The 4th level of airline customer engagement

Airlines tend to consider stable relationships as more profitable than one-flight-stands, and for good reason. Committed, loyal, or engaged customers are more likely to purchase again, require less marketing $ to capture and tend to be less price sensitive, resulting in higher yields.?

This has led to the development of countless tools and strategies to increase customer loyalty, but no clear definition of what exactly is an “engaged” or “loyal” person. Part of the reason is that engagement is not an on/off thing, but rather a journey.?

A good way to visualize this journey is to look at how the person sees the airline in each stage and what the airline can do to influence their decisions. The traditional model looks something like this:?

Skin in the game

As you can see, there are three main stages where the customer goes from being a casual, uninterested visitor to someone that expects to purchase more flights and takes steps to make future bookings more convenient.?

At the same time, the airline gradually gains information and tools that it can use to push the person to purchase. For some airlines this will mean enrolling the passenger in a loyalty program and rewarding purchases with miles, status and other perks.?

For others, the journey will end with a registered user that can be targeted with special offers and messages. In both cases, the customer always remains a passive participant that receives but does not have any “skin in the game” beyond the sharing of data or collecting of miles.?

The 4th level is here

The passive role of the customer as a mere receiver of benefits is now starting to change with the arrival of products that ask customers to pay a recurring fee to access certain benefits, like in the case of discount clubs.?

For now the fees are relatively low, below the $100 per year range, but have a significant on the airline-customer relationship. Thanks to the sunk cost effect, customers tend to see the special fares they can access for being part of the club as a better deal, and will often go to the airline’s website directly instead of shopping around.

This new 4th step is a significant one, but it is still far from an ideal scenario where customers are fully committed to the airline and never even think of looking at other airlines.?

A 5th level is on the horizon

The solution is a new, 5th level, that has gained momentum after the pandemic and simultaneously eliminates flight comparisons, stimulates demand and gives airlines a crisis-resistant revenue stream.?

We are talking about flight subscriptions.? With flight subscriptions, customers pay a recurring fee every month (that’s why they are called subscriptions) and get access to flights that must be used within that month. This has several interesting consequences:

First, the customer never reaches the stage where they shop for flights. The payments are automated and flights that are not used within the month are lost, so the obvious choice for them is to fly with the airline every month, regardless of what the competition is doing.

Second, it stimulates demand. Airlines, whether they want it or not compete with a lot more than just other airlines, subscriptions capture a share of the customer’s disposable income before it is assigned to other expenses, pushing people to travel more often?

Third, it results in a significantly improves customer experience by skipping the whole comparison of flights and by giving airlines a significant incentive to take care of their subscribers in order to retain them.?

Default-retain systems

The last point is more important than it might seem. In a traditional airline sale, the customer restarts the flight search process every time they want to fly, and the airline has to spend money to re-acquire them as a customer.?

How much money is spent and how it is divided will vary depending on how far along the loyalty journey they are, but either way it will be expensive. With subscriptions there will also be an expense to acquire the customer, but once acquired the customer is retained.?

This default retain setup, fuelled by monthly payments, is key to a lot of the subscription revolution because customers have to take active action to stop buying from the company and active actions require a motive.?

With traditional sales, the opposite is true, a motive is needed to purchase. The result is…?

A very big snowball?

We say snowball because while the customer acquisition spend remains the same or similar the number of customers will increase, adding to the pile, and these customers will be all unreachable by competitors.

The result is a situation where airlines that move first start building their snowball first and remove customers from the competitive market, gaining market share, growing their business, and making life increasingly difficult for competitors.?

Caravelo is currently the only company in the world to have developed and market-tested a full subscription platform that can handle anything from the simplest discount clubs to the most complex combined flight and benefits subscriptions, allowing you to start small and scale up.?

If you are interested in creating your own discount club or flight subscription and learn more about the results obtained by the airlines who are using them, reach out to us at [email protected]?