Avios is the common currency for IAG airlines, of which British Airways is the largest. Iberia contributes significantly, Aer Lingus is a very small portion of the program. At IAG’s Capital Markets Day their presentation revealed quite a bit about their loyalty scheme and customer behavior.
There are just 9 million active members on the platform out of 34 million total members, a great reminder that when programs release their total membership that’s everyone in their data file who ever joined not folks who are engaged in the program.
It’s interesting that 1 million active members are in the Americas, that actually seems low compared to total British Airways revenue originating in the U.S. – a fact that must be attributable to U.S. customers coming from AAdvantage.
More Avios are issued than redeemed, and IAG expects the rate of issuance to grow faster than the rate of redemption (‘free money’).
Even though there are strict limits on interchange in the U.K., and therefore not a great opportunity to drive profits from credit card deals there, the business is able to generate significant cash especially for its size. It does this in part through card deals outside of European markets, and in part through its other retail and banking partnerships.
When they talk about ‘headroom for growth’ in the program they’re really sharing how the program underperforms expectations so they should be able to improve. It’s impressive how low a proportion of airline revenue is driven by program members today.
Like in the U.S. more points are issued from sale to partners than awarded for flying — but it’s a lower percentage, U.S. peers average around two-thirds of miles sold and Avios programs are merely at half.
Despite opportunities to redeem Avios for any number of things, travel remains the vast majority of redemptions – representing about 95% of all points redeemed.
Customers prefer spending more miles in exchange for being charged lower fees.
Despite signing a binding MOU to join the Avios currency several years ago it seems clear that Royal Air Maroc is no longer on a path to do so, despite being about to join oneworld. The airline is not mentioned anywhere in the presentation.
Avios is a driver of profit, strong relative to size and regulation, but does less of a good job driving airline revenue that one would expect. Most program members are inactive, which isn’t surprising, and members prefer inflated award costs of cash co-pays (fuel surcharges).