Managed Travel Comes to Terms with Loyalty Programs

The writing has been on the wall regarding loyalty programs for a long time. Marriott declared in 2019 when it unveiled Bonvoy that the loyalty umbrella, which consolidated Marriott Rewards, Ritz-Carlton Rewards and Starwood Preferred Guest after Marriott’s merger with the latter, was the most important brand in the company’s portfolio. We also know in 2023 travel suppliers leaned way into the value of their loyalty programs—redesigning and right-sizing them to serve a new traveler—and, frankly, that new traveler isn’t necessarily the contracted and frequent traveler.

Trends in loyalty are moving toward the idea of delighting the traveler in the moment—not simply rewarding them with “earn and burn” points or miles, which in a traditional travel loyalty program was the bread and butter of the business travel road warrior.

A bunch of airlines have tightened access to lounges and “de-valued” earned miles or points over the years. So much so that the U.S. Department of Transportation is actually looking into whether airlines have used deceptive practices, by saying loyalty members can get a free flight after X-many miles and then moving the goalpost with techniques like dynamic pricing to vary the number of earned points or miles it takes to purchase that seat, based on demand. Demand has been high in recent years and capacity not yet back to pre-Covid levels, so the point cost for available seats also has been high (and we know the dollar-cost is high as well).  

What’s Valuable Now? Every Traveler—If They’re a Loyalty Member

Suppliers have identified a route to traveler loyalty that looks a bit more democratic than focusing on that elite business traveler.

First, airlines realized around 2010 there was a huge opportunity to sell all the pieces of an airline ticket separately. Checked bags, differentiated seat locations within a given service cabin, actual cabin upgrades, early boarding, snacks, wi-fi, you know the drill—unbundling all those attributes created a retailing revolution, at least for travelers getting tickets and ancillaries directly on the airline website, where they can purchase their way back to a quality experience. Hotels are going a similar direction with attribute based selling, so get ready for more of that.

For status travelers, however, lots of those goodies are bundled back into the package for free. As the strategy matures—specifically, with machine learning and artificial intelligence overlays—loyalty-driven amenity packages should be personalized to the individual traveler’s liking and might even “remember” a recent bad experience and deliver a little something extra for the trouble. That’s where the delight comes in.

Second, suppliers have diversified the ways in which loyalty points and miles can be earned. Specifically, credit card relationships not only open up the loyalty opportunity to non-frequent travelers, they also bring in boatloads of revenue for airlines, thanks to a share of the transaction fees that come back to the travel supplier. Delta got $6.8 billion in revenue from its American Express card partnership in 2023. American Airlines brought in $3.1 million from card partnerships in 2022, Marriott got $2.7 million that year. In the grand calculus of commerce, having more loyalty members—even if they are less frequent and buy cheaper tickets than business travelers (and they don’t, necessarily, these days)—delivers more return for the airlines.

Plus, why sell contracted business at discounted rates when leisure travel and non-contracted business travelers, like those from small- and midsize companies, are paying full freight for the privilege? I realize that point can—and should—be debated, but for quarterly earnings and shareholder reports, short-term revenue goals remain a reality for most suppliers. Travel buyers report it is much harder to get discounted rates and added-value benefits, and that continues into 2024.

How to Maintain the Corporate Travel Experience

Even if you look at the loyalty return with a less transactional perspective, creating an environment where experience upgrades become available to more people through “earned” and “personalized” goodies and services delivers a halo effect to the travel supplier.

Consider McKinsey & Company’s latest treatise on travel loyalty programs, which shared the following:

“Our research finds that experience—far more than tangible, ‘earn and burn’ benefits—is what wins customers’ loyalty. Experiential factors, including ‘offering an experience worth paying more for’ and ‘feeling taken care of,’ have become more important over time and now account for three of the top five (out of more than 40) drivers of loyalty to cruise lines, hotels, and airlines. For hotels, experience has four times more impact than tangible benefits on purchase frequency, while for airlines, experience is more than twice as likely to influence frequency. Positive past experiences are the biggest factor in customers’ desire to travel more with a company in the future.”

The authors noted Delta’s free inflight Wi-Fi to loyalty members, which boosted enrollment in the loyalty program. The consulting firm predicted more “exclusive access to offers” that make loyalty members “feel like VIPs.” And, if travel managers are riled up by anything, they are riled up by the idea that these deals and benefits can only be accessed by booking direct with the supplier and not through a corporate channel. At least one U.S. airline is making sure that SME customers only get special program perks from direct bookings.

The problem with all this is that corporate programs ultimately have a hard time competing with the halo effect of loyalty programs—and that’s only going to get worse as benefits become more intimately tied to the travel experience. While corporate programs are designed to deliver a defined quality experience to the traveler, I’m not sure they are often designed to “delight” the business traveler. I can name only a few that would fall into the “delight” category.

Travel managers and companies do so much to keep business travelers safe and they want to support productivity, but travelers also want to see “what’s in it for me,” and if corporate programs stand between the traveler and the loyalty program—especially, when the loyalty program is now designed to deliver immediate experience enhancements and not just far-off, hoped-for trips to Bali—then business travelers have an immediate personal and, arguably, a productivity stake in accessing those benefits now. Maybe even if their tickets have to be booked direct.

New Distribution Capability may eventually ease issues in this area, giving access to all the retail content and lower fares. That said, NDC volume is at roughly 13 percent of agency ticket sales right now, according to ARC, and servicing issues on those tickets still present serious issues for most agencies. Booking tools also will need to keep up. All that takes time—and the infinite offer combinations in a retailing environment likely will be problematic for effective policy.

There might be an easier way.

There are plenty of technologies now available to managed travel programs that capture off-channel bookings—I can name three that begin with the letter “T”. There are TMCs and online booking tools that are tackling the issue with direct connect APIs and not using NDC through global distribution systems, though I think the latter route will improve greatly this year.

What I think remains lacking, even as access to full content improves, is the ability for travel suppliers and travel managers to share the customer. And that’s where I believe our industry will see the biggest breakthrough in 2024 when it comes to loyalty.

Last fall, I spoke with executives at two major travel suppliers, both of whom told me their companies were working on data sharing strategies that would help integrate supplier loyalty programs with managed corporate programs. How that data would be shared in a way that protects the privacy of the individual but allows the corporate program to quantify the value of the loyalty program and potentially to activate additional, customized benefits was not entirely clear.

I can imagine a blockchain strategy wherein suppliers and the travel program have access to a single source of data that includes loyalty usage as well as negotiated corporate benefits. That seems like the right fit, but it might not be the only fit.

What I do know is that today, with the technology available and—ironically—the full reality of unbundling upon us, our industry has the ability to resolve the conflict between loyalty programs and managed travel programs. I honestly can’t wait to see it happen, and I would wager most business travelers feel the same.