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Yesterday, I wrote about how loyalty programs are on the move. I presented market research data to show the direction in which loyalty programs could be heading. Not too long ago, the market was buzzing. However, we see ourselves in uncharted waters now. Given that the market has taken turn for the worse, will airlines and hotels roll back any devaluations?
Loyalty Program Devaluations
Airline and hotel executives have a decision to make. When the economy was doing better, people had more disposable income. As a result, they had a better ability to spend. Consequently, we saw programs move towards a spend based model.
However, now the picture is totally different. People have gone into saving mode instead of spending mode. Their likelihood of using disposable income for travel spend has suddenly become a lot less than it was a few months ago.
Restrictions on Movement
Government regulations have meant that people cannot travel even if they want to. Even those with sizable savings and disposable incomes cannot travel. Even if things get better in the upcoming weeks, we’ll only see a slow recovery. Airlines and hotels will open up in phases. Business travelers will pick up the baton much before leisure travelers. The psychological impact of Covid19 means that most people will think twice before they plan their next trip.
Easing of Restrictions
We’re already seeing many airlines and hotels ease restrictions for earning elite status. Many have also frozen point expiration altogether. This is a step in the right direction and allows consumers to stay loyal once business gets back on track.
The Pundit’s Mantra
Once governments ease restrictions and it becomes safe to travel, I don’t see programs roll back devaluations. That would mean a mea culpa on their part.
Instead, expect clever marketing messages disguised as temporary offers. Ever heard the term flash sales? Yep, expect airlines to announce these flash sales a lot more. Once markets stabilize, airlines will be immediately focused on getting people back into the habit of travel. One way they’ll look to achieve that is by offering lower fares and mileage redemptions. Since many of them don’t have award charts, it becomes very easy for them to offer a lower price temporarily, albeit unannounced.
On the hotel front, expect hotels to offer deals by offering premium rooms at standard rates as part of an offer. You could also see Hilton’s pricing get back to saner levels for a few months.
With regards to airline and hotel status, you could expect programs to keep lower thresholds for a while. If the market bounces back in a year or two, they always have the option of bringing them back to previous levels again.
Once things stabilize, loyalty programs will next focus on getting consumers engaged with their programs again. Their focus will be:
- Brand Awareness: Getting the customer’s attention as he/she is focused on other things
- Purchase Facilitation: Once they have your attention, using multiple touch points and offers in order to actually make the customer complete a purchase
Do you think any major loyalty programs will roll back recent devaluations? Let us know in the comments section.
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The hubris and bait/switch demonstrated by the Big3 has killed loyalty for me, and I fly them as a last resort (typically on points that I transfer from Chase when I find a deal). Because I’m off the hamster wheel, it doesn’t matter what they do because they’ve lost me. I had 8 biz select tix with SWA when this covid thing hit, and I got refunds on all of them. If I had those on United….HA! Yeah, it will be interesting to see if they spreadsheet clowns are able to find the reset button, but one thing is for sure, loyalty is an entirely different set of economics now, and people will learn how easy it is to work from home. :-). Free agency rules.
This is a great analysis and so is your other article from yesterday (link you provide at the beginning of this one). Despite the difficulty in making a prediction on devaluation, you do make good points that I agree on (BTW – we are already in a recession and a deep one. I am ready that it will last a lot longer than people think and that it will not be a V-shape recovery like the financial media says).
Another area of interest is whether credit card sign up bonuses will increase or decrease (bank cards and cobranded)? Is the Amex Schwab transfer rate of 1.25 cash out in jeopardy? Should we sign up for cards now or wait for better offers? I am mostly interested in all banks, except Chase because I toasted my bridges with them long ago (2.5 years ago) when I first started my mile/points collection because I was not aware of their syndical 5/24 policy and the now additional 48 months wait period.
What is your take on this? or are you writing an article on this?
Thank you!
Hi JB SanDiego,
Thanks for reading. Here’s what I think. I think that banks are currently looking to reduce risk wherever possible. As of now, they probably think they’ve extended enough credit into the market, so I expect them to offer lower credit limits for future approvals. Cutting welcome bonuses will help them cut a few costs, but it may also lower acquisition rates. You may not see the 100k bonuses around for a while but I think 50k could be the new normal as an ‘advertised’ limited time offer.
Also, higher than normal co-branded credit card offers may pop up once airlines and hotels resume operations. What would any airline or hotel want once they reopen? They’d like customers to become part of that ecosystem once again, the same ecosystem many may left by canceling cards or pulling back on travel during the recession.
Hope this helps.
Your the man Pundit!
I like your observation and is very much appreciated, to say the least!
BTW – I following this travel blog among your different authors. Although, as a software engineer (fortunate enough to be able to work from home), I don’t always have time to ask a question. Keep up the great work to all of you!!
Hi JB San Diego,
I appreciate the kind words. Stay safe and stay indoors!