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Merged Media Podcast

 

The Merged Marketing Podcast unlocks the marketing tactics and secrets behind every day brands. Each week, Jason brings you expert commentary from his guests so that you can make informed decisions when it comes to growing your business online. Thank you for listening, and let the storytelling begin!

In today’s episode, we are dissecting whether airline loyalty businesses are worth more than the airline itself. My guest today is Mark Ross-Smith, a tech entrepreneur in the airline industry.

Loyalty business is proving increasingly profitable, with the value of some mileage sales surpassing that of the core operations. Recent research findings indicate that loyalty programs bring upwards of 50% of airline income of the airline’s total revenue.

Jason Hunt (00:00):

You are listening to the Merged Marketing Podcast with me, Jason Hunt. The mission with this show is to discuss all things marketing, sales, and mindset. It’s my hope for entrepreneurs like you to get the most from your efforts so that you can focus on what you do best. Let’s go.

(00:23)
In this episode of the Merged Marketing Podcast, we pose a question and that question is, “Are airline loyalty businesses worth more than the airline itself?” My guest on today’s episode is Mark Ross-Smith. This is an awesome conversation with Mark where we dive into loyalty programs for airlines. And this is a relevant episode for anybody interested in a loyalty program for their business or any frequent traveler out there because you might get some pretty good tidbits of information on loyalty programs that you can take advantage of if you’re a frequent flyer.

(00:55)
Mark ‘Mr. Loyalty’ Ross-Smith is an award-winning global airline loyalty industry leader. He’s the CEO and co-founder at Loyalty Data Co., the parent brand of StatusMatch.com. He has 20 years of experience leading loyalty programs in telecoms and travel and most recently at Malaysian Airlines. Without further ado, let’s kick to my chat with Mark. Mark, welcome to the show.

Mark Ross-Smith (01:19):

Good morning from Malaysia. How are you?

Jason Hunt (01:21):

Good evening from Toronto, Canada. Doing pretty good on this side of the globe. Mark, maybe you could start off by telling us a bit of your journey into being a aka Mr. Loyalty.

Mark Ross-Smith (01:32):

I’m a bit of a tech entrepreneur. In the last 20 years, I’ve started a couple of businesses, sold a couple and others have not done that well and learned, we’ll call them expensive lessons. And running these business that time, obviously I was traveling a lot, so a lot of events, meeting people, doing conferences, speaking, that kind of stuff and really, really started to enjoy the travel side of things.

(01:54)
And so when I sold a business in 2013, it was a great deal. It was like a cash sale, walk away, no exit, really, really easy. And at that point I’m unemployed, what do I do now? And I thought, I need to work for an airline because I need cheap flights. That was like my new life mission is to not pay $10,000 for a flight, but instead a hundred bucks first class kind of thing. That was the big dream. That kind of kickstarted the journey into where we are now where we’re now sort of running a company called StatusMatch.com. We work with a lot of airlines.

(02:24)
Prior to that I worked for Malaysia Airlines in Malaysia running their loyalty program. And it’s kind of one of those things where it’s something that’s been in the back of your mind for a long time and you kind of really want to get into it. Passion’s probably the wrong word, but it’s sort of in your DNA. You know you need to do it at some point in your life and there’s something that’s just driving you to want to go do it. And that’s where we are now.

Jason Hunt (02:49):

That’s pretty awesome. I mean, who doesn’t want to get into discount airline travel as a perk for the business that they’re in? That’s pretty awesome. I mean, for me personally, I’m all about finding the cheapest flight as possible and I will spend a couple extra hours, maybe even a layover in a city to do it.

(03:07)
A great example of that is I’m going to Lisbon next month and I got a direct flight to Lisbon. We’re about 500 bucks. Now, if I wanted to get return from Lisbon to Toronto, we’re looking at close to $2,000 now, which is insane. So I bought that one way ticket to Lisbon and then I got a return ticket going through London, Gatwick, for super cheap because if you’re in Europe, anywhere you want to go in Europe is crazy cheap. And then I got a flight back from Gatwick back to Toronto and the total cost end up being 1300 bucks. But I get to spend a night in the Gatwick Airport in the capsule hotel and I get to check out a rugby game at the same time, all for cheaper than the cost of a direct flight to begin with.

Mark Ross-Smith (03:43):

Yeah, so the flights are cheap, but everything else costs an arm and a leg. Sometimes it’s just worth it. Just suck it up and go through Heathrow and just pay the extra and keep life simple. How long did it take you to plan that trip?

Jason Hunt (03:57):

Plan it? Man, I love the planning aspect of a trip. It’s my favorite part. So I had eight different trips on paper, all different sporting events I was going to be checking out and then I narrowed it down to that one there. But why do you ask?

Mark Ross-Smith (04:11):

I was going to say they let you sit five hours, 10 hours, and then how do you value your time? If a direct flight was say 2,500 bucks and you’ve saved a thousand, you’re effectively valuing your time at what? Hundred hour or something, yeah, whatever it is, right?

Jason Hunt (04:26):

Absolutely but that’s why I’d say if I’m going to do it that way and save myself money, I’m going to value the time by having an experience. There’s no way I would just go to London and spend a night for nothing. I’m going to make the most of it. So I’m literally landing in London at like 3:45 and I’m going to be hopping on a train to Gtech Community Center, which is about a 50-minute train ride to catch a game at 7:30 and I’m coming back the next day. Plus, I sleep in a capsule hotel, which I think is pretty cool. And I get to document it on social media so all my followers can check it out too. So there you go.

Mark Ross-Smith (05:00):

Awesome.

Jason Hunt (05:00):

So tell me something, I have a question for you. I know we’re digressing here, huge, but I don’t mind and I hope you don’t mind either, Mark, but why do you Heathrow so much more than Gatwick?

Mark Ross-Smith (05:09):

It was just easier. When I’ve gone into London a bunch of times, I’m connecting somewhere else, there’s just more options, more airlines that fly there. If you’ve got lounge access and things like that at the airport, obviously there’s more options there. If you got layover there, call it two or three hours or whatever, you want a good lounge somewhere with something bubbly to drink and something nice chairs and food and stuff and it’s more. I just find more options there. It’s slightly easier to get in and out of Central London as well.

Jason Hunt (05:36):

Being in a lot of airports throughout the world, has there been one airport that stands above the rest in terms of the quality that you speak of?

Mark Ross-Smith (05:43):

Singapore Airport is pretty good. I spent 24 hours in Singapore Airport once, not even in the hotel, in the terminal, just chilling on the seats and sleeping overnight. And I thought this would be an experience. Actually, come to think of it, I’ve done this in quite a few airports, sleeping on benches in 3:00 AM and the cleaners come along and, “Excuse me, sir. You have to move on now.” Maybe a few too many of these.

(06:04)
No, Singapore airport is fantastic for this stuff. You know, you don’t even need lounge access at Singapore. They’ve got everything there. It’s like cool movie cinema, tons of food options. It’s a really nice, really, I think it’s World Best Airport voted many, many, many years in a row. So big fan of flying in Singapore Airport, I think.

Jason Hunt (06:18):

You get access to a movie theater at the airport? That’s insane. That’s awesome.

Mark Ross-Smith (06:23):

Yeah, it’s yeah, free. Anyone can go. You just walk in. I mean it’s just that one sort of movie just playing and repeats or goes and you got to be in the right terminal for it and it’s a huge airport.

Jason Hunt (06:33):

I was recently in Vegas and I purposely basically, I had a flight at seven o’clock at night and I got to that airport at around 10 o’clock in the morning just to access that lounge ’cause I had to work all day. And the Vegas, Las Vegas Airport lounge I thought was great. It was awesome. But I mean in terms of that customer service that you can expect from lounges, maybe you can offer, I think this is a great segue to our conversation is how can an airline business best leverage those lounges? How are you seeing it being done to increase that loyalty for an airline?

Mark Ross-Smith (07:03):

Lounge access is something people, a bunch of, a segment people will aspire to. They value a lot and people will choose certain airlines if they have lounge access with that airline or not. It’s a driver of business because you got to think about it, flying can be a pretty average experience, especially in North America. Lounge access is about making it more bearable, taking some of the pain out of that experience. And so people trying to avoid all the long queues and you go on the terminal and it’s $25 for a sandwich kind of thing. People are just trying to avoid that kind of stuff. And it’s like if the lounge has some drinks, something to eat and that can save you 50 bucks in the terminal that you otherwise might spend and you get a quiet space, you’ve got a free fast wifi, you’ve got a more relaxing environment, you’ve got magazine, whatever, there’s a bit of a lure to it.

(07:48)
There’s a bit of a status symbol part to it as well. It’s like you’re going to fly somewhere and someone’s like, “Where are you going? You say, “Oh, but it’s like I’ve got lounge access, I’ve got access to the business lounge, I got access the first class lounge.” It’s like, “Ooh, la la you’re going on a fun trip.” And so that drives a lot of decision making for people when they fly. Hence, airline loyalty programs generally offer lounge access as part of the benefits for your gold, platinum, the higher levels as part of that, just to make it a little bit easier, a bit more comfortable for the traveler.

(08:19)
And it kind of then acts as a quasi recognition program. It’s about revenue protection at that when travelers that fly a lot, it’s about keeping their revenue with one airline as opposed to people spreading it across multiple airlines and fitting out their loyalty. But in terms of airline lounges, as some of our actually operators, separate businesses within the airline group and they can be quite profitable as airlines charge each other for people to go into the lounges. So I mean that’s a whole, that’s another podcast. That’s another 30-minute podcast by itself, talking about the business of lounge access and how airlines can make money out of that.

Jason Hunt (08:53):

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(09:28)
Let’s talk about the question at hand here, which are airline loyalty business is worth more than the airline itself. What’re your thoughts on that?

Mark Ross-Smith (09:35):

So what we saw in early 2020 when airlines are pretty screwed at that point, they’re all scrambling for cash. How do we raise money? How do we stay afloat, pay employees keep things alive? And what we really saw quite quickly is the big three US airlines secured government loans cured by their loyalty, the valuation of their loyalty program.

(09:59)
So the loyalty program, most airlines is its own business. It’s got its own P and L. It’s got its own team running it all and effectively a loyalty program airline, it’s a marketing business. So you’ve got the airline, which is very operational and you’ve got this loyalty thing which is branding slash marketing. And what they’re effectively doing is selling points of miles to banks. It’s a virtual currency they’ve got. The bank pays them for those miles, they put the miles in your account, use those miles for a free flight. When the bank pays them for these miles, they’re paying, call it for fun, 2 cents a point. And when you redeem your point, you’re redeeming it, say for fun, 1 cent, right?

(10:38)
And so for example, American Airlines published that their gross margin on selling these miles or points to banks is 72% and about a 50% net margin. And you got to think 50% margin is pretty good. They’re not getting that selling you a hundred dollars ticket to Vegas. They’re definitely not making anywhere near, they’re probably not making any. Actually American Airlines last week, they came out with their latest reports. They lose money operationally and traditionally America has actually for a long time lost money flying planes around the world. They make their profits from the loyalty program.

(11:14)
So really the question is, is a carrier like American, is it an airline or is it a marketing company that has an airline division? And all these financials, you can go see all these SEC reports of airlines publishing this stuff, American Airlines, all the three biggest airlines, the loyalty program’s worth somewhere between 25 and $30 billion where the airline itself, the market cap is somewhere between 12 and 18 billion. So the loyalty program’s worth more. In fact, the airlines worth negative if you look at it, if you look at it that way.

(11:50)
So it’s not that the cashflow necessarily is in loyalty, it’s that the value is there. So you can use that value to help. I mean they need each other, the airline needs the loyalty program, they’ve got that relationship. But the economics in terms of profits definitely and value definitely favors the loyalty business.

Jason Hunt (12:13):

I mean in this as obviously the concept has been proofed in the airline industry. Are there other industries where you’re seeing that similar type of pattern where the core business itself may be losing money but they’re earning money from a loyalty program?

Mark Ross-Smith (12:28):

Fantastic question. Not too sure off the top of my head. I think there’s a lot that other businesses could learn from airlines and how they do … hotels as well, to be fair. A lot of hotel programs are fairly profitable. There’s things that other industries and companies could learn or cherry-pick from airlines. And that’s, the airlines have this thing going for them. They’ve got aspirational rewards. So you save up your points and miles and you save them because you want, one day you’re going to get that business class or first class trip to London and that’s the trip of a lifetime. You’re never going to buy, you’re never going to pay for that ticket in cash, but you’re going to use your miles. That’s why you’re saving, that’s why you get the credit card. That’s why you fly. That’s why you’re saving them up. You’re going to get there one day. Most people don’t. There’s that dream there. There’s that light that people sort of seek.

(13:16)
And so if other businesses can replicate that in an emotional way, because when you think about business or first class travel long haul, you think there’s a romance to it. You know what I mean? It’s been ingrained in our brains for the last hundred years that long haul international in business or first class is this amazing thing and there’s unlimited food and champagne and you are pampered and the spa treatments and there’s all this amazing stuff. And so it’s branded into our heads that that’s how it works. And so that’s why airlines, they leverage that. They leverage that emotional connection that people have. And the airline industry as a whole has just been blasting the people’s heads for the last a hundred years. They’re quite effective. So think about how other businesses could do a similar, apply a similar concept, which is all about driving high emotion around a product that people otherwise wouldn’t normally buy.

Jason Hunt (14:21):

Let’s talk about that for a second because I love going down this direction of talking about the leverage that it has. And as you said, market’s been the last 100 years, they’ve been trying to push this narrative of loyalty programs. However, how are you seeing it most effectively marketed today through the use of maybe TikTok or Instagram, social media? Have you seen some success stories where they’re really leveraging these platforms to get the word out about these loyalty programs?

Mark Ross-Smith (14:51):

I mean, gosh, you just have to go on TikTok for five minutes and you see all these influencers like, “Look at me. I’m on the world’s longest flight in first class and I had a shower on the plane,” and then it’s this two-minute video about how they got these two credit cards, they used their points and did this and a shower on a plane? Well that’s pretty cool. It actually is cool. I highly recommend it.

(15:16)
It’s a lot of that. It drives views. People want to feel that they may not do it themselves in life, but they like to see what other people are doing that’s pretty cool. So it’s like, “Wow, that’s a cool airline. When I win the lottery, I’ll try that one day.” It’s that kind of thing, tons on TikTok. It’s all about that aspiration. It inspires people to travel. You see these beautiful beaches and picturesque places and you think, yeah, I want to go there, I’m going there but you never do. But I’d like to, right? So it just puts it in your mind. And then there’s a bunch of people that actually act on that and follow through.

(15:55)
So I think that kind of marketing is, I mean it’s indirect. It’s not the airline pushing that. It’s other people sort of showcase, showing off, I guess stuff that they’ve done to, obviously they’re just driving their own views. So actually there’s a bit of a selfish motivation there. They’re just driving their own channel, their own sort of thing. But there’s this halo effect that flows onto the airlines and the hotels where they’re getting free advertisement.

Jason Hunt (16:20):

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(17:10)
Are any of the airline airlines leveraging influencer marketing, brand ambassadors in cases like that? Will they offer extra incentive to be a loyalty member to their program? Because I see a lot, there’s a lot of opportunity there if you get in front of the right travel influencer with that narrative.

Mark Ross-Smith (17:28):

There’s a lot done that’s not talked about. Some airlines will give away a gold card and, “Hey, try us. Just give it a shot,” kind of thing. Few years ago, but when I worked at Malaysia Airlines, we did a similar thing that. We gave one of the influencers a temporary top-tier platinum status and flew them business class into Malaysia to see what Malaysia had to offer. We took them to the airline training center and stuff. And so they jumped down the emergency slide and did the life jackets, all that cool stuff. Where else are you going to do this? Right? It’s kind of cool.

(18:05)
And they created videos and content around that, around the experience showcasing what the airline had to offer and the value of that loyalty status and the benefits you got from it: the priority boarding, the extra bags, the lounge access. Actually recently I had a flight where a top-tier member on it and I’m in the lounge and someone from the airline comes over and says, “Mr. Ross-Smith, would you like to be first or last to board today to board the aircraft?” And I’m like, “Well, I’ll be first. Thanks.” So before the women, children, everyone else, here’s me very fit and able waltzing past 400 other people because I’m some sort of, I don’t know.

Jason Hunt (18:51):

First on, first off, eh?

Mark Ross-Smith (18:53):

You know what? That feeling you get when you just past 300 other people that are waiting to board? There’s something really magical about it because I mean you can buy it but not really, not directly, you know what I mean? And so there’s a bit of a nice little ego boost at that point. You go, “This is nice. ” It’s 10 seconds of your life, that feeling and then it goes away. And you’re like, “Huh, this is why I fly, blah, this is why I’m loyal to this brand.” Airlines have got this really amazing ability to when they get things right that they close your mind.

Jason Hunt (19:30):

So when you book a trip, Mark, what’s the process for you? I think most people are using the Skyscanners and Expedias and Bookings of the world to do all their booking for travel and things like that and they’re not really fixated on loyalty. They’re fixated on lowest price, right? Is it tough to get them out of that state of mind? Is that just an avatar that these airlines do not want to go after for their membership programs?

Mark Ross-Smith (19:58):

I think if you’re doing a few flights a year kind of thing, you are already in the top 10% of commercial travelers globally. ‘Cause most people don’t fly. So if you’re doing a few round trips, you’re up there already, yeah. It makes sense to fly with the same airline as much as you can if you’re doing those kind of trips because then you’re aggregating the points of miles you can earn with one airline or one if they’re in an alliance, like a Star Alliance or oneworld, something like that. That can make a lot of sense because then you’re building your balance with one brand as opposed to having a thousand points here, a thousand points here. They’re all over the shop where you may not value the perk, the loyalty benefits you get from even just being a base free member.

(20:42)
So my advice definitely is if you can fly with the same airline over, because you’re going to build a bit of a reputation there. You understand more of how it works. You’re going to learn about the currency, the points and miles. And then at some point you go, “You know what? I’m going to get the credit card for this airline as well.” Because then you can start accelerating, your points earned, and then before you know it, you look at your account go, “Gee, I got 30,000 miles. What can that get me?” And I go, “Oh wow, it’s a free trip to blah.” And that might be a trip that you would never have thought about taking. And at that point it opens your eyes to a new destination. It’s something new.

(21:18)
And then this is really, I feel part of why we’re here on this planet is see things and explore and visit new places we haven’t been to and smell and taste and touch all the beautiful things out there. And this is something that travel offers to us, especially when we’re taking trips to destinations that we otherwise wouldn’t think about visiting. And I think that’s part of the magic of loyalty programs and the points of miles in that it enables us to do these trips that we otherwise wouldn’t do. So start collecting miles.

Jason Hunt (21:52):

I love it. I love it. Mark, this has been awesome. I love this topic. It’s definitely outside of the scope of a lot of things that we talk about relating to marketing, but it’s relevant to any frequent traveler out there that’s a marketing director or entrepreneur. I think this is an excellent episode for them. So Mark, if our audience has any questions for you, what’s the best way for them to get in touch?

Mark Ross-Smith (22:10):

Yeah, I’ll be on LinkedIn, pretty active on there. Otherwise, check out statusmatch.com.

Jason Hunt (22:15):

Awesome. And we end every episode with the same question. That question is this, “If you can choose one person dead or alive to represent StatusMatch, who would it be and why?

Mark Ross-Smith (22:24):

Oh, gosh. What a question. You’re putting me on the spot now. This was not prepared. I think, you know George Clooney’s character from Up in the Air? You know the movie?

Jason Hunt (22:34):

Nope. Clooney.

Mark Ross-Smith (22:35):

Ryan Bingham, Ryan Bingham.

Jason Hunt (22:35):

Up in the Air? I think I know it.

Mark Ross-Smith (22:37):

It’s a movie. It’s a it’s very airline-type movie.

Jason Hunt (22:43):

Okay, okay. I have not. I’ve seen a trailer for that. I have not seen a movie itself. But tell me why George Clooney from Up in the Air would be your brand ambassador.

Mark Ross-Smith (22:49):

He is the epitome of a frequent flyer. You know what I mean? He’s got all the cards. He’s got the top status with the … I think it’s American Airlines in the movie. He’s always only traveling to places where he can get the loyalty benefits. I think anyone that’s seen the movie would see that. Think about airlines and hotels and go that’s it. That’s totally the guy.

Jason Hunt (23:14):

Not John McClane from Die Hard, I guess, eh? Let me know if he can do that. Awesome. Cool. Well, Mark, this has been great. Thank you so much for your time. I appreciate you.

Mark Ross-Smith (23:25):

It’s been fabulous. Thanks.

Jason Hunt (23:27):

Real quick, guys, if you are active on Instagram or TikTok, I encourage you to go on over and give my personal profile a follow @JayHuntOfficial, J-A-Y-H-U-N-T-O-F-F-I-C-I-A-L. Over there on Instagram and TikTok, I’m posting my favorite highlights from the Merged Marketing Podcast, along with some of the highlights from my speaking engagements overseas, as well as locally. A ton of value, go on over and check it out @JayHuntOfficial.

(23:57)
I’d like to thank you for listening to the Merged Marketing Podcast and I invite you to subscribe so you never miss an episode of the Merged Marketing Podcast. One of the best ways to do that is to add us to your Instagram @MergedMedia, M-E-R-G-E-D-M-E-D-I-A. Go on over there, give Merged Media a follow and subscribe and never miss an episode. Thank you so much for listening. We’ll talk to you soon.