Hotels have largely been extending status for Chinese residents and in some cases for residents of Asia. Some Asian frequent flyer programs have been offering status extensions due to coronavirus. No one wants to lose their elite frequent flyers. After all, those are the customers who will drive the most revenue when people start flying again.
However it’s important to be able to use the loyalty program to goose travel, rather than just giving away the store without travel. So how do we understand status extensions, versus taking a wait and see approach and maybe using a double qualifying offer later in the year?
- It depends on the market
- It depends on what competitors do
- And it depends on behavioral data
The former head of Malaysia Airlines Enrich writes about how to know whether to employ status extensions and talks about the Malaysia Airlines experience during a crisis for the airline (he’s seen the data, so he isn’t merely hypothesizing). Still, while he makes good points I do not agree with all of them.
Each Sector And Market Are Different (For Now)
China basically closed for two months. As of last week less than a third of Chinese small and medium-sized businesses had re-opened, especially retail and companies without a way to bring workers back to their city. Many of those are on the brink of financial collapse. Status extensions in China make sense.
And with Cathay Pacific’s reliance on its China route network, and also struggling business in the face of long-term pro-democracy protests, Hong Kong extensions probably do as well.
Iran Air Sky gift should probably extend status. And Alitalia should as well for residents of the North – and actively court the customers of defunct Air Italy. The rest of the world isn’t China (yet?) and extreme measures may wait in favor of waiting to see what strategy is best. If travel picks back up mid-year that’s a different scenario than where all of 2020 is lost.
In addition airlines aren’t hotels. As Mark Ross-Smith observes hotel customers are more likely to split their loyalty than airline customers are.
For Calendar Year Programs It’s Too Early
We’re still early in the calendar year and don’t know what’s to come. Programs would love to use status extensions as a means of goosing travel and filling seats, rather than taking customers off the hook to actually fly. That’s why many would prefer to wait (customers may travel, worrying about their status now) and employ double qualifying miles (and/or dollars, to encourage travel later when things recover).
The game theory here though is,
- If another airline offers to status match your customers for next year, they don’t have to fly you to keep their status for next year and could defect.
- If other programs appear to be more generous and caring, that could erode customer loyalty for your brand – so there’s a collective action problem. One airline might defect and poach customers. That’s not valuable if everyone does it. And everyone else would prefer that no one does it.
- How does likelihood to keep status affect cardmember spend? A customer who thinks their status will end may not be as likely to spend on a co-brand card. That’s a double loss, on top of reduced travel, and may happen anyway in a slowing economy – how does elite spend change relative to the overall cardmember pool?
Of course Alaska Airlines is already dipping its toe in the water of bonus elite qualifying miles (registration required). Their offer is only a 50% bonus (not double) and only through April 11.
The Case For Waiting
It’s a different analysis for programs with qualifying years that vary by member. Nonetheless, assuming that members have more than two thirds of the year left to qualify a wait and see approach may be ideal. Giving out status means not having to fly for it. Not having to fly for it, when members are flying again, means they can fly the competition.
Extending status now for next year is a risky business proposition. It also isn’t likely to put people in seats today. But it’s important to watch whether customer segments stop spending on a co-brand card, and it’s important for loyalty to appear sensitive customer needs.
A program that’s waiting until later in the year might promise to look at ways to recognize the challenging year that members are having. People, faced with their own uncertainty, will likely recognize and respect a message that says the program is waiting to see how things develop and figure out how to best tailor the circumstances that arise to member needs.