Wednesday, January 9, 2013

Tourism and Technology Thursday - Airlines

This is based on an article that was first published on Tnooz earlier this week.  You can find the original article by clicking here.

Have you ever wondered how airline points work?  Well, the simple answer is that the airline tries to figure out how much business a customer will conceivably bring them during their 'lifetime.'  The higher value the customer, the more points one will gain.  It is not just about frequency of flying either.  A customer could conceivably fly every week and come out behind a customer who flies a few times a month. A customers value (Figure 1) is determined based on measures of frequency combined with the revenues generated by the consumer (minus the cost of acquiring and servicing the customer).  So if you got a really good deal on a first class flight, you may have less value than a person sitting in economy but purchase at a last minute high price.  It is a lot more expensive to 'service' a first class flyer than an economy one (free booze is expensive don't you know).  Further, if you book through a travel agent, you are worth less than a person who books directly with the airline.  In this case, the airline has to pay a commission to the travel agent, so that is deducted off your total value. 

Figure One Image from -

The ultimate guide to airline customer relationship management and loyalty

The ideal customers for the airlines are those who fly frequently (say three times a month) on long haul flights while booking directly with the airline.  If one does this regularly (i.e. establishes a regular pattern of business), they are typically viewed at being the highest value customers and are thus rewards at higher rates than those who travel infrequently or who price shop.  The more predictable your behavior, the more valuable you will be viewed as by the airlines as the customer becomes viewed as being brand loyal and of high potential to maintain a high customer value.

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