire anymore. Right? Yeah. So think from a loyalty perspective, how do you keep people engaged If their points never expire, you earn them today, as long as you have some activity, 10 years later they’re still there.

(06:49)
You’ve got this, quote, liability, which is not really in airline world, it’s actually an asset, that at some point someone’s hopefully going to redeem for that flight to, there’s a lot of aspirational sort of logic in this where you collect your miles, I’m going to redeem this for a first class flight to Paris one day, or whatever. There’s that romance around collecting miles that I think the marketing part of the airline does really, really well. They sell the dream, they sell the beaches, they sell, you know, you can go to Tahiti and look at the over water bungalow and you can swim with the dolphins and that’s what they sell. But actually they just want you to spend on your credit card.

Cyndi Greenglass (07:30):

Yeah, isn’t that the truth? You know, you said something interesting there. Well, everything you said is really interesting. And being a data geek, Ruth and I love data and looking at loyalty programs and how they’re making more money than ever, but it’s very spiky. They like to pull on our heartstrings that they’re having such cash problems when oil prices go up and we’re not traveling and we should feel sorry for them. And then all of a sudden they’re making too much money. So are they managing their business and managing and using data about the customers and flyers much better than they let on. And they’re just making us think that they’re not as good at managing their business through these ups and downs.

Mark Ross-Smith (08:15):

So I’ll give you a real world example on airlines and personalization. So I booked a ticket a couple of days ago with a pretty well known big name airline, and I’m a gold member with this airline. So I get a bunch of perks like priority boarding, free seat selection, free bags. I’m treated like what I call business class customer even when I’m traveling coach. And so I’m booking this ticket, I’m halfway through the booking process and I am keeping in mind that airlines, they talk a big game when it comes to big data and AI and personalization. And so I’m logged into the airlines website at this point so they know who I am. They’ve prefilled my name and my email, all that kind of stuff. And then I get to this page and it says, you can pay to select a seat. And I’m like, hang on, hang on, I get free seat selection.

(09:07)
And it was trying to upsell me to a slightly better coach seat. That’s really where it was going. And I thought, no, this is not true because I know if I call the airline, I get this for free anyway, with that aside. But then the next upsell below that was, would you like lounge access for your children? And I’m thinking, hang on a sec. My five-year old’s not counted as a guest in the lounge because five-year-olds don’t go into lounges and start drinking champagne. They sit in lounges like good children and, well hopefully they do. Mine do, sometimes.

(09:44)
And on top of that, this was a connecting flight through one city to another. And the airline said, do you want a hire car for your destination? But it got the destination wrong. It was actually my layover city, I was there for two hours. Why do I want a car [inaudible 00:09:56] this city for two hours? So in some ways, airlines have a lot of really cool stuff going on. And this is a real world example where I think I’m going to guess every single person listening to this podcast has gone through a similar scenario where you’re being tried to be sold something. So instead, the airline could have been selling me earn triple miles for this flight. Some [inaudible 00:10:19], remember I like collecting miles cool. Or sell me a VIP meet and greet or something, something that I’m willing to pay for. Because in the airline loyalty marketing world, if you’re a silver, gold, platinum, if you’ve got status with an airline, you are already in the top 5% of global travelers in terms of value to the industry.

(10:42)
These people combined represent, in airline, about 30 to 50% of ticket sales to an airline in terms of revenue. So as a group, these are the single most valuable people that you can possibly get to travel. And here they are trying to flog their car rental for two hours in the connecting city.

Ruth Stevens (11:04):

So maybe as data driven marketers, they need to go back to school, it sounds like. Or they need some training in customer experience marketing and management.

Mark Ross-Smith (11:19):

In some ways, yes, in that example, yes. There’s some other cool things they do. I’ve seen airlines use astrology data to send marketing emails to people knowing that they’re going to open it based on certain numbers that people see in the subject line. I’ve got to say, I’ve had some Asian aunts who see that as actually pretty cool. It worked as well. The click rates go up, the opening and click rates on the email do very well.

Ruth Stevens (11:42):

Numbers, certain numbers in the subject line?

Mark Ross-Smith (11:46):

Like numerology and life path numbers and stuff. In this part of the world, because this is a big thing. So it’s not for everyone and it’s not for big groups of population, but for those that they targeted, yeah, it could be pretty effective. It’s like your soul was attracted to this number and therefore you see the number and think, “I’m going to click it.”

Ruth Stevens (12:06):

Wow.

Mark Ross-Smith (12:06):

Subconsciously, without thinking about it.

Cyndi Greenglass (12:11):

Well, we’ve seen a lot about the behavioral economics and we’ve actually had a couple of guests who’ve been talking about the psychology of marketing and bringing more of that-

Ruth Stevens (12:21):

Good point, Cindy.

Cyndi Greenglass (12:23):

… Behavioral psychology into our marketing and communication. So why not? If it works, I think that’s great. So Mark, if the industry is something we love to hate, we love to hate the airlines. We can’t do without them, and they are important to us to get around, whether we aspire to it or we just want to get to Cleveland because we have to. Do you think that the airlines can overcome this negative customer satisfaction? Do they even feel they need to or because we depend on them, they can basically behave how they want?

Mark Ross-Smith (13:00):

I think that’s the right question. Do they need to, do they want to? Because today they’re making more money than they ever have. And if you’re doing so well, there’s… It’s kind of like you’re an Olympic athlete and you win the hundred-meter sprint, you get your gold medal year after year after year. You don’t think, “Why did I win?” I mean, you’re kind of, “I know why I won.” But it’s the guy that came second or third, fourth, or girl, they’re thinking, “How can I win next time?” They’re more eager, they’re more keen to try new things, to do new things, to improve, well in airline terms, improve the customer experience to just do different stuff because they’re the competitor, they’re number two, the number three. They’re trying to be number one, they want to be number one. But when you’re number one or you’re making just so much money, it’s like, “Well, do I need to do that?” Some airlines have had their airline lounges closed for a long time or it was under catered or even worse, there’s lines to get into some of these lounges.

(14:09)
I think it was Delta, someone had put photos on online about, it was like a two-hour wait to get into the lounge and then the people in the lounge were coming down the line giving bottles of water and stuff to people while were waiting to… Now keep in mind, if you can get into a large, presumably you’re in that top 5%. These are the people, you can’t mess around with these people. You know what I mean? If someone’s, I’m making it up, if someone’s flying 20, 30, 40, 50 flights a year with you, they’re spending what, 5, 10, 20, 50,000 bucks with you. This is a really good customer. How much does it cost to replace that customer or someone else of equivalent value? A lot, I can tell you.

Ruth Stevens (14:49):

A lot. Yeah. I’m so intrigued that with your point about how the loyalty programs have become a larger source of profits than the commercial part of the business. Does that mean that the loyalty program managers, who are fundamentally marketers, have more status internally than they used to have? Is this an area where careers are built? Are the heads of the loyalty programs becoming CEOs of airlines? What’s the kind of organizational or career outcome of this revelation that the loyalty programs are the source of profits?

Mark Ross-Smith (15:45):

This is one of my favorite topics. You’re totally right. I published an article a while back called Loyalty is a C Level Role. And it’s all about, exactly to your point, in the airline space, especially hotels somewhat, loyalty, it saved the airlines basically. It saved them.

Ruth Stevens (16:05):

It sounds like it.

Mark Ross-Smith (16:06):

It makes so much money and it’s actually sustainable revenue and profits, this isn’t just something happened the last two years. Airlines have been making this kind of money for 20 years. This is not a new thing. And I talk about if loyalty programs are so important to these brands, why are they not represented on the board? Why is there not like a CEO of loyalty or a chief loyalty officer, a C-level role, basically? Because that’s effectively what it is. These people should be promoted within the organization. In airlines, they have had more of a voice definitely in the last few years, had a lot of scrutiny on you obviously, because suddenly you’ve got all the CFO’s going, “Hang on, we’ve got this loyalty thing. What are these points and miles again, I don’t really…?”

Ruth Stevens (16:52):

But they’re waking up.

Mark Ross-Smith (16:54):

That’s right, because that bank paid us X million billion dollars last year. Yeah, okay. Some of these, when I talk about they’re being profitable, American Airlines published in one of their early papers, Their SEC filings, that the gross margin on selling points was I think 72 or 73% net margin 50-

Ruth Stevens (17:17):

Wow.

Mark Ross-Smith (17:18):

… Something percent, it was. 50%. Net margin is pretty…

Ruth Stevens (17:22):

Unbelievable.

Mark Ross-Smith (17:24):

Or think what they make on margin on it’s selling a seat for you to fly across… It’s nowhere near that really. So loyalty’s… Let’s replace the word loyalty with marketing for a second because that’s really what it is. It’s really a marketing program. We just call it loyalty so people don’t really know what it’s doing, just distracting with smoke and mirrors. But yeah, you’re right. The loyalty programs are worth a lot of money. And I think if I was not working in airline, if I was marketing in say, another industry, I’d be looking at the airline industry and going, “What could I copy from them? Because they’re doing something right and what are they doing that’s right?” And a lot of that, I think, I’ll give you one bonus tip here, I think is around emotional connection. So airlines really pull those heartstrings, you look at all the really good airline advertising is out there. You look at how they promote their loyalty marketing programs. Like I said, it’s all about beaches and connecting, seeing family, again, this kind of stuff. How can you tap into that?

Ruth Stevens (18:38):

So Mark, if loyalty marketers inside airlines have generated more status or are having more fun now that it’s demonstrable that they’re driving so much of the revenue and profit, do you recommend to young people that they go into this field as a career?

Mark Ross-Smith (19:02):

Into airline loyalty marketing? I mean, yes. Yes. That’s an easy check that box. Think about travel in general because that’s what airline loyalty, travel loyalty marketing does. It inspires you to think beyond your city or your town. It gets you to dream big. You start looking at night markets in Hong Kong, and you start looking at the Great Wall of China and the pyramids in Egypt and all this kind of stuff. And it gets you thinking. You go, “Oh gee, I’d really like to go there. Haven’t been able to go the last couple of years because of whatever reason, but now potentially I can again.” And as humans, we have this innate desire to explore and see and do things. And so the world of travel is never going away. If anything, it’s only going to grow the more people there are on this planet and the more income we have, we’re just going to spend more of it on travel and new experiences and adventures and all this fun stuff that we’re potentially born here to do.

(20:11)
So we look at it in terms of how do you market that experience? How do you get people to get out there and go see things? I think this ain’t going away. If anything, this is going to grow. This is a fabulous industry to be in because ultimately when you’re in a travel marketing space or a role, you’re bringing magic to people’s lives, you’re bringing new experiences. You’re bringing spark to something new, memories that they can then build on and tell their friends and family and put them on Facebook and Instagram and take selfies in first class and all this kind of stuff. So you’re basically just brightening up people’s lives and who wouldn’t want to be in a career where you can do something like that.

Ruth Stevens (21:00):

Wow.

Cyndi Greenglass (21:02):

That’s awesome. Thank you, Mark.

Ruth Stevens (21:05):

Fantastic. Thanks for joining us today, Mark.

Mark Ross-Smith (21:07):

It’s been a pleasure. Thank you.

Ruth Stevens (21:10):

Cindy wasn’t that amazing. Who knew that loyalty programs, in airlines at least, are more valuable than the underlying business itself. And how funny that we’ve only found this out thanks to COVID, because in order to get bailout money the airlines had to reveal those finances. So here we are, of course you and I are also flyers and users of these programs. And gee, this is something that we didn’t know either as marketers or as business people.

Cyndi Greenglass (21:51):

As we said, this is the industry we love to hate, but we do feel sorry for them with rising fuel costs and inflation and you know, and we tend to say, “Oh, their model must be really tough and there’s low margins in the business.”

(22:04)
And wow, that was an eye-opener. Also, just the people that run those loyalty programs should be the king and queen. My goodness, they should give them any perk they ever wanted. I mean, they’re making that business happen.

Ruth Stevens (22:21):

But didn’t you get the impression from his point about having written an article called Loyalty is a C Level Role, that they’re actually not really getting the propers that they deserve yet?

Cyndi Greenglass (22:34):

Sure sounds like it. This may be another situation where us as marketers don’t get the seat at the table. Do they realize how valuable they are to the institution? Are they aware that they are driving the financial profitability of the firm and they should be flexing their financial muscle? Are they speaking in financial terms, or like most marketers, are they still doing the soft conversation about things that companies are not as interested in?

Ruth Stevens (23:06):

Yeah, satisfaction and loyalty?

Cyndi Greenglass (23:10):

So it was interesting that we need to look at who are the flyers of the future? Who are the consumers of the future? Take that concept against all other loyalty programs as well. And Ruth, when you get to thinking about a career, my goodness, this looks like a place that we certainly would want to recommend that our listeners consider is careers in loyalty, whether it’s airlines or other.

Ruth Stevens (23:38):

Indeed, it’s really eyeopening, especially that point he made toward the end of the conversation about how this industry is now proven to be really successful and, in the airlines at least, those of us who want to be effective in retention and loyalty marketing should be looking at these airline programs as a model for picking up principles and examples and ideas and breakthroughs in how we can encourage our retention marketing to be more successful. Wow. It’s a role model for us.

Cyndi Greenglass (24:29):

That Would Be Enormous. Copy what they do, because they’re certainly doing well, I agree. And when he was saying some of these statistics that were so remarkable that if you are in a frequent flyer program, if you’re in a traveler loyalty program, you represent the top 5% and that top 5% is 30 to 50% of all ticket sales. And this is classic Pareto, right? Pareto principle-

Ruth Stevens (24:55):

Indeed.

Cyndi Greenglass (24:55):

The 80/20 rule. 80% of your business comes from 20% of your customers.

Ruth Stevens (25:00):

So yeah, that means they have an opportunity to treat them even better and consider them. When a status person walks into the lounge or the airport waiting room, they should be treated like gold.

Cyndi Greenglass (25:21):

And even when you abuse them and treat them poorly, they still are the top tier. So again, extrapolating that to other loyalty programs, regardless of what industry or business, if you have a loyalty program, you should be looking at how you treat that top 5, 10, 20%.

Ruth Stevens (25:44):

Indeed. And of course as status flyers ourselves, sometimes we don’t feel that we’re getting the treatment that we would like. But that relates to another point he made that I found kind of scary and depressing, that now that airlines, post COVID, are making money hand over fist, despite the general dissatisfaction of flyers today, they seem to have no incentive to try to fix things, at least for the time being. Darn.

Cyndi Greenglass (26:21):

That’s For sure. I know it’s not going to get any better for any of us. How depressing is that?

Ruth Stevens (26:25):

Yeah.

Cyndi Greenglass (26:27):

There isn’t a need.

Ruth Stevens (26:29):

Yeah, there isn’t a need. I also loved his point about how they’re really selling a dream when it comes to airline advertising and marketing communications. That’s inspirational for us too. That it’s less about the functional benefit or outcome, it’s about the emotion.

Cyndi Greenglass (26:57):

Yes.

Ruth Stevens (26:57):

And boy, he got quite thrillingly grandiose about it at the end, saying travel is magical and it expands our lives. In fact, he even at one point said, it is the meaning of life. Whoa. And that’s something that we can all take away as how do we make our businesses dream worthy?

Cyndi Greenglass (27:28):

Yes, yes. And bring magic into people’s lives or help them see it as aspirational, tug at the heartstrings. Even we’ve seen even Nest or the company that does the thermostats and the security cameras, you turn it. We said, “Oh, it’s for keeping away burglars or for peace of mind.” And now how they’re using it to be more aspirational and, “I can use it to have this wonderful environment and this feeling of home sweet home.” So I mean, there’s lots of ways we can do it no matter what your product is. I think that was a good point that we should remember is how do we make what we do more meaningful to individuals and bring that little bit of magic into people’s lives.

Ruth Stevens (28:24):

And that loyalty programs have been called the greatest marketing success of all times. Wow. This category deserves more attention from us marketers, I think.

Cyndi Greenglass (28:38):

It sure does. Well, thank you, Ruth. This was a great opportunity to speak with Mark and to speak with you.

Ruth Stevens (28:45):

Thank you.

Speaker 1 (28:46):

You’ve been listening to WVU Marketing Horizons, hosted by Ruth Stevens and Cyndi Greenglass. Please be sure to visit go.wvu.edu/mc today to view our upcoming conversations, listen to previous discussions and subscribe [inaudible 00:29:07].