Loyalty programs have become a multi-billion dollar revenue stream for travel companies, yet this success has come at the expense of their original purpose: forging stronger connections with customers. How can marketers capitalize on new innovations in technology and shifts in traveler behavior to build more genuine customer loyalty and larger profits in the future? Buy the full report here: http://skift.com/travel-trends/the-reinvention-of-airline-and-hotel-loyalty-programs

1. The Reinvention
of Airline and
Hotel Loyalty
Programs
SKIFT REPORT #11
2014
Loyalty programs have become a multibillion dollar revenue stream for travel
companies, yet this success has come
at the expense of their original purpose:
forging stronger connections with customers.
How can marketers capitalize on new innovations in technology and shifts in traveler
behavior to build more genuine customer
loyalty and larger profits in the future?
By Jeremy Kressmann and Skift Staff
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3. The Reinvention of Airline and Hotel Loyalty Programs
SKIFT REPORT #11 2014
Executive summary
Loyalty marketing is a multi-billion dollar revenue stream for the
travel industry and the programs, as measured in terms of total
number of enrollments, are more popular than ever. But changes
to the industry landscape and changes in consumer behavior have
many observers questioning if they still serve their original purpose:
building connections with customers. This question is all the more
urgent as new technology tools give travelers access to better information about their travel experience, opening up more information
about everything from prices to customer reviews than ever before.
This information is also creating new learnings for travel marketers
as well, who are gaining more ability to selectively personalize the
travel experience and identify pain points as they happen.
While the “points for rewards” loyalty paradigm still rules, there
are plenty of new loyalty strategies that are challenging this model.
A tidal wave of data, coming from customer mobile phones, social
media and digital behavior on booking websites offers new opportunities to better personalize services, surprise and satisfy customers.
Meanwhile, this huge wealth of information is also forcing many
companies to rethink how and why they are deliver rewards to loyal
customers, becoming more transparent and responsive in the process. Those companies that manage to incorporate this wealth of
travel data into their loyalty offering stand to reap significant rewards, both in terms of customer perception, but also in terms of
their bottom line.
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4. The Reinvention of Airline and Hotel Loyalty Programs
SKIFT REPORT #11 2014
Introduction
Source: Nick Harris, Flickr
Travel loyalty programs. A simple idea to create product differentiation following airline industry deregulation in the late 1970s has
morphed into a global marketing juggernaut adopted by virtually
every corner of the travel industry, from airlines to hotels to rental
car companies and beyond. The amount of money at stake is immense: COLLOQUY, a marketing and consulting research firm, recently found consumers had amassed more than $48 Billion dollars
worth of rewards.1
Yet despite this wild success, there is a growing sense among both
travelers and marketers that the programs are flawed. A system that
was designed to create stronger bonds between travel customers and
travel businesses has turned into something else entirely—a massive
revenue stream. The program revenue generated via alliances with
credit card issuers and consumer businesses that profit off loyalty
programs are making travel businesses rich, but the original goal—
forming an emotional bond with the customer—has been lost, with
potential long term consequences. In fact, the changes are already
happening: a recent survey of traveler perception of loyalty programs by Deloitte found that just 14 percent of respondents always
fly the same airline, while just eight percent always stay at the same
brand of hotel.2
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5. The Reinvention of Airline and Hotel Loyalty Programs
SKIFT REPORT #11 2014
According to travel industry analyst Henry Harteveldt, the entire
concept of loyalty marketing needs a complete overhaul. “If I were
running loyalty at a travel company, I’d probably want to see how
quickly can I end my current program, and how do I ‘green field’
something new that reflects the new competitive dynamic of my industry and what are my real objectives. These loyalty programs have
stopped being about customer loyalty and they’ve turned into cash
cows for their sponsors.” As hotel and airline loyalty programs become less important in purchase decisions, they’re simultaneously
being disrupted by several changes to the industry landscape:
• Continued industry changes in how rewards programs are structured and how the rewards are earned and redeemed
• Increased transparency of program value due to technological innovation, decreasing brand competitive advantage
• Shifting preferences among travelers’ for finding, booking and
taking advantage of rewards while traveling
• New and more types of traveler data that help travel businesses
better respond to and personalize the travel experience before, during and after it happens.
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6. The Reinvention of Airline and Hotel Loyalty Programs
SKIFT REPORT #11 2014
Table of contents
Executive Summary 3
About Skift
Introduction 4
Behind the trend 7
The birth of loyalty: creating the rules of the game 7
Credit card co-brands surge 8
Increased transparency and mile hacking 9
Metasearch and new digital comparison tools 10
Devaluation hits the industry 10
The rise of online influence and loyalty consequences 11
Experiential loyalty marketing 13
Smartphones, data and loyalty 14
Digital case studies 16
Kimpton InTouch Rewards 16
KLM Surprise 17
Strategies to increase the value of loyalty offerings 18
Further Reading 20
About Skift 21
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