Airline Loyalty Research Articles

Customer Loyalty and Profitability: Empirical Evidence of Frequent Flyer Program

The aim of loyalty reward program is to retain profitable customers to the organization. Airline loyalty program such as frequent flyer program (FFP) is a phenomenon in marketing strategy used by airline industries to maintain customer loyalty and gain more financial benefit. However most airlines have very little understanding of their FFP members yet have little knowledge about their most valuable customers. This study aims to determine customer value to the company in the context of aviation loyalty reward program in Indonesia based on RFM analysis as well as to analyze the correspondence between the members’ value and their socio-demographic profile. This study used a proprietary dataset from a FFP’ membership of an Indonesian airline. The empirical result shows that axiomatic 80/20 rule is fit well on this FFP. Around 75% of the revenues come from only 20% of the members. Furthermore, seven segments of the FFP members are identified sequentially from the most valuable to the least valuable customer to the airline. Top Members generate the highest revenue and the highest RFM whereas Inactive Members are the least valuable customers. In summary, high value members are dominated by male members, age 46-55 years, having elite tier levels (Platinum & Gold) and working as a director and or an owner of the companies. The result contributes to the industry in developing marketing strategy, enhancing customer loyalty and implementing accurate marketing functions in term of FFP. The study offers a more accurate model for FFP member valuation than just simply based on the miles flown.

Key drivers of airline loyalty

This study investigates drivers of airline loyalty. It contributes to the body of knowledge in the area by investigating loyalty for a number of a priori market segments identified by airline management and by using a method which accounts for the multi-step nature of the airline choice process. The study is based on responses from 687 passengers. Results indicate that, at aggregate level, frequent flyer membership, price, the status of being a national carrier and the reputation of the airline as perceived by friends are the variables which best discriminate between travellers loyal to the airline and those who are not. Differences in drivers of airline loyalty for a number of segments were identified. For example, loyalty programs play a key role for business travellers whereas airline loyalty of leisure travellers is difficult to trace back to single factors. For none of the calculated models satisfaction emerged as a key driver of airline loyalty.

Attitude Toward Risk of Time Loss in Travel Activity and Air Route Choices

This article develops a disaggregate discret-choice model for risky travel alternatives, considering travel time as a random variable. The theory of rank-dependent expected utility is used to describe traveler behavior. It disentangles attitude toward risk of travel time loss (perception of time distributions) from attitude toward wealth (perception of time outcomes). The key assumption is that decision makers formulate their own beliefs on probability distributions whenever information is public knowledge. The concept of travel-time reliability premium is then defined. It generalizes the notion of value of travel time savings by proposing a measure of the willingness-to-pay to get another time distribution. An application to air route choice is demonstrated by using a sample of regular business passengers who belong to an airline loyalty program. The empirical approach relies on estimating a Box-Cox Logit model.

Loyalty Programs

Compared to hotel frequent-guest programs, airline frequent-flyer programs have gained not only more membership but greater penetration of key groups of travelers, notably, business travelers and high-income, high-frequency travelers. Based on a survey of 287 guests at nine hotels in Seattle, Washington, airline loyalty programs have gained considerably greater awareness among travelers than have hotel programs. One-third of the leisure travelers in this survey reported that they were not aware of hotel loyalty programs (even though they were staying in a hotel). The study found that travelers who join both hotel and airline loyalty programs are also the most frequent travelers. By far, the proportion of travelers who join airline frequent-flyer programs exceeds that of those who have joined hotel frequent-guest programs. Perhaps most critically for hotel programs, the surveyed guests would prefer to receive airline miles for their hotel stay than to receive hotel points.

Relationship marketing and airline loyalty schemes

This article examines the emerging concept of relationship marketing in an accessible way through an explanation of airline loyalty schemes. It provides evidence that success from relationship marketing schemes is not easily achieved. This is because of the proliferation of loyalty schemes and the build up of rewards to be redeemed which has affected levels of profitability and effectiveness.