CRM_Project_Airline Industry.pdf

7/29/2019 CRM_Project_Airline Industry.pdf

1/29

!"#$%&'(

Submitted to:

Submitted by:


2/29

!"

#

$%&'

('

#&$'

#&$'%)#&

)%&&'#&'*

'$'#&'+

(,(&'

&-).$&

*).$'

/)&/

*.+


3/29

The dynamics of frequent flier and other loyalty programs are changing on several fronts. For

airlines, the recent changes have caused their strategic control over the programs to be in

danger of slipping into the hands of credit card companies that serve as intermediaries

between airline and customer. As this market evolves, companies seeking to capture more

value will have to deepen their understanding of customer behaviour and refine how they

segment customers. For each meaningful segment, companies will then have to crisply define

the currency of their loyalty program, so that customers give them repeat business thats

profitable in the long run.

Within turbulent, highly competitive marketplace, airlines are finding it increasingly

important to respond both quickly and effectively to changing patterns of customer demand.

Who are airlines' customers and what are their needs and aspirations? If airlines don't know

the profitability by customer, how can airlines be sure airlines are serving their best

customers and applying their value to all business decision? If airlines had the means to do

both, profits would soar. Not only would airlines become more efficient, the shareholders

would see an investment in their only real source of revenue, the customer, and the

meaningful profits that result. With so few new revenue opportunities, do airlines need more

aircraft? Or instead should airlines consider a customer relationship management program

that uncovers and maintains shareholder value. Airlines need to know and understand those

customers who contribute the most to their bottom line.

Airlines in today's global marketplace are faced with increased competition and shirking

profit margins. The challenge is sustaining and creating profits in the face of heavier

competition and product homogenization. The opportunities are in managing customer

relationships, controlling costs and applying customer profitability to the entire business.

Competition in the airline industry is intensifying as low-cost carriers continue to gain market

share. Today, airlines are turning their attention back toward the customer after years of

focusing on cost reduction. However, customer relationship management (CRM) technology

is no longer a competitive differentiator. The ability of airlines to sustain long-term revenue

growth and achieve profitability hinges on moving beyond traditional CRM to implementing

comprehensive and integrated loyalty management solutions that support the entire customer

travel lifecycle.

This project study will involve studying the changing phases of customer involvement and

changing models of Frequent Flier Programmes (FFP) and other loyalty programmes in theAirline Industry.


4/29

Loyalty programs are structured marketing efforts that reward, and therefore encourage,

loyal buying behavior behavior which is potentially of benefit to the firm.

Loyalty programs have been used in commerce for many years, originating in Germany

where price based competition was disallowed by governmental restrictions in certain

industries. In the 1950s, S&H Green Stamps rewarded grocery store and gas station

customers with stamps redeemable for appliances and other merchandise. The modern day

loyalty program was launched in 1981 by American Airlines, and was quickly duplicated by

other airlines and other hospitality industries including hotels, car rental companies, and

credit card organizations.

Airline loyalty programs, or frequent flyer program (FFP), are the harbingers of todays

sophisticated CRM programs. FFP membership has grown faster than growth of airline

industry itself. However air travel, as well as its loyalty programs has now become a

commodity. As a result, airline loyalty programs have drifted away from their original

purpose of promoting loyalty for an airlines brand, to being run as independent profit

centers.

The majority of airline frequent flier miles are now earned outside an airplane, by frequent

buyers than frequent flyers. Airline miles are earned for the use of credit cards, hotel stays,

car rentals, retail purchases dining out, and even for mortgage and real estate agents. A result

of this broadening of earning opportunities is that three times more airline miles are being

generated than are being consumed. This is a testimony to both the programs success as well

as failure, in not giving enough options to members for redeeming miles. Airlines usually

allocate limited seats per flight for redemption of award travel, giving preference to revenue

space over free tickets.

The airline industry has reached a crossroad. While on one hand fuel and labour costs

continue to be key issues, the phenomenal growth in passenger traffic has created new

opportunities for growth. In this highly competitive industry, while operational efficiency

helps reduce costs, customer satisfaction is the key to market leadership and sustained

profitability in the long term. Airlines have realized the importance of having happy

customers and are therefore focusing on customer relationship management (CRM) as a tool

for managing customer relationships. Unfortunately, in many cases, they have failed to

recognize CRM as a holistic strategy, instead viewing it as synonymous with their frequent

flyer programs.


5/29

In order to manage the customer more effectively across all lines of service, airlines must

change their approach to CRM in a number of ways:

Customer segmentationAirlines need to recognize that mileage-based segmentation is

inadequate, whereas value-based and needs-based approaches can help guide investment

decisions and drive greater insight into the needs of high-value customers.

CRM initiative developmentIn order to differentiate themselves from the competition,

airlines must abandon a fast follower approach to CRM initiative development, in favor of

investing in initiatives with a high return, which respond to the needs and desires of their own

customers.

Organizational design and managementAirlines need to instill a service mentality in

their employees, empowering them with a complete view of the customer and clearly

articulating the employees role in the CRM strategy.

By taking steps to implement a truly consumer-centric approach to relationship management,

an airline will be better positioned to acquire, develop and retain high-value customers.

Through the development and implementation of customer analytics and decision-support

technologies, airlines can begin to use customer information not only to differentiate service

levels based on customer value, but also to drive crucial operational decisions. In the end, an

airlines CRM program becomes a platform for achieving both near-term operational

efficiency and long-term relationship management and growth.

This study aims to answer some questions like

How can the airlines balance between earning revenue and retaining the loyalty oftheir existing customers through FFP?

How can they implement best practices of CRM in spite of the flight centric natureof an airlines legacy IT infrastructure?

How can an airline strike an optimum balance between revenue managementobjectives of maximizing flight revenues versus retaining the loyalty of existing

customers, and meeting the redemption expectations of their loyalty club members?


6/29

The study of CRM practices would not be confined only to airlines but would also involve its

users. It will involve an overview research of the Airline industry its CRM practices for e-

CRM initiatives also.

To understand and analyze the CRM practices employed in Airline Industry and also

Frequent Flier Programme (FFP) which in turn helps to enhance its business processes.

!

Airlines pioneered a new era in the travel industry when they created frequent-flier programs

in the 1980s. Decades later, these programs have grown in size and complexity and are

ubiquitous throughout airline, hotel, and travel retailer segments.

Today, more than a billion people are enrolled in what now are referred to as loyalty

programs. Airlines alone possess more than 125 million customers who have signed up to

receive free travel, upgrades, favorable treatment, and other rewards in return for patronizing

a particular carrier. Indeed, airline points have become the new currency in travel, with

more than 1.9 trillion pointsworth more than US$570 billioncurrently in circulation.

As loyalty programmes have become commonplace, airlines have struggled to differentiate

their offerings from the offerings of other companies. Many have formed partnerships with

other airlinesthe OneWorld and Star alliances, for examplethat allow customers to

collect points from any alliance partner and spend them on the program of their choice.

Airlines have also developed extensive networks through cross-industry partnerships that

enable travelers to collect airline points for hotel stays or from using jointly branded credit

cards with banks. Additionally, airlines have created multitier loyalty programs to provide

different rewards as well as incentives for customers to upgrade to the next tier.

More Choice, Less Loyal

The original loyalty programs, pioneered by airlines in the 1980s, relied on air miles to

reward customers. Reward miles became the de facto currency that customers earned by

traveling and burned by redeeming for free air travel once they had accumulated certain


7/29

threshold mileage amounts. Hotels and car rental firms soon followed the airlines. Mileage

rewards became the common currency of the realm and promoted travel that many customers

might otherwise not have been willing to buy.

Airlines found value in several characteristics of the loyalty programs:

They helped shape customers travel decisions through the incentives of the air milesand rewards.

As airlines distributed rewards, loyalty programs became an opaque channel fordistribution of their marginal capacity.

Airlines and credit card intermediaries benefited from the float of miles and breakageeconomics (the difference in customers collective rate of earning and burning the

points).

Credit card companies entered this market as intermediaries on the earn side of the equation,

allowing frequent flyers to earn reward points by using credit cards for purchases. To do this,

credit card companies bought miles from airlines and other enterprises for cash. Customers

would then burn points to claim free travel rewards from the airline. Today, revenues from

credit card partners constitute the great majority of major airlines total loyalty program

revenues, according to analysis by Mercer Management Consulting. The top three North

American airlinesAmerican, Delta, and Unitedeach derive close to $1 billion in revenues

from their loyalty programs, from more than 50 million members each. The programs

encourage customers to

earn and burn mileage

points in order to sustain a

cycle of repeat purchases.

They also promote use of

credit cards and other

partner business, so that the

airlines can sell more miles

to their partners (Exhibit 1).

In recent years, with more

planes flying close to full,

the availability and,

possibly more importantly,

theperceivedavailability of


8/29

reward seats has declined. Among airlines and a few other cases, the float or overhang of

outstanding reward points has reached exorbitant levels: Out of the roughly 2,000 billion

miles awarded, only about 500 billion have been redeemed. As a result, customers have been

turning to credit cards not only for earning miles but for burning them as well. In a recent

WebFlyer survey, 81% of respondents agreed that loyalty programs have gotten worse in

rewarding loyal customers over the past 25 years. Not surprisingly, customers perceived

value of the currency is declining; in the same WebFlyer survey, 93% of respondents agreed

that loyalty programs are not serving loyal customers, but are primarily a marketing tool.

This attitude has a direct impact on how credit card companies and their customers value a

point. If customers put a lower value on a certain reward currency, they have little incentive

to use the associated credit card to earn that currency. Customers have been demanding more

options, and credit card companies are pressuring airlines to boost the perceived value of

their points by providing more options to burn mileage (Exhibit 2).

American Express has reacted to the perceived decline in reward currency values. In a recent

overhaul of its Membership Rewards program, Amex is making two significant changes:

first, making it harder to earn points, especially double points for everyday purchases at

grocery stores and gas stations, in order to reduce customers earn velocity; second, shifting

customers earn options to new ones that are more attractive to desirable customer segments,

such as those who earn points at the Gap and Target versus those who earn at grocery stores

and gas stations. Some programs have capitalized on the demand for options. For instance,

Hiltons HHonors program offers redemption options including merchandise and tickets for

airlines, rail travel, theme parks, and cruises. Along the way, then, the two core objectives of

airline loyalty programs started to diverge. Providing more options has clashes with the


9/29

airlines core goal of retaining customer loyalty. Consequently, despite the flow of payments

from credit card companies to airlines, value has in fact been migrating to the credit cards.

While credit cards already offer ways to earn points, they are responding to customer demand

for more burn options, particularly for those customers whose marginal utility of reward

points, beyond a threshold, is low. These include customers who cannot find travel rewards

they would consider meaningful; those who would rather pay for their travel rather than deal

with the hassles of award redemption; and those who have earned more points than they can

ever use. Hence the tag line for the American Express Membership Rewards program:

Because not everyone lives to earn airline miles. The program lured customers who did not

want travel rewards, offering to redeem earned miles for other rewards. By expanding their

intermediation, the credit card firms are diluting the travel loyalty programs influence over

travel purchase decisions. Capital One has made perhaps the most aggressive push into the

airline loyalty space with its No Hassle Miles cards. Customers trade 15,000 miles for

flights worth up to $150, 35,000 miles for $151-$350 flights, and so on. Why would this be

attractive to some customers? Airlines may or may not be able to fulfil an award trip to

Hawaii, depending on seat availability. But with the credit cards, by contrast, there is no

guessing, because credit cards buy the ticket outright. In return for removing this uncertainty,

customers pay a transaction fee.

Coin of the Realm

Its helpful for executives to think of the loyalty market as a form of currency market.

Airlines, hotels, credit cards, and other program owners all have their currencies floating in

consumers wallets.

Some currencies are

turning out to be

stronger than others.

Starwood, the hotel

and resort chain, has

engineered a higher-

value currency than

have airlines or other

hotels. Customers

realize that their


10/29

implied returns vary across loyalty programs, and they are increasingly choosing one

currency over another (Exhibit 3).

In real monetary markets, there have been periods when one reserve currency loses favor and

the world shifts to another reserve currency. During the era of the gold standard, the British

pound was the dominant currency. After 1914, as Great Britain turned from being a net

creditor to a net debtor, the U.S. dollar gained primacy.With perpetual current account and

fiscal deficits, the pound never regained its strength, and the dollar has remained

unchallenged as the world's main reserve currency. According to The Economist, nearly 70%

of official foreign exchange reserves are in dollars today, with the Euro being the second

most commonly traded reserve currency. For loyalty programs, competitors must ask

themselves which currency will gain primacy credit card currency, airline currency, hotel

currency, or something else? Airline loyalty program currencies clearly have suffered the

most over the past few years, as customers perceive that less aircraft capacity is earmarked

for rewards, lowering the implicit value of airline miles. In a WebFlyer survey, customers

reported a 50% success rate with airline award availability, compared to a reported success

rate of 75% with hotel awards. As the overhang of reward points increases, the marginal

value of points to customers will decline further, leading to decreased influence on future

purchase and redemption decisions. With credit card companies increasing more earn and

burn options, customers are learning to bypass the traditional airline loyalty program, putting

the viability of this traditional model in question. The risk of erosion of customer loyalty,

therefore, is real for airlines, and loyalty programs must be restructured to acknowledge this

new reality. Those programs that do not change face the risk of being secondary currencies,

with a downward spiral of their currency and customer loyalty. Those that do restructure raise

their odds of owning a dominant currency that customers want to keep and tradeleading to

a mutually reinforcing spiral of increasing currency value and strong customer loyalty.

Several scenarios are possible:

Realizing that credit cards are offering a more tradable reward currency, customersstampede out of airline programs. Given the slow pace of change in loyalty programs

(there havent been any major overhauls of loyalty programs in nearly a decade), this

scenario seems unlikely, since customers keep demanding air miles.

A more likely scenario is the continued gradual erosion of airline loyalty programs, withcredit cards seizing strategic control and airlines experiencing diluted monetary value

and eroded loyalty. Loyalty programs must realize the next wave of change will be


11/29

driven by financially flush credit card providers, such as Capital One, trying to disrupt

the direct bond between loyalty programs and customers. It all depends on how quickly

and aggressively the credit card providers are able to capture value.

Some airlines arise to confront the challenge. Uniteds recent launch of the Choicescurrency, which allows customers to redeem miles for non-travel awards, looks like such

an attempt.

Customer who carry Uniteds co-branded credit card from Chase can earn a parallel currency

to Uniteds travel miles, thus increasing the perceived value of the cur-rency for those

customers who value nontravel rewards. This approach could keep the credit card partners

happy as well. For airlines, it would be a false hope to depend on customers existing balance

of reward points as equity in loyalty programs. Customers can change behavior quickly,

especially when they perceive their marginal utility of reward points to be declining. Airlines

must act before the credit

card partners either decline

to renew or substantially

restructure the contracts that

generate so much revenue

for the loyalty programs. In

addressing this multi-

dimensional challenge,

where should managers of

loyalty programs start their

analysis: Customer

satisfaction with the

program? Customers intent

to re-purchase? Customer

value? Credit card partners

satisfaction? Parent airlines

willingness to provide

capacity? Our experience suggests that to capture value in this market with its new

economics, airline executives should redesign their loyalty business by addressing four

fundamental questions (Exhibit 4).


12/29

Which customers is the loyalty program targeting?

Different customer segments have different marginal utility of a currency and different

reward preferences. Do you have the right currency for the right customers? One useful

approach in this regard is to establish two currencies for different segments: a primary

currency to meet the needs of loyal customers and a secondary currency for those who seek

other rewards. It is possible to identify several meaningful customer segments and respond to

their needs with several reward currencies. However, implementing more than one currency

will require investment in the program infrastructure and capabilities, as most loyalty

programs today, especially the airline versions, are operating with aging systems. Moreover,

the approach to customer selection must be tailored to the unique characteristics of the loyalty

program and underlying service brand (Exhibit 5).

Which partners should the program keep?

Because customers are showing a healthy appetite for more reward options, loyalty programs

need trading partners to help strengthen the brand and currency. Of course, customers

preferences for a given partnership and perceptions of a given brand have to be considered in

establishing partnerships. In a recent Mercer survey, a large customer segment, which had

high spending on groceries, displayed three times as strong a preference for earning airline

miles via grocery shopping and gas stations as via wireless service. Other segments with

different demographics would have other preferences. Yet loyalty programs are not currently

differentiating among segments or developing partnerships accordingly. Much airline loyalty

Programs, for example, continue to bombard frequent flyers with wireless service

promotions, when many of those travelers may have little desire for them.

In the same survey, customers indicated their preference will increase if events and

experiential rewards were added to airline rewardsand their preference would increase four


13/29

times as much if merchandise were added to the reward list. Here, loyalty programs face a

risk. A partnership with a casino, wherein spending money at the casino can earn reward

points, may not be acceptable to all customers. Some might prefer a partnership with a steak

house, others with an electronics retailer. The key is to offer the right selection of partners or

trading merchants to the corresponding customers so they can use their currency as they

prefer.

Which earn and burn structures should be offered?

This involves determining, first, howa reward point will be valued by customers, since this

will determine how much partners are willing to pay for points. Next, determine at what

exchange rates customers will be able to trade the currency with other reward currencies.

For example, in Uniteds Choices programs, 15,000 Choices can be redeemed for a $120

hotel stayan implied exchange rate of 125 Choices per dollar. Hilton HHonors program

lets customers redeem 55,000 points for a 3-day pass at Disneyland worth about $100, an

implied exchange rate of 550 points per dollar.

What relationship with the parent company is optimal?

Traditionally, loyalty programs have been owned by the parent enterprise, but this is

changing. For the next generation of programs, executives must determine if they want to

retain full ownership of their currency, or to float it freely. Both options have merits and

drawbacks. Owning a currency implies backing it up with reserves, that is, the capacity (and

contingent liability) to provide rewards. However, ownership also provides greater control

over the selection of trading partners and exchange rates. On the other hand, by spinning off

the loyalty program, enterprises can unlock substantial monetary value. Last year, Air Canada

raised $200 million by selling 12.5% of its loyalty scheme, Aeroplan. This implied a total

valuation of $1.6 billion for Aeroplan.The prospect of unlocking value from the loyalty

program has to be balanced with the risk of the program being too independent to drive repeat

purchase behavior to the airline enterprise.


14/29

"#$%&

The methodology will be:

Secondary data collection from internet on CRM practices and FFPs in AirlineIndustry and also e-CRM places for the same.

My project has involved in exploring these CRM practices prevailing in airline industry

globally. This will include individual companies leading airline industry market in India and

also leader companies in world airline market. The project will also involve exploring e-CRM

practices for airline industry.

'(&

'!%#&

CRM research shows that most airlines have only a rudimentary understanding of customer

preferences, what influences customer decision-making, and the triggers for ensuring

customer loyalty. This is due primarily to the fact that most airlines still use inflexible,

siloed legacy systems that prevent key stakeholders from accessing all the information they

need to make informed decisions in a timely manner. In addition, most traditional CRM

solutions lack the advanced

analytical capabilities that are

needed to gain actionable

insight into customer behavior.

Instead, airlines need

integrated systems solutions

that go beyond CRM to

support complex and

multifaceted loyalty programs.

Loyalty Management provides

exactly this capability by

supporting an integrated

loyalty management lifecycle

approach to managing loyalty

that can address all customer-facing actions airlines can take (Figure).


15/29

Successful airlines today need integrated loyalty management lifecycle capabilities that help

them address all customer interactionsfrom developing promotion and marketing

campaigns to answering customer questions and processing transactions and customer

rewards, to measuring results, tracking member profiles, and targeting customers for new

promotions.

'!%#&$!%

Traditionally, loyalty management was a bookkeeping activity triggered only when a

passenger completed travel on a ticket or traded mileage points for a free flight or an upgrade.

But loyalty management can be much more powerful and effective when the entire customer

lifecycle is addressed.

At the heart of a successful loyalty programone that is implemented across the entire

lifecycleis a technology solution that collects all data about a customers activities and

preferences, analyzes this data thoroughly, and makes the results available transparently to all

stakeholders throughout the airline. (Figure below)

Pretravel

The customer lifecycle begins when customers start shopping for airfare, hotels, car rentals,

and other travel products and services. During this phase, carriers have a broad array of

strategies they can select to enhance customer loyalty. For example, carriers can vary the

number of miles needed for free travel on domestic and international flights by tier, and offer


16/29

their most loyal customers targeted discounts on tickets they purchase to common

destinations.

This is also an area where airlines can more effectively leverage their channels; they can offer

premium customers access to reservation centers with little or no waiting time and targeted

incentives for choosing specific hotels, car rental firms, and other vacation packages based on

customer profiles. Sending personalized e-mail or letters containing special mileage offers

extending bonus points for booking child-friendly vacations to customers with young

children, for exampleis a proven way of differentiating the customer experience and

proactively increasing wallet share during the pretravel stage. Bonus mile offers to existing

customers for new-customer introductions and to corporations for encouraging employees to

use a particular airline are also effective strategies.

Travel

During the travel phase, airlines can truly make or break customer perceptions of their

products and services. Customer-centric airlines already differentiate the customer experience

for first- and business-class customers and for elite members of their loyalty programs, with

special check-in counters, kiosks, and security lines. Airlines can further improve customer

satisfaction during the airport check-in process by providing lounge access, upgrades, or spot

point awards when passengers use kiosks. And with new loyalty management systems,

airlines can now provide real-time point balances to customers on kiosks or on boarding

passes so passengers have a greater incentive to redeem miles for retail purchases or other

services while they are at the airport. Once customers check in and clear security, airlines can

differentiate the customer experience even further. Most airlines already provide their

premier customers with priority boarding. Some are moving beyond that to accepting loyalty

points for in-flight service purchases, such as meals, drinks, electronics, or catalog purchases.

The greatest opportunity for encouraging loyalty during the travel phase, however, is by

promptly compensating customers when they experience flight delays, canceled flights, or

missed orders for special meals. By empowering gate agents and flight attendants with the

ability to award loyalty points, purchase vouchers, or other promotions as compensation for

service failures, airlines can retain customer loyalty even under adverse circumstances.

Post-travel

After customers reach their destinations, the customer experience is driven by a swift

disembarkation process, efficient baggage delivery, and prompt processing of any claims.

Although loyalty management in the post-travel phase traditionally has centered on managing

accruals, innovative airlines are administering post-flight surveys to help compute loyalty


17/29

metrics and to provide instant loyalty rewards if baggage is delayed or damaged. Airlines

need to think of each flight as a snapshot of the customer experience and therefore an

opportunity to gain valuable insight into customer behavior. All three phases in the travel

lifecycle provide opportunities for airlines to secure higher customer loyalty, which in turn

allows them to increase market share and profits. Enabling technology is key to helping them

achieve these goals. (See Figure)

Clearly identifying objectives and making use of the right processes and technology to reach

these objectives is helping airlines enhance the customer experience and achieve profitable

results.

'$%%&!%&

Despite all this potential to engender loyalty throughout the entire travel lifecycle, present

day airline loyalty programs are struggling to achieve their desired effects. The chief

challenges are discussed below.

Lack of Differentiation

Airlines face a parity deadlock, because loyalty programs have all started to look alike,

with offers of free enrollment, similar ways to calculate points for miles flown, and similartiers of membership based on miles. Research on the hotel industrywhich has mature


18/29

loyalty programs just like the airline industry and faces similar challenges with lack of

differentiation and perishable inventoryshows that loyalty programs did not ensure repeat

business or improve hotel chain profitability.

As travellers increasingly enrol in multiple airline loyalty programs and are given the

flexibility to retain miles for extended periods of time, loyalty programs no longer drive their

choice of an airline.

Customer Inability to Easily Redeem Points

One of the biggest sources of discontent among customers is the difficulty involved in

redeeming points. With increasingly high load factors and tighter capacity, airlines reserve

just a few seats on each flight for loyalty program members. Growing program membership

coupled with this low seat inventory means that loyalty travel has to be booked months in

advance. Airlines do offer other avenues for redeeming points such as lounge privileges and

retail purchases, but a recent study4 on the airline industry showed that nonairline flight

redemptions account for only 3 per cent of airline point redemptions. The difficulty of

redeeming airline points during peak travel periods is an especially huge issue for road

warriorsthose business travellers who are the most frequent fliers and who potentially pay

higher prices than leisure travellers. Airlines need to balance their commitments to their most

loyal and profitable customers with their need to get every last dollar of revenue from each

flight.

Growing Operating Costs

Over time, loyalty programs have grown more complex by becoming part of large partner

networks that encompass other airlines, banks, hotels, and myriad other travel providers.

Airlines have also had to invest in customer service centers, Web sites, and interactive voice

response (IVR) systems to cater to the ever-increasing roster of program members. All these

services increase costs.

Difficulty Managing Loyalty Across the Travel Lifecycle

Multiple systems for sales, marketing, operations, and loyalty management running on a

variety of platforms make it difficult for airlines to analyze the customer experience

throughout the travel lifecycle. The lack of systems integration also creates roadblocks to

offering targeted promotions or providing compensation for service failures. Because airlines

dont have the ability to deliver real-time intelligence to ticketing agents, gate agents, flight

crew, and customer service representatives, they miss opportunities to increase customer

loyalty through personalized service at each point in the travel lifecycle.

Failure to Link Marketing and Loyalty Management Initiatives


19/29

Measuring the impact of marketing campaigns on the buying behavior of customers is critical

for assessing which campaigns and channels are most effective in driving repeat purchases.

Disparate systems and lack of a single customer data repository make it difficult for airlines

to increase customer loyalty through targeted personalized marketing campaigns. Airlines are

also unable to measure the return on investment (ROI) in marketing campaigns because they

are unable to link marketing campaigns to customer transactions across multiple channels.

Delays in Bringing Loyalty Program Innovations Quickly to Market

Loyalty program innovations are critical, as customers are always looking for new ways to

earn and redeem points. Todays legacy loyalty management solutions run on specialized

mainframe or midrange hardware, and require software development tools and databases that

are either at end-of-life or no longer supported. Implementing new loyalty programs, making

changes to the business rules for existing programs, and adapting business workflows are

difficult, time-consuming, and risky using these outdated tools.

')&!%&

Process Customer Accruals More Efficiently

Most airline loyalty programs include partnerships with businesses from a variety of

industries, including hotels, car rentals, cruise lines, and financial services firms. Partnership

agreements vary greatly from partner to partner and from industry to industry, and it can be

challenging to ensure that transactions submitted by partners are valid and possess the

required data attributes to process member rewards successfully. Loyalty Management allows

airlines to create and enforce data validation rules across each partner and product. They will

subsequently spend less time resolving routine transaction processing problems, reducing

labor costs and improving worker productivity.

Capture Highly Profitable Corporate Segment Through Corporate Rewards

Business travelers are airlines most profitable customers. Loyalty Management allows

airlines to create corporate-employee joint reward programs in which business travel benefits

both the company and the individual. This in turn gives corporations greater incentives to

encourage employees to patronize a particular airline rather than a competing carrier.

Manage Partner Relationships More Effectively

Loyalty Management simplifies the partner-billing process and automates common

transactions. These results in quicker setup of new partners; faster time to market of new


20/29

partner products and joint promotions; and easier administration, including cost sharing, of

the partnership program.

Streamline Customer Redemptions

One of the most important things an airline can do to enhance customer loyalty is to make it

easy for customers to redeem miles. Loyalty Management supports variable redemption

pricing, offers customers a wide variety of payment options, and enables them to redeem

points at a broad range of touch points. The net results are lower administrative costs and

improved customer satisfaction.

Align Loyalty Promotions with Other Marketing Initiatives

Loyalty Management enables airlines to integrate their loyalty promotions with other

outbound marketing initiatives. This improves the time to market of new member products

and services as well as the effectiveness of promotions in general, which in turn enhances

revenue growth.

Easily Create and Administer Customer Tiers

Loyalty Management makes it easy for an airline to create as many tiers as it wants, and to

adjust the rules that determine customer tier status on the fly.

Enhance Customer Service

Loyalty Management supports an airlines multichannel support capabilities and provides

superior service to customers whether they visit its Web site, call a customer service agent, or

interact with a partner. By helping an airline dramatically increase its understanding of each

members lifetime value, so it can then tailor service levels and promotions accordingly,

Loyalty Management allows carriers to treat their most important customers with the special

care they deserve, leading to reduced customer churn and greater long-term profitability.

Personalize Member Communications

Airlines need to be in constant communication with loyalty program members through a

variety of channels, including the airlines Web site, e-mail, and direct mail. Loyalty

Management provides tools to initiate outbound communications to members for a wide

variety of preidentified loyalty events, such as enrollment, tier changes, and redemptions.

Integrate with Existing Enterprise Applications

A key component to ensuring customer loyalty is an airlines ability to recognize individual

customers, and to have transparent access to all information about each oneincluding

loyalty status, history, value, expectations, and preferencesduring each interaction. A

loyalty solution that does not provide for integration with operational systems at least at a

data level, if not at a process level, will fail to reap the full benefits of a loyalty program.


21/29

'"(*(%&

Mileage Expiration

Mileage expiration has been an on-again/off-again issue since the beginning.

Current situation: Most U.S. programs allow miles to "live" indefinitely, provided a member

has some account activity during a 3-year period.

Programs outside the U.S. typically expire miles 3 years after they're earned.

Taxation

Are FFP awards taxable? As far as a direct tax on the award user, the most recent IRS ruling

states (with some equivocation) that free tickets are taxable IF they are earned in the course

of business travel AND they are used for leisure travel. This rule has proved too difficult to

apply, so enforcement has been practically non-existent. For the future, though, we should

never underestimate the government's appetite for tax revenues.

To wit, the recently enacted 1997 Taxpayer Relief Act attempts to tax FFP transactions

covertly. For more information on this continuing saga, please see "The Taxpayer Relief Act

-- More Grief than Relief?".


22/29

Costs

FFPs work because there is a balancing of consumer and airline interests. From the airline

standpoint, the generous awards can be justified because average award costs are closer to the

direct costs of carrying a passenger (an extra meal, extra aircraft fuel, etc.) than to the actual

cost of purchasing a comparable ticket. That's because award seats are limited, thereby

reducing the likelihood of an award passenger displacing a revenue passenger.

While it can be frustrating trying to get an award ticket on popular routes during peak times,

we as consumers must bear in mind that seat limitations are just what make the programs

economically viable.

Coupon Brokers

Coupon brokers buy FFP tickets from members, and sell them (at a substantial discount to

published fares) to bargain-hunters. All airlines include language in their FFP member

materials that states that FFP mileage, coupons and tickets may not be sold, bartered or

otherwise transferred for any type of consideration. At one time, this was a $150 million-a-

year business. It continues, but on a much smaller scale because the airlines have

aggressively pursued and prosecuted the brokers, sellers and buyers. Don't sell or buy FFP

awards. It's illegal, and the costs of litigation, fines and replacement tickets can be

substantial.


23/29

FFP Economics

As with any marketing program, FFPs generate both costs and revenues. A summary follows:

Costs Revenue

OPERATIONS COSTSFFPs are big operations, employinghundreds of marketing, customer service andtechnical staff. Other significant costs:facilities, computer hardware and software,phone systems.

COMMUNICATIONS COSTS

Member communications: enrollmentmaterials, program brochures, newsletters,postage, etc.

TRAVEL AWARDS COSTS

Travel award costs depend on whether themember uses a free award ticket on the hostairline, or an award on one of the programpartners.

1. When a member uses a free ticket on

the host airline, the costs include...(a) Direct costs (extra costs of meals, fuel,etc. required to carry an incrementalpassenger)

(b) Displacement costs (where a non-payingpassenger occupies a seat which wouldotherwise be occupied by a payingpassenger)

(c) Diversion costs (where a customer usesan award instead of buying a ticket)

Whereas (a) will always be a cost, (b) and(c) may or may not apply, depending onhow full the flight is, and whether themember would have traveled even if he'dhad to pay for the ticket.

2. When a member uses an award on a

program partner...The host pays the partner company, inessence buying the award for the member.Typically the rate would be between 1-2

cents per redeemed mile.

PARTNER REVENUESBecause FFPs are such effectivemarketing programs, many companies arewilling to pay for the privilege ofparticipating in them as program partners.(Such partnering also benefits the FFPhost company, which wants its FFP toboast a wide array of high-qualitypartners.)

Typically, a partner company pays the

host company 1-2 cents per mile earnedwhen a member uses the partner's product.(These expenses are counted against theadvertising or sales promotion budget, andcan be significant. A hotel giving 500 FFPmiles (@$.01 = $5) for a $100/night roomstay suffers a 5% yield dilution, right offthe top.)

ADVERTISING SAVINGS

Also counted on the revenue side of theledger are the savings FFP marketingaffords over mass-market advertising.

Because FFPs allow targetedcommunications with the airlines' provencustomers, it is not necessary to spend asmuch on expensive (and inefficient) printand broadcast advertising to maintain theinterest and loyalty of current customers.The dollars "earned" through these

savings run into the millions.


24/29

''%+,#%

Airline's success depends heavily on its ability to intelligently manage sales, marketing, and

service processes and to draw mutual advantages from understanding of airline's customers.

To help airline maximise the strategic value of customer centric initiatives, Airline e-CRM

model provides a comprehensive analytical solution, it can contribute toward improving the

way that measure and optimize airline's relationships with customers. Figure 3 best illustrates

Airline e-CRM model using system engineering methodology.

Figure: Airline e-CRM system model

Airline e-CRM model can be conceptualized as a system that is made up of components,

linkages amongst the components, and dynamics-that takes advantage of the properties of the

Internet to make money. It takes advantage of the properties of the Internet in the way it

builds each of the components-value, scope, revenue sources, pricing, connected activities,

implementation, capabilities and sustainability-and crafts the linkages among these

components. It is what, preferably, enables an airline to have a sustainable competitive

advantage. It includes three components (subsystem): Web Basec Airline-Passenger

Interaction subsystem; Airline Data Warehouse subsystem; and Airline e-CRM operation

subsystem.

Airline e-CRM model is an asset-based solution that includes best-of-breed components to

build an e-CRM infrastructure and enable any-channel, any-time communication with


25/29

customers. At the heart of this offering is the CRM Foundation, which includes the CRM data

model, starter set of CRM queries, reports and analysis, sample data, a demonstration

prototype, data utilities and scripts, and comprehensive documentation that covers

implementation guidelines, business perspective and analysis guidelines, system components,

data model descriptions, and use and customization guidelines.

Since managing customer interactions is a vital piece of the e-CRM puzzle, planning and

implementing a Multi-Channel Interaction Management solution with the other subsystems

and enterprise solutions is crucial. Without Interaction Management, the puzzle remains

incomplete. Interaction Management is the foundation for evolving customer service into

customer satisfaction by tying together all customer data - no matter where it is located

within the enterprise. Making this information easily and quickly accessible to the customer

management process, and ensuring each customer is handled in the most efficient and

effective way possible is the ultimate result of a well-defined and deployed strategy and

solution.

Airline e-CRM model also:

Provides an understanding of customer behavior and enables airlines to measureresults of marketing and merchandising changes.

Supports more effective promotions through integration of data between marketingand merchandising users.

Provides a single view of customers across the enterprise and across contact points. Gives airlines the ability to respond more dynamically and quickly to market

demands.

Significance derived from airline-CRM implementation will allow for new e-business model,

based on the wide availability of information and its direct distribution to end-customers.

Directly connect airlines and passengers. Support fully digital information exchange between airlines and customers, reduced

cost of a customer contact.

Suppress time and place limits. Support interactivity and therefore can dynamically adapt to customer behaviour. To be able to satisfy customers' need, build customer confidence and retention. Can be updated in real-time, therefore always up-to-date. Enhance airlines competitive advantages over its rivals. Profitable and sustainable revenue growth.


26/29

'-,#&

Revenue increase comes from three areas:

Re-attracting defected customers, which accounts for between 0.1 and 0.3% ofrevenues;

Increasing the share of a customer's travel wallet, which accounts for 0.3 and 1.2% ofrevenues;

Acquiring new customers, which accounts for approximately 0.05% of revenues.Naturally, associated with these revenues are costs, but these only amount to between 0.3 and

0.6% of the existing cost base: The marginal additional flights needed as incentives estimated

to be between 0.2 and 0.4% of costs; Additional CRM initiatives amounting to between 0.2

and 0.5% of costs. Savings in costs due to more efficient and targeted running of the existing

CRM program, providing a reduction of 0.1 to 0.3% of costs;

As stated above, the bottom line impact of CRM is significant, but varies according to the

airline implementing the initiatives. The range estimates are:

For a large airline: $100-$250 million per year;

For a midsize airline: $25-$60 million per year;

For a smaller airline: $15-$50 million per year.

There are many benefits to be gained for airlines and airline passengers, firstly, passengers

could book and check in through internet 24 hours, 7 days a week, at any time, any where.

Secondly, airlines could reduce sales cost. American Southwest Airlines CEO, Gary Kelly

said the Web site is playing a major role in mitigating the rise in unit costs affected by high

fuel prices. It's 10 times cheaper to deliver to customers through the online service than

through a travel agent, Kelly said, and costs 5 times less than using Southwest's own

reservation staff. The booking cost per passenger online is "well under $1," said Kelly, and is

scaling down even further. He said Internet use by passengers was helping the carrier keep

fares at low discount levels.

Massive investment in both business-to-business (B2B) and business-to-customer (B2C)

information systems is expected to translate into important cost savings in procurement, sales,

billing and other support activities. The airline's fully automatic ordering system, for

example, should reduce order processing costs by 90%, according to Chairman/CEO Juergen

Weber of Lufthansa Aviation Group.


27/29

Specific benefits to implementing a CRM strategy with Interaction Management

include:

Planning and implementing business processes across airlines and CRM applications ensures

customers are handled in the most efficient and effective fashion from the beginning to the

end of the interaction based on their real-time value to airlines.

Implementing CRM applications may simultaneously lower the cost of design,

implementation, installation, training, ownership and administration. It also reduces the risk

of re-engineering systems at a later date.

Consistent and dynamic processes are built up-front for the customer. This force the airline to

consider each element in the process design including the network, switch, multi-media

management, and the CRM - ensuring streamlined processes are in place before the customer

makes contact.

Influence and enhance intelligent call routing by leveraging the data gathered from the switch

(ANI, DNIS, Caller ID), caller, and CRM applications.

Create and leverage detailed statistics/metrics and cradle-to-grave reports.

Real-time access to historical customer information allows support staff to know who your

customer is, why the customer is calling, what's been done, what needs to be done, and

respond in the most efficient, expedient manner possible.

Benefits for the customer

The E-mail was responded to immediately, with personalized, valuable information.

Web self-service allowed customer to take immediate action to resolve issue.

Personalization enabled promotion tailored to customer profile - enhancing one-to-one

marketing.

The "callback" option was easy to use, enabling the customer to quickly request live support.

The intelligent interaction routing engine immediately connected the customer to the right

CSR.

The customer information provided by Apropos and the CRM application enabled the CSR to

provide efficient, personalized service.

Customers enjoy personal treatment, together with appropriate advice on getting the best out

of their purchases. The airline may also put customers in touch with others with whom they

have similarities, for example by inviting them to meetings.

For the airlines implementing CRM, it becomes possible to single out customers who are

profitable, gaining an understanding of their preferences to improve retention and increase


28/29

the volumes sold. These valuable customers can become advocates for the airline and its

products. Finally, CRM helps an airline to build loyalty. Because it is a marketing truism that

it costs five times more to generate new customers than it does to retain existing ones, that is

a compelling argument.

With e-CRM, airlines can increase sales and customer loyalty. This strategy can improve

sales effectiveness, bring higher value to all of airline's key business relationships, help

airline to understand what each client relationship is truly worth, develop and reinforce a

consistent experience for customers, improve management effectiveness, improve tactical

and strategic planning, respond faster to competitive challenges, use critical resources more

efficiently, and reduce administrative burdens and overall cost.

'.%

Building relationships with customers becomes the necessity in the present markets. By

becoming more customers centric, airlines can better understand their customers, develop

new products and services that are consistent with their brands, and provide sufficiently

differentiated experiences to retain and grow their customer bases.

Airlines realise that an integrated e-CRM strategy will allow them to manage customer and

supplier relationships more effectively than ever before, allowing them to build long-term

customer relationships, brand loyalty and repeat sales that result in increased, sustained

profitability. The challenge is how to overcome hurdles, minimise the risk and guarantee

results. Rather than seeking all the answers before making an effective start in eBusiness,

companies should first define a clear roadmap of their objectives, implement and measure the

success of a pilot project, and build from there. The greatest danger is allowing the pace at

which the market and technologies are changing to delay the opportunity that is eBusiness.

The end result is a better bottom line-successful e-CRM can mean millions of dollars in

incremental revenue from increased customer retention, greater revenue per customer, the

ability to cross-sell and up-sell customers, better customer loyalty and greater customer

satisfaction. That is the true potential of an IT infrastructure built around enterprise storage-

something every company needs to consider as a means to gain competitive advantage in

both the old and the new economy.

Airlines that empower their executives and employees with Loyalty Management will be the

winners in todays intensely competitive airline marketplace. Based on different analysis, the


29/29

system of CRM enables to determine the best strategies and their effective implementation

that company should apply for particulars customers groups. Both continuous and subsequent

controls of the whole process represent a logical culmination that shows effectiveness of

implemented systems and can help to find possible improvements. Only with application of

the complex process of CRM, the company can effectively allocate its resources and ensure

its own competitive position in the market.

-,

http://www-935.ibm.com/services/in/igs/pdf/may27_customer_focused_airline.pdf

http://searchcrm.techtarget.com/answer/Are-airline-loyalty-programs-becoming-a-disincentive

http://www.crmbuyer.com/story/69239.html http://www.crmtrends.com/loyalty.html www.infosys.com/offerings/industries/airlines/.../frequent-flyer-

programs.pdf

Date post:	03-Apr-2018
Category:	Documents
Upload:	rajesh-samiani
View:	221 times
Download:	0 times

CRM_Project_Airline Industry.pdf

Documents