Guest Blog: Airline Loyalty Applied to Low-Costs’ Business Model: the Next Big Thing

In Airlines, Asia, Featured on App, Low Cost Airlines by lorna1 Comment

Guest Blog: Airline Loyalty Applied to Low-Costs’ Business Model: the Next Big Thing

Claus Berger from Air Scoop discusses airline loyalty for low-cost airlines business models.

Airline loyalty has been, is and will often be neglected in the airline industry. This statement appears even acuter when it comes to low-cost carriers which sometimes disregard loyalty and aggressively focus on low fares instead. This would be a mistake as the ability to retain customers will be an opportunity to seize.

Low fares is no longer enough

Arguably, one could consider that low-cost carriers have achieved their goal and imposed a new modus operandi to the whole airline industry. Thanks to companies such as Southwest, Ryanair or Air Asia, the air transport industry has finally become accessible to the mass and broke free of its elitist chains.

However, things are changing fast. The so-called merging of models (the narrowing of the cost gap between major and budget airlines) and the lack of visibility on tickets' genuine price (mainly due to the excessive amount of various airline fees) will draw away the customer from pure financial motivations.

Ironically, as passengers grow accustomed to lower fares, the notion of "cheap and cheerful" is set to be increasingly challenged. On the other hand, so-called "drivers of loyalty" will develop into a market opportunity that low-cost airlines should not ignore – this is particularly relevant for the European market where the airline industry is changing to meet the expectations of an ever-demanding clientele.

Being less price sensitive, loyal customers are also easier to communicate with and are more business secure than the occasional travelers, according to a study (Gomez, Arranz and Cillan, 2006), which happens to be an opportunity in an industry that is set to become more competitive.

At Air Scoop, we strongly believe that in the coming five years, low fares will not be enough despite staying essential; retaining passengers as loyal users will also be the key to a successful model.

How to mix airline loyalty and a low-cost business model?

Loyalty is often viewed, and very wrongly so, as an expensive service. This common mistake is due to mixing up loyalty and loyalty programs when the latter only serves as a means to increase the former. Nevertheless, there's a safer way to greatly improve airline loyalty: reputation.

Indeed, a 2011 study of the University of Wollongong, Australia demonstrated, according to the responses of 687 passengers, that "behavioral loyalty" can be explained by different variables that include "booking criteria, satisfaction with the airline, image of the airline and frequent flyer program membership". The responses from the passengers would be strongly influenced by whether they subscribed to a frequent flyer program, cared if the company was national or not and, finally, if it had a good reputation.

These are not some empty words. In a recent interview for Bloomberg, Ryanair's CEO, Michael O'Leary, admitted he might have to "soften the sharper edges of his personality". This statement echoes with a study proving the largest European low-cost airline is also the most commented upon in the media, and the media coverage is hardly positive. As for easyJet, the company has always been aware that without a good reputation, it wouldn't be able to retain the business class it is trying to seduce.

Of course, it doesn't mean that trying to get the lowest fares mustn't remain the primary goal of any low-cost airline; yet, in the end, between a cheap ticket and a slightly cheaper ticket, the customer will definitely turn to the company with a better image and, eventually, stay loyal to it. Consequently, we consider reputation is set to become a next weapon of choice on the battlefield for loyalty, as well as a reassuring sign for investors.

Basically, good reputation is money-rewarding for low-cost carriers, when bad reputation will ultimately result in loss of cash. Another way to put it: if you do know not where to invest, you should definitely work on your PR skills. Who knows, it might save your business.

The World Low Cost Airlines Congress is where you will meet with leading global carriers to understand what they are doing to get the competitive advantage in over-served markets. Click here to find out more about attending.

Stay up to date with Blue Sky, click here to subscribe to our enewsletter. It's free and only takes a moment.

WLCA 604x105 static

Comments

  1. Jerry Angrave

    Thanks Claus, interesting reading and I agree that reputation is critical. I also think though that many organisations (not just airlines) risk misreading repeat purchases, which are driven simply by apathy, inertia or convenience, for loyalty. For me, by definition loyalty is a function of choice so the reputation issue has a huge role to play.

    If an airline’s reputation is built on a rich and deep understanding of what pax really value and what differentiates them from other carriers, it reduces the risk of them being seduced away by offers elsewhere. The reasons people give as to why they definitely will or definitely won’t fly with an airline again rarely come down to being cheap or too expensive. Passengers may be attracted by the lowest price but if they then feel they are treated with contempt when it comes to communication around lost bags, schedule changes and so on, they will decide how important cost is in the overall mix. The brand is what the brand does, and that drives the reputation. Boards and investors are looking to widen the proverbial jaws of revenue and costs, so while the focus of an industry is on the cost base, having the right reputation can underpin and protect the revenue side of the P&L.

    Kind regards

    Jerry

Leave a Reply