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XL Podcast 28 – Loyalty: How Airlines and Banks Win and Lose Their Most Valuable Customers

WHAT IS XL PODCAST?

Produced by Pikkal & Co – Award-Winning Podcast Agency.

The XL Podcast by Graham Brown showcases conversations with Authentic Leaders in business and society. By creating conversations not interviews, XL highlights Leaders in their own words, without PR spin or handlers. XL brings regular hard-hitting insights and transformative journeys outside the comfort zone of regular business.

Previous XL guests include Tony Fernandes (CEO AirAsia), Howard Yu (Author & Professor of IMD), Rod Drury (CEO Founder Xero), Hal Bosher (CEO Yoma Bank), Jiawen Ngeow (Successful entrepreneur with $25m exits), Mun Ching Yap (Head of The Air Asia Foundation), Sahar Hashemi (Founder of Costa Coffee and named in The Independent on Sunday as one of The “20 most powerful women in Britain”), Lewis Pugh (“The Human Polar Bear”, UN Patron of The Oceans and World Record holding Swimmer) and Rob Nail (CEO of Singularity University)

Transcription:

Graham Brown (00:05):

Hi, this is Graham Brown and welcome to the XL podcast. The XL podcast is a platform for the bigger conversations about leadership in the 2020s. Who’s leading? How are they leading? And what stories do they have to share? Through the stories of leaders, we’ll address the big challenges of our times from the era of AI to the Asian century to nurturing a new generation of entrepreneurs. If you’re enjoying these conversations, subscribe to the podcast at xlpodcast.org.

(00:35):

Hi everybody, this is the XL podcast. My name’s Graham Brown. Now, something’s happened in the last couple of years, which was we stopped traveling, but it’s all happening. It’s all on again. We’re seeing this on our social media feeds. People are going to airports, people are getting on airplanes. The world is getting back to normal. So as we get back to the new normal, there I said it, of travel, let’s talk about what’s happening in the world of travel.

(01:00):

We’re all touched by it, whether we’re traveling on vacation or traveling for business, we all know the ups and downs of travel. It’s not straightforward, it’s exciting, and yet it can be immensely frustrating. A lot of that can be due not just to the airplanes, but the airlines as well. All the procedures, everything that goes with it. It can be done really, really well and it can be done badly. We’ve all experienced both ends of the spectrum. So to unpack a bit of that, the world of travel in numbers and human experience, I’m joined by Mark Ross-Smith, the CEO and founder of StatusMatch all the way from KL. Mark, welcome to the show.

Mark Ross-Smith (01:38):

Hey, Graham, fantastic to be with you.

Graham Brown (01:41):

It’s great to have you. Now let’s put it out there. For those that don’t know, I’ve done my research on KL. I’ve been there a few times. Love Kuala Lumpur, Malaysia for those that don’t know. Where you are in the world, interestingly is the most advantageous point for reaching [inaudible 00:01:59] people. That for a five-hour flight from KL airport can access half the world’s population. Now, if you did that from San Francisco airport, you would access only 750 million people, which is 20%. So where you are, there’s this supreme vantage point into the world of travel. You’ve got access to China, you’ve got access to India, all of Southeast Asia, plus it’s a jumping off point for many international carriers. So before we get into the world of travel, Mark, how did you end up, an Aussie in KL? What’s the story? Give us a brief version and we’ll dive in.

Mark Ross-Smith (02:37):

Brief version, Aussie. I had a startup in Australia, technology startup in the Telco industry. Sold that in 2013 and decided I needed to move to a new country. I thought, do I move to Singapore or Hong Kong? I love both of these countries, fantastic places. Rolled the dice, Hong Kong won. Met a girl, stayed there and eventually moved down to KL about four years ago.

Graham Brown (03:04):

Oh, the old story. Yeah.

Mark Ross-Smith (03:06):

They get you every time, mate.

Graham Brown (03:08):

How long have you been in KL?

Mark Ross-Smith (03:09):

Nearly five years now.

Graham Brown (03:11):

Yeah, five years.

Mark Ross-Smith (03:12):

Yeah, nearly five years. Love it.

Graham Brown (03:15):

Telco’s going to resurface as well. We’re going to see Telco again today. Because we’re going to talk about loyalty and service and obviously there are parallels with the world of travel as well. We had a good chat earlier about the world of travel. So all of us have experienced travel buying tickets. We’ve also dabbled with airline loyalty programs. These are a thing. There are good ones and there are not so good ones and we’ll talk about that. Before we do that, I don’t know if you’ve seen the movie The Terminal with Tom Hanks. You seen that?

Mark Ross-Smith (03:51):

I have, yeah.

Graham Brown (03:52):

There’s this guy who’s… you have. Okay, you know where we’re going with this. So it’s actually based on a true story. So for those that haven’t seen it, the Terminal is based on a true story. A chap named Mehran Nasseri, Iranian guy. He actually got stuck because he was between customs I don’t know the full story, but he lived in Charles de Gaulle airport for 18 years. He would just turn up, lived there. He worked out where all the washrooms were. He slept there, he ate there. Got money out of an ATM. 18 years. What’s your record, Mark?

Mark Ross-Smith (04:29):

I’ll say 73 days. But not inside the airport but at the airport hotel.

Graham Brown (04:37):

Was that air side or land side?

Mark Ross-Smith (04:39):

That was land side but connected to the airport.

Graham Brown (04:43):

What were you doing there for 73 days? That’s 10 weeks.

Mark Ross-Smith (04:49):

When I moved to Kuala Lumpur, I worked for an airline here and their office was at the airport. I didn’t want to move my family yet. So I thought, yeah, I’ll just live in a hotel and live the high life until I move everyone down and get settled in.

Graham Brown (05:05):

Did you get cabin fever living in an airport 10 weeks?

Mark Ross-Smith (05:09):

No, the opposite. I loved it.

Graham Brown (05:11):

Really?

Mark Ross-Smith (05:11):

I’d do it again. Yeah.

Graham Brown (05:12):

It’s a good airport KL though, I like it. Especially you’ve got all that sort of green area and it’s nice modern airport.

Mark Ross-Smith (05:20):

It’s a lot of the Asian airports. Southeast Asian airports are pretty nice.

Graham Brown (05:24):

I could spend probably 10 weeks at Singapore airport, Changi. It’s nice. You go there and then you go back to airports in other parts of the world and you see how they used to be run. The queues and the noise. It’s different here in Southeast Asia, we’ve got some great airports. You must know some secrets about airports as well. Want to tap those. Just give us a clue. What do you know about airports that we normal travelers don’t know? I want to ask you that and then we’ll go into the numbers.

Mark Ross-Smith (05:53):

What do I know that everyone doesn’t know?

Graham Brown (05:56):

If you were were to guide us around an airport for a day, if you had full access, you would take us somewhere that most people don’t know about. Where would you take us?

Mark Ross-Smith (06:03):

There’s no secret VIP lane. There’s no secret underground area where everyone goes and like, oh, nobody knows about this area. I guess airline lounges are probably the best version of that. If you got elite status, like a gold or something higher airline, you can go into airline lounge’s. Some pretty hidden, there’s like rest full-blown five star restaurants, unlimited food and alcohol and all sorts of stuff.

Graham Brown (06:30):

Best one? What would you recommend? Because there’s a wide range of quality isn’t there with lounges?

Mark Ross-Smith (06:37):

There’s a couple that stand out. I think Singapore Airline’s private room in Changi airport is fantastic and it’s just been remodeled. That’s a fabulous one. The Qantas first class lounges, Sydney, Melbourne, LA, Singapore, they’re fantastic.

Graham Brown (06:51):

What’s fantastic about it?

Mark Ross-Smith (06:56):

It’s the best restaurant lounge you’ve ever walked into and everything is free.

Graham Brown (07:00):

Well, yeah. Obviously airlines understand the value of these lounges and high premium customers maybe. Loyalty. That’s where we’re going today. We’re going to talk about that. I read somewhere that 76% of flyers have a preferred airline. Are you allowed to name your preferred airline? You’ve got vested interests. Are they Asian or non-Asian? Tell me that much.

Mark Ross-Smith (07:28):

I’m Australian at heart. I still call Australia home. So you can guess my favorite airline.

Graham Brown (07:34):

Qantas, Jet Star.

Mark Ross-Smith (07:37):

How did you adjust that?

Graham Brown (07:40):

Yeah, there’s some great five star quality airlines in the region. Let’s talk about the numbers behind all of this as well. There’s this thing called a status match. I say status, you say status. Let’s just agree to disagree. But what is a status match? I didn’t know about this when we were chatting about airlines and loyalty programs. This is something I’ve never heard of before. So enlighten us, Mark.

Mark Ross-Smith (08:03):

So status matched the term has been around for at least 30 or 40 years. Airlines have been playing status for a long time. So it’s not new ways. If you’re like a silver or gold member with one airline, yes you’re flying like a traveler, you’re getting a lot of the perks. One of the ways airlines will compete and try and get you across as a customer is to give you what’s called a status match. They’re matching your status or your status.

(08:27):

So if you’ve got gold one now, they’ll give you gold with their airline and the idea is here’s some gold status, now move some of your business to our company. Start flying us. This is really important. It’s a very powerful technique. It started in airlines decades ago. And this is because people with status represent about six to 8% of the top frequent flyers in the world and they represent about 30 to 40% of total ticket revenue that airlines generate. So they’re the biggest single group of customers that an airline can get. Anything they can do to get people over, they’re in for it.

Graham Brown (09:08):

Do you have to go to an airline and ask for that or does the airline come to you and try and poach you? How does it work?

Mark Ross-Smith (09:13):

Traditionally you’d find an email address of an airline. Write an email, hey, I’m a gold member with da-da-da airlines. I’m changing jobs. I’m moving countries. I’d like to try your airline. I’d like to status match your airline, here’s my number. Pretty pleased, cherry on top, can I get gold status? You basically are begging for it. Then maybe you wait 2, 3, 4, 5, 6 weeks, maybe get a reply, maybe you don’t. Then it’s a bit of a lottery if you’re going to get what you’re asked for or not.

Graham Brown (09:46):

So it exists already. The concept exists. So they know what you’re talking about and they’ve done it before and yet is there a department that handles that? Or is it a case of we get this email. Who’s the best person to deal with this? There isn’t a process in place. What’s generally the case with these airlines?

Mark Ross-Smith (10:04):

This is what I’ll call the odds. It’s called process. You try and email someone in sales team. Maybe your company has a sales manager, a representative through a travel agent. Maybe you know someone that works at the airline. It’s a bit of a hit-and-miss really. Nine times out of 10 ends up on the CEO’s email because they don’t know anywhere else to send it. Then it internally filters down to the right person hopefully in loyalty.

Graham Brown (10:28):

Right. So somebody in loyalty who gets that and say all right, so Mark’s a gold. He’s on this airline, a competitor. Let’s say he’s a KrisFlyer, gold or such a thing exists, the equivalent. And we are Qantas, we want his business. You email us, we take that, what do we then do? Do we then have to verify the fact that you are on this program with another airline? I imagine there’s a lot of hoops that you need to go through before they can set you up, no?

Mark Ross-Smith (10:58):

Well truths a lie and even have a process. They get the email and go, does this email look legit? If yes, just give them the gold. If no, just forward it to someone else. Maybe it gets deleted. Maybe they never get a reply. Who knows where it goes. That’s the traditional process. You remember these people in the top percent of people frequent flyers in the world. So these are your high value customers. This is how airline’s traditionally been treating these kinds of requests.

Graham Brown (11:26):

Yeah, I’m surprised. Can I just chance it? Can I email an airline and say I’m a platinum diamond, whatever member of United or American Airlines? Take me on. Do I have a chance of success? Because it seems like you’re balling it with these guys.

Mark Ross-Smith (11:47):

You could try. They’ll ask for a screenshot. Some sort of evidence that you’ve really got gold status. But everyone’s got access to Photoshop these days, so it’s pretty easy to get around that. If they are giving you a gold status, which you may be not entitled to, for example, suddenly you’ve got access to airline lounges. You’re not paying for bag fees. You’ve got seat selection. You’re getting all these perks which otherwise would be able to charge you for. So airline’s actually losing money out of you. Because they’re giving you something you’d otherwise pay for.

Graham Brown (12:21):

How well known is this info amongst the flight community, I mean the travelers? I imagine there’s a group of people. Obviously there’s the hackers who probably know about this. But I don’t know what percentage they are of the total of that elite that you talk about that make up 30% of the revenue. Is this a well-known procedure? Is this common knowledge on forums? I’m curious about that because if it was, a lot of people would be doing it.

Mark Ross-Smith (12:48):

It’s reasonably mainstream. Sorry. If you’ve got status and you’ve done any kind of Google searching, what perks can I get or I’m sick of my airline, what can I do? A lot of people when they first think about it, they Google things like, how do I transfer my miles? Which you can’t really transfer. But that’s what they Google and then they end up figuring out what a status match is and then it’s a bit of a rabbit hole. You’re one forum, then you’re a one site, then one article. Then before you know it, you’ve applied for 10 status matches.

Graham Brown (13:23):

Right.

Mark Ross-Smith (13:26):

It’s a pretty common thing. When airlines publicly offer a campaign around this, they become incredibly popular.

Graham Brown (13:35):

Well if they can win these customers across and match their miles or even, I don’t know if they offer premiums or miles. We’ll give you 1.15 mile for every mile you have with this airline. Whatever it is, the value of that customer is huge to their business because they probably, like you say, was it 8%, 5% make up 30%?

Mark Ross-Smith (13:59):

Yeah, exactly.

Graham Brown (14:01):

Right. So it’s not just six times more per head. It’s a lot more than that, isn’t it? Because of the ratios. So it’s significant. They probably spend 10 times more than the average customer. Then there’s also the influence of that customer and the people around them. You’re probably a business account. They probably have influence of tell people about their airline. If they’re loyal, they’ll influence other potential status matches coming on board so that the economic value is huge potentially.

Mark Ross-Smith (14:27):

That’s exactly right. You got to think about it, if you’re like a KrisFlyer Singapore Gold member, you you’re locked in with that airline. You like flying them. Hence, you’re a gold member. You’re used to it. Really satisfaction is one way to unhook you from that airline. Because you are used to the perks, used to the priority everything, the free bags, the lounge access, the welcome back, Mr. Brown, here’s a champagne. You’re used to that stuff. You want that experience the first time you fly competing airline. Because you’ve kind of proven your value to the industry and you want recognition for that the first time you fly with a new airline.

Graham Brown (15:05):

Yeah, the consistency and the experience is so important and understanding that from the customer’s perspective. I was reading a book on Starbucks about how they built their brand. I know it’s not in Australia. But globally they’ve been extremely successful building customer loyalty through the consistency of experience. It’s what people come to expect in one store, they expect somewhere else. Actually that consistency experience, whilst there’s a very strong human touch to it, it’s all built on operations and process.

(15:35):

So we’ll come to the nuts and bolts of that, how that actually works in a minute in terms of loyalty. Because when we think about customer service and experience, we think about that human touch. But you can’t have the human touch unless you’ve got this strong base of data underneath it. Let’s talk about some of the numbers. This is what really blew me away, Mark, after our conversation. I’d be curious to hear what the audience thinks of this as well.

(16:01):

So obviously airlines went through a very challenging two years with COVID. That was a time when a lot of them weren’t making any money at all. Some of them were subsidized. In the US, a bunch of airlines effectively raised capital and they collateralized their books if you like. Some of the numbers coming out here, United raised seven billion in the middle of the crisis. Who would lend these guys’ money when there was no way out of COVID for these airlines?

(16:34):

They couldn’t see the cashflow coming in. United, seven billion. Spirit and Delta a billion and nine billion. Then American Airlines raised 10 billion. This is an article in Harvard Business Review and it’s about how loyalty programs are saving airlines. It basically said they collateralized their future cash flows on their loyalty programs. The fact that it raised money was purely down to the fact that they had these loyalty programs. And there’s some really interesting valuations here. This is the one that blew my mind is that AA, American Airlines, The Advantage loyalty program and the airline itself. The airline itself is worth $21 billion. The loyalty program is worth $37 billion. It’s almost twice as valuable as the airline. Do airlines realize that?

Mark Ross-Smith (17:29):

Are they really airlines? Or are they something else these days? Interesting, American Airlines wasn’t even operationally not even profitable pre-pandemic for a few years there. But the loyalty program was so profitable it kind of masked that the airline operations side. So overall they’re making billions of dollars. I think there’s an argument that, are they really airlines anymore or are they just metal shoot flying companies that have a marketing arm that basically a FinTech company that underpins the loyalty program?

Graham Brown (18:03):

So what the airline tickets are just like a lost leader to get people through the door if you like and get data on them.

Mark Ross-Smith (18:11):

Yeah, I think a lot of airlines are that. Yeah.

Graham Brown (18:12):

Nobody in the airline thinks like that, surely.

Mark Ross-Smith (18:16):

Some do. It is a few forward-looking CEOs out there that can see that the airline is just one piece of a much bigger and more interesting puzzle. I think because the economics behind airline laws here really came up to the surface in the last couple of years. Because the airlines had to publish all this so you can read it all online. People are looking at this and going, hang on a second. First, are the airlines valued appropriately in the market?

(18:45):

They’ve been valuing airlines based on sort of trading at the realm of an automotive manufacturer. When really they’re tech companies and they’re marketing companies which are valued at much higher multiples. So really where’s the true value here? If there is all this built up enterprise value in the loyalty program, what else could it do? Or where should the focus of the airline be? If you had to focus more on the loyalty program, wouldn’t that build up the whole value of the whole group even more to support the airline so the airline can do even more interesting stuff?

Graham Brown (19:23):

You’ve got to think differently about the problem though. Like you say, see the problem through a different lens. Are we actually an airline? That’s the question that CEOs need to be asking really, isn’t it? That’s the leadership piece that who are we and what are we here to do? Are we here to fill seats, sell tickets? Or are we here to impact people’s lifestyles potentially in different ways? Add value to customers. I imagine that doesn’t come naturally to a lot of businesses where you built your whole career around selling tickets.

(19:59):

A CEO to stand up and say, we no longer are about this. We’re about that. That’s brave. We’ve seen some examples, haven’t we? Where obviously you are just down the road from Air Asia. We’ve seen Tony Fernandez very vocal about the future of his airline. I even went on their website the other day and they’re selling competitors’ tickets there. Can you imagine that? You go onto Air Asia and you search for a flight and it comes up with… There’s an option to select Air Asia flights only.

(20:31):

But it shows you all the competition as well. But then there’s everything else. There’s the insurance obviously, which has been around a while. But sometimes the food, you’ve got their own delivery service, they have their own payment card. They even have a record label as well going. There’s a bit of everything. And a FinTech company, logistics company. Is that sort of the future model of an airline where they’re going to be doing all these things? It’s almost like one of those Chinese apps, isn’t it? Like Matwan or Didi that just collects a lot of data about customers and then solves any problem that customer has really that are related in some way to lifestyle of travel.

Mark Ross-Smith (21:14):

They’re not really reinventing the wheel. You just look at some of these Chinese companies that are worth a absolute fortune and you look at what they’ve achieved, what they’re creating. As an airline you think, you know what? I’ve got this captive audience. I’ve got this really amazing loyalty program that creates stickiness to the brand. What else could we layer on top of that? Looking at some of the other bigger companies overseas, how could we draw inspiration from them to bring value to our business or to the airline business to make it grow in a new way?

(21:45):

Because to your point, and rightly so, airline business really hasn’t changed in half a century, at least. It’s still selling tickets. There’re still flying people. The aircraft that are flying realistically the same shape and design. Most people can’t tell the difference between something that’s 50 years old and something that’s two years old.

Graham Brown (22:03):

It’s not getting any faster is it to travel? We’re not inventing Concords or supersonic flights, it’s pretty much the same.

Mark Ross-Smith (22:12):

It’s probably getting slower to save fuel burn these days.

Graham Brown (22:15):

Totally. I guess with all this out there, what’s getting in the way? If we think about those numbers, again, a $20 billion airline. My loyalty program’s $40 billion. I get it. If we could tap that into financial services and we’re not just selling insurance now, which is kind of an easy win for airlines, isn’t it? We’re doing everything from stored value to payment cards, et cetera, et cetera. We’re offering all these kinds of aligned services.

(22:45):

Maybe we’re investing in an ecosystem of logistics players, FinTech, et cetera. Sounds easy. This is how a CEO turns a 20 billion valuation overnight into three X that through better multiples as a data company, now we’re Netflix. We’re no longer an automotive utility company, we’re now tech data. Sounds easy. What’s the catch? Why aren’t they able to do that so easily? I guess the follow-up from that we’re going to hear is, why do they need you?

Mark Ross-Smith (23:18):

Well I think traditionally airlines are pretty risk at best. To be fair, we want our airlines to be risk at best. You need that culture of safety there. Because we hear it every time you board an aircraft. Safety is our priority. You hear the safety demonstration. It’s all that safety, safety. Cleanliness, cleanliness, cleanliness. It’s been drilled into our heads the last 100 years. So we need that there. So we don’t take that away.

(23:44):

But that’s what we’ll call the operational or I call the flying metal tube division of the company. Then you’ve got the rest of the company, which is really a marketing or a tech company. Traditionally marketing companies are there to push the boundaries, to try something, to be a bit bold. To take things forward and into that next step just like Air Asia is doing with all their little products. I guess the question is what does it take to get there? What does it take to take that next step?

(24:17):

It’s an idea we’re playing around recently and that is, if we look at who the customers of airlines are. So people with a silver gold type status. They represent almost half the spend revenue from an airline. Those people traditionally don’t work in airlines. The management at airlines traditionally are not customers of their own product in the way that their most valuable customers are. So think about your average airline management, they’ve been there for many years.

(24:53):

When they do fly, they’re on staff travel, which is very cheap. Sometimes it’s standby. They don’t pay what you and me pay when we go to travel. They have a totally different customer experience. If you were to map it out on a flow chart or something, theirs would look totally different to what the rest of us do. They check in very late for their flight. If something goes wrong, they just text their buddy and say, hey, this isn’t working, can you change my ticket?

(25:22):

Whereas these days if you or me try to change a ticket, we’re on hold for three hours with the airline and then maybe get through to someone. What it is, is the people ultimately making some of these decisions these days. And this is not everyone airlines, I’ll put that out there. But at most that they’re just not real customers of the airline and they never have been. But what it means is, that there’s a site skew in the decision making.

(25:47):

The perspective they’re coming from when new products, new ideas sort of rolled out to an airline. It’s all about making money and ancillary revenue and travel marketplace and all these kinds of buzzwords. When realistically it’s all about the customer. You have a fantastic travel experience that’s legitimately seamless. Not try to rip customers off on the website. Just make it really easy for people to do business. Because people want to spend money. We talk about the new normal of travel, which I think is exactly like the old one, just a lot better. People want to travel. There’s more money in the world now than there has ever before in history of mankind. People are ready and willing to spend. People want to travel. So let them do it and make it easy.

Graham Brown (26:34):

But you’ve highlighted a very important point here, Mark, which is that the money is there, people want to spend it. But here’s the point is that the airline employees don’t understand their customers from almost the position of empathy. They don’t walk in their shoes. They didn’t have to be on hold for three hours. They didn’t have to go through and pay what you pay and therefore value it differently to what they do. Because they’re getting it on a discount.

(27:06):

They didn’t spend all that money. Save that money up and then get disappointed because things didn’t work out. This empathy part is really important, isn’t it? We’ve seen this a lot in different companies. We’ll come back to travel and this is where we’re going to come back to the airport as well, I guess because you’ve got some experience living in an airport. That a lot of companies that really succeed in understanding the customers and really delivering on that promise not just paying lip service to customer service and experience.

(27:35):

But really delivering on it. Their people are part of that community. They understand, they see, they interact with them. I mentioned Starbucks as well as an example, is that they’re active in the community, they’re involved. Starbucks employees drink coffee somewhere else. They’re not doing that. They’re still experiencing their own product in the same way airlines you would expect if you are an automotive manufacturer that all your people drove your cars.

(28:07):

We see this kind of change that takes a bit of leadership sake. I think Facebook were a good example of getting people to use a certain type of phone for example. Or I think we’ve seen these examples where people will be developing for a customer but they don’t actually use that phone. For example, Android or iOS. That takes leadership to say, everybody get out, get out of your desk, get out there. It’s very comfortable. I know you didn’t do an MBA to speak to customers.

(28:39):

But that is where the insights lie. That takes a bit of work. So let’s talk about what the value of doing that is first and then talk about how we’re going to get these people out of their chairs and experiencing customers firsthand. What do you actually learn when you go out there and interact with passengers? What’s the first thing that you see that your average ivory tower airline employer doesn’t see? Tell us about your time in the airport.

Mark Ross-Smith (29:12):

I spend a lot of time in the airport. So you start seeing a lot of things. You start seeing, we talk about the small moments can make things really great or not so great. It works both ways. You start seeing how long the security lines are and you start thinking, how could I improve this for myself? Because the management are flying all the time and going through an experience. They’re going to solve problems for themselves, which to solve it for millions and billions of other people.

(29:40):

So that’s a good thing. If you are boarding aircraft and he’s sorry, sir, your boarding pass had to change your seat and suddenly you’re in the back row next to a crying baby on a 15-hour flight. You’re a platinum member, you’re going to be like how come a platinum member has been switched back here? Shouldn’t you switch someone else maybe? Things like that. There’s subtle differences. Subtle differences that you notice. But you only get that experience when you’re constantly flying.

(30:10):

Constantly over and over and over and over and over. Not once or twice a year just to make sure things are smooth. In fact I’ll go as far as say, I think airline management should have to earn and keep gold status as a requirement, as part of their job on their own dime. No refunds. Not on company time. In their own time, on their own, on everything. Because then A, they’re committed, which is great. It probably filters out a bunch of people that don’t want to do it.

(30:37):

So that’s probably a good thing to be fair for airline and shareholders. I’m sure the stakeholders are like that as well. It’s a good message for passengers as well. Then you start seeing things on board. Once you fly the same route over and over 10 times a month kind of thing, you start seeing similarities. You start going, geez, wish the movies would update more often. I wish you got two packets of peanuts instead of one. They’re such small things. But when you speak to the guy next to you, he goes, “Yeah, I wish I had that too.” And suddenly that small moment could amplify into something bigger where people walk off the aircraft and go, “You know what? I don’t know what it was, but I actually had a good time.”

Graham Brown (31:24):

How do you quantify that though? This is the challenge. How do you create those moments of magic that made people remember and generate loyalty as well? Going back, I mentioned Starbucks again only because it’s fresh in my mind, but how they created customer loyalty. For example, somebody walked into the store and didn’t have their card on them. Oh, I forgot my card, I can’t pay. Don’t worry, you can pay me next time. The barista will say that to a customer.

(31:54):

It’s interesting, you have to have, I guess big part of is people, but you have to have processes in a culture as well to allow that to happen. But obviously that customer feels a sense of now obligation, a sense of loyalty. Wow, those people really care for me. They come back and they come back and they come back. It’s those small moments of magic. What I feel as well, we’ve all experienced loyalty programs. We’ve all experienced them just really under delivering in many cases.

(32:26):

Great, I can get a discount or I can get access to a lounge. But there’s a lot that’s missing there I feel. Just because simply it is just a program. It is just actions on data. There’s no human touch to it. I don’t get anybody thanking me. I don’t get anybody saying, oh you’re a really valued customer, I’m going to give you this, which is a surprise. We get none of that. It’s just kind of, okay, I’ve spent all this money, so you’re going to give a little bit of that back now.

(32:56):

Maybe I should have had a discount in the first place. All this kind of things. That’s how people are thinking on when it comes down to economics. How do you make those work? How do you actually inject that kind of magic into a loyalty program? Tell us about your experiences. I know we were chatting about the time you spent at the airport and some of the antics that you got up to. What kind of insights you got from that. I know you were not just observing the security lines and the check-ins, you were much more active than that. So that’s I think where the listeners are probably curious to hear what actually went on.

Mark Ross-Smith (33:33):

So let me just rephrase this. In loyalty, there’s an art and insights and they kind of blend together. You need the science, which is the financial aspect of it. Let’s make sure we’re making money on this program, balance sheet, all that kind of stuff. Then there’s the art and this is where it comes from experience and actually being a customer. Before I got into airline loyalty, I was a frequent flyer. I still am to some degree.

(33:58):

[Inaudible 00:33:58] is one of Qantas’s top frequent flyers actually for a while. I drew a lot of inspiration from them. I’ll tell one quick story. I was on one Qantas flight and the manager came over to the gentleman next to me and said, “Welcome aboard Mr. Duh, duh dah, great to have you.” Then skipped past me. I didn’t get an introduction. I’m like, why didn’t I get introduction? I’m like the top, top, top status of the airline.

(34:28):

I’m important. Ego, ego, ego. Then I asked the guy next to me, I said, “You must be like a gold member or something.” He goes, “Yeah, I’m a platinum member, I’m da, da, da.” I’m like, “Oh, okay, cool.” Meanwhile, I know I was actually above platinum, I was higher than that. I thought, boy, this is odd. I just emailed someone at the airline, just said, hey, it was just a bit weird. I’m not complaining, just odd. And the lady calls me up there and she goes, “It shouldn’t have happened, sorry. We want to make it up to you. What are you doing next week?” I said, “I don’t know. What have you got planned?” She goes, “John Travolta’s in town, do you want to go on a flight with John Travolta on his 707 Qantas livery aircraft over Sydney for two hours?” I said, “No, I’m busy.” No, I’m kidding. With John Travolta as the captain.

Graham Brown (35:23):

As the captain.

Mark Ross-Smith (35:24):

As the captain. As the captain. Obviously I said yes and had a great time drinking way too much champagne on his private plane at the time.

Graham Brown (35:34):

That’s rather amazing.

Mark Ross-Smith (35:37):

This is not surprise and delight. This is blow your mind type material as a loyal customer. So suddenly I had this experience just a bit odd. Not really complaining. To suddenly my perception of the loyalty program, what the brand could do for me as a passenger is obviously beyond my expectations.

Graham Brown (35:56):

How many miles did you have to do to be at that level?

Mark Ross-Smith (35:59):

A lot.

Graham Brown (36:00):

I imagine. John Travolta was not cheap. They didn’t do the flight just for you though, did they?

Mark Ross-Smith (36:04):

No.

Graham Brown (36:05):

Just for that? They were doing it anyway, but they managed to get you on it, which is great.

Mark Ross-Smith (36:11):

I think it was probably 10, 15 people on the flight.

Graham Brown (36:13):

Wow.

Mark Ross-Smith (36:14):

Yeah.

Graham Brown (36:15):

What an experience. That’s amazing.

Mark Ross-Smith (36:17):

It was awesome.

Graham Brown (36:18):

How many people do you think you told about that?

Mark Ross-Smith (36:22):

Probably five million people. No, the value of the story for the airline now is huge. It’s these experiences that I drew from. Then obviously I got into the airline industry after that. That really got me interested in. I had to work my way through it. Eventually ended up running loyalty at Malaysia Airlines in Malaysia. Applied a lot of that. I’m a customer, what can I do for the airlines customers as well? How can I wow them? How can I do stuff that they would never expect that would just put that little seed in their mind.

(37:00):

It’s something they could tell their friends about. Even if it’s just something small. This is part of the art. This is the art of the loyalty program. How that combines with the science part. So living at an airport for 73 days had a bit of time on my hands after work. Being an airline gig, can I just wander around the airport? What could I do? Had a magical badge that all access everywhere. Air access to do anything. And so I just started doing stuff I thought it was kind of cool.

(37:29):

Stuff that I would like if I was a passenger, if I was there at the time. One that got a bit of attention online, I went and bought a bunch of Godiva chocolates from the store in the airport. I thought, I’m going to give some way to silver members, some to the gold, some to platinum. I’m going to hunt these people down. I’m going to give exact people. I had some people flying that day. I was going to give these people too. That was my fun for the week.

Graham Brown (37:53):

So you had a list of these silver, platinum members, gold members, and you had to find where they were in the airport and present them this gift.

Mark Ross-Smith (38:02):

It’s like a little treasure hunt.

Graham Brown (38:03):

How do you do that? How do you know where they are in the airport? I’m curious. I know they’ve got these tracking things now, but.

Mark Ross-Smith (38:08):

It was different. The gold, the platinum, you could assume they’re in the airline match. Because it’s the default place to go. You go in there. Is Mr. So and so in here? Oh, he just came in before, he was wearing a red shirt. There’s a bit of that. When I found these people, “Mr. Smith, thank you for being loyal. Here’s some chocolates for you.” And the reactions I had were totally unexpected. I was just going to give him some chocolates. It’s a bit selfish, a bit of fun for me really. One gentleman, he was on a flight to India for the doctors without borders, is that what it’s called?

Graham Brown (38:52):

Yeah.

Mark Ross-Smith (38:57):

He started tearing up a bit and says, “This is great. I’ve been really loyal to this airline throughout all the years. Throughout all their issues the airlines had, I’m still a loyal customer. I’m flying tonight on this one. I always fly on this flight.” He’s in economy class. He’s not big spender, he’s just really loyal. And I didn’t know that until that point. Gave him chocolates and he’s like, “I’ve never met anyone from the airline in a higher position.” And he just said, “Thank you, thank you. I’m going to continue flying the airline now. Thank you, you just made my day.” It’s just those few seconds. It was a 60-second conversation, made that guy’s day, got some chocolates and he was happy. It’s pretty typical experience because they’re just not expecting these things.

Graham Brown (39:50):

Isn’t the challenge without Mark, is that firstly somebody’s going to argue about the cost of Godiva chocolates, but I think we’ve kind of beyond that in terms of the value of that customer to the airline long term. Over the cost of the chocolates, the ROI is pretty huge. I don’t think it’s the cost, economic cost part. It’s more of the emotional human cost which is somebody’s got to do this. What you are doing is an exception.

(40:16):

So how do you make the exception the rule? That’s the challenge. How do you create that culture or have workflows, the science, if you’re such that it becomes the rule. That there isn’t just Mark Ross-Smith doing this. Where is he today? He’s in LA. All right, when’s he coming back round to Asia? He’ll be back in July. We can’t have that kind of scenario. It’s got to be happening everywhere. It doesn’t have to be so extreme, but you’ve got to have something like that.

(40:46):

Even if just like, I’ve never met somebody at the airline before. That was quite insightful. We’re having that kind of emotional touch. Oh, you’re not just a bunch of faceless mercenaries, which for most people is how they may view an airline. It’s like I just buy the cheapest ticket. Or the one that’s not going to screw me up on the way. So how do you make the rule as opposed to the exception?

Mark Ross-Smith (41:11):

You’re right that most people when they interface with the airline, the loyalty program is that interface. It’s the member account. They’ve got a card. It’s like they’re very proud. People carry their gold cards in their wallet or their purse and show people like, hey look, I’m very proud of this. That’s their emotional connection to the airline. That’s their interface to them. So when they see that from the airline, it’s a real wow moment.

(41:39):

It’s like, ah, it all makes sense. All the dots are aligned for them. This is why I’m loyal. This is why I keep flying this airline because this thing happened that I didn’t expect that’s really positive. Airlines are very good at this. Consistency and making people feel good over and over and over and over. Eventually it’s actually the same feeling as falling in love. That people start falling in love with the brand. And that’s why airline loyalty programs are so sticky because people are just, they’re in love.

Graham Brown (42:13):

Well, when you love someone as well, you can take them on a journey. I’m not sure where that’s going. Maybe not the right use of analogy, but there’s that trust that they will then try other things. So the great thing about having strong brand loyalty is that you can introduce new ideas and take that customer to try new services. So in finishing up, I’m really interested to hear your thoughts about where this is going. If you have a situation where you have a strong loyalty program with good data, which is the science.

(42:48):

And you have a really deep understanding of the customer, that empathy, the art which you call it, then you have this. Together that creates that winning formula for the third chapter, which is a lot of airlines talk about transformation. Where are we going to be in 10, 20 years time? Where is the next growth story in this airline? We’ve already seen it with some airlines. We’ve mentioned Air Asia, they have many different ancillary services, I suppose they used to call them.

(43:19):

Now driving revenue. We’ve seen examples with the Chinese players who started out as Groupon or started out as a delivery service and now are banks. We’re starting to see this happening, this transformation where it could be a taxi service, like a grab from Malaysia who now are a digital bank. So why not airlines? Where is all this going and who are going to be the winners and losers in this?

Mark Ross-Smith (43:50):

So I think we’re already starting to see airlines move in this direction. A lot of it is driven by them looking at other technology companies and seeing what they’re doing and these insane valuations and the amount of money being raised and all these things. Airlines are like, how do we get a piece of that too? Because airlines are pretty good at raising money from governments. If they can apply that to the wider market.

(44:16):

Think of it. An airline is really hard to start up. It’s expensive, really expensive, it’s really time-consuming. But once you’ve got it there, it’s easy to branch out into other things. So financial services is really the big thing that they’re moving into these days. And the loyalty program effectively is a financial services company. There’s a really great podcast by Brian Hobart and he talks about how loyalty programs and airlines really are just FinTech and marketing companies.

(44:51):

He talks about how it’s actually, if you’re a FinTech company today trying to acquire customers, it’s actually cheaper to go to start an airline. Go through all the nonsense of doing that, funding the airline, do all that. It’s actually cheaper do that to acquire customers than it is to acquire customers through traditional methods of financial services, customer acquisition.

Graham Brown (45:14):

That’s incredible. I’m sure it was said partly as a joke, but there’s probably a lot of truths in that. The subscriber acquisition cost in financial services. What are we talking? Probably a few thousand for a quality customer? There’s a wide range of different customers as well. If you’re acquiring somebody who may be high net worth, those loyalty program type members. How much would they pay for those guys? Five, 10,000 maybe?

Mark Ross-Smith (45:44):

There’s a bit of money floating around there. Yeah, that’s for sure.

Graham Brown (45:46):

Yeah, absolutely.

Mark Ross-Smith (45:48):

So it wouldn’t surprise me if we saw a FinTech company or a startup buy an airline purely for the customer acquisition or to increase the enterprise value. I think we might see reverse kind of scenario here.

Graham Brown (46:03):

That’s incredible. If that actually happens, if they were to do that, if you were a FinTech company, obviously what we’re looking at now is that the valuations airlines going to be hugely differential throughout the world. But what would make sense for them if they say, okay, right, actually we’ve done the math on this. Maybe the subscriber acquisition costs for your service is $5,000, but if you buy this small airline, maybe high net worth airline, or even invest in it and get access to this data. Where would that make sense? Well, they’re not going to buy Singapore Airlines for example, or American Airlines potentially. I don’t know. Let’s review this in 10 years time maybe. Famous last words. Are you serious? Do you think this is actually happening in the foreseeable future?

Mark Ross-Smith (46:56):

I think it’s going to happen one day. Maybe we’re calling you a little bit early right now, but it makes sense to happen. Because traditionally airlines have gone out there and bought hotels and catering companies and all this sort of stuff. Whereas I think it’s going to be a total flip. I think there’ll be all these other companies trying to buy airlines, not for the airline business, but to achieve something else within their business.

Graham Brown (47:17):

That’s a fundamental shift. So basically what those airlines did before was they bought hotels and insurance as an add-on to existing customers so that they could upsell value added services to them and they could get an extra 10, 15% out of that customer. Yet what we’re talking about now is where a financial services provider or somebody who has high customer acquisition costs could actually do that cheaper by somehow getting their hands on an airline in some shape or form.

(47:51):

Acquiring an airline or investing, who knows? Or some form of travel company that has access to a lot of data like that. That’s really interesting. I’m sure it’s going to make people think a little bit about their business models as well. I find that fascinating. The numbers are there. But hopefully today has been a walkthrough for the listeners about the potential of travel. A lot of people see travel, obviously because what it’s been through in the last couple of years is an industry which is heavily subsidized obviously by government or these bailouts.

(48:24):

But if you look at the numbers where we are now, especially in the private sector, it’s healthy. I think we haven’t even tapped into the value yet. There’s this real sleeper value that a lot of airlines, and now we’re starting to think about financial services could tap into. This is an exciting time. So moving forward, Mark, thanks for sharing this with us today. Those people interested in this market, who generally, before we put the call-out to where people can find out about you is, what kind of companies do you find are you having conversations about this with these days?

Mark Ross-Smith (49:02):

We’re talking to a lot of airlines, hotels, people that play around the airline space or people that want to deal with airlines and loyalty programs as well.

Graham Brown (49:14):

Would it be somebody with loyalty in their job title always?

Mark Ross-Smith (49:19):

We talk to a lot of airline loyalty people about where their business is going. How they can attract new customers. How they can keep existing customers. How they can monetize existing customers more. Because really it’s their duty to do more of that, if anything, to protect themselves from a FinTech company buy.

Graham Brown (49:40):

Exactly. You heard it here first. Mark Ross-Smith, everybody. Where do we find out more right here?

Mark Ross-Smith (49:45):

You can find me on LinkedIn or statusmatch.com.

Graham Brown (49:50):

Awesome. You’ve been listening to the XL podcast with me, Graham Brown. To subscribe and discover more conversations, go to www.xlpodcast.org.