The cost of loyalty

Love ’em or hate ’em, you can’t ignore loyalty schemes – the Marmite of managed travel…

Loyalty schemes are a pivotal weapon in the travel supplier’s armoury. They are used to encourage pointscoring executives to book with them and one are of the underlying reasons for noncompliant spending. 

That C-suite executive with her head in her hands, looking distraught on a Monday morning? Well, that’s because she’s just read the email that says the company has struck a deal with Virgin and Marriott. All the points she’s accrued over the years have been with British Airways and Hilton.

“The loyalty frenzy particularly comes at the high-end, especially with frequent travellers who have gold status,” says Adam Knights, managing director of ATPI UK. “If you take your righteous hat off, you can actually understand it.” For people who travel all the time, the consistency, ease and better treatment that comes with high-tier status can be a big bonus, he explains. “Of course, taking your family to Antigua business class on your points also helps,” he adds.

Owning the customer
What doesn’t help is that we’re living in age where corporates from travel to retail, food to clothing have all upped their game when it comes to customer retention, engagement and personalisation. “It’s all about owning the customer and their experience,” says Hugh Fletcher, global head of innovation at ecommerce consultancy Salmon. “If you own the interface, you own the customer. If you own the customer, you own the data – and if you own the data, you own the future.”

Loyalty schemes in the managed travel business are divisive. The Institute of Travel Management (ITM) annual member survey found a fairly equal split between positive and negative attitudes to loyalty schemes, while more than 76 per cent of buyers felt loyalty schemes mainly – or exclusively – benefit the traveller, rather than the company (see chart, p116). “Let’s face it, loyalty programmes are here to stay,” says ITM chief executive Scott Davies. “They are an essential part of the traveller experience and should be supported, as long as they do not cause disruption to the travel policy or negatively impact a travel programme.”

Schemes can improve traveller productivity or reduce direct company costs: perks, such as lounge access or upgrades, are welcomed by all in the age of slimmed-down travel budgets.

“In my experience, most corporates tolerate the traveller benefiting from loyalty points,” says Ken McLeod, director for industry affairs at Advantage Travel Partnership. “Many travellers have to put up with delays, late nights, staying away from home and family, so these perks in the main are minimal set against a travellers’ comfort on business.”

Eyes on the prizes
The biggest bugbear for managers is that loyalty programmes can lead to executives booking higher priced air tickets and room nights. The fact is the cheap seats don’t cut it when it comes to points – and more points mean more prizes.

“This can lead to travellers gaming the system whereby they book late to ensure they end up with the last seats at the higher prices and more points. Believe me, this does happen,” says Knights. “I believe this is akin to fiddling your expenses; you are actively doing something to cheat your company. It’s as serious as that.”

Companies can end up wasting thousands of pounds a year through loyalty-based bookings. These can also undermine a travel buyer’s efforts to optimise budgets and negotiations with suppliers. There are tools out there now to measure advance booking patterns right down at the traveller level so rogue behaviour can be easily spotted and controlled, but managers must be aware of it and manage it accordingly.

“For the most part, loyalty programmes operate in an antiquated way. They are cumbersome for customers and for the companies offering them. It takes time to collect points and redeem rewards, and often these programmes translate into a bunch of cards in our wallets,” says Paul Broughton, managing director of Travelport UK & Ireland.

“Yet loyalty schemes are still very powerful incentives for travellers who have grown up with such schemes, but not so much for millennials who tend to value the overall experiences delivered rather than the points they offer.”

Corporate and personal loyalty aligned
The narrative here suggests that personal loyalty is always at odds with a managed travel programme and when it comes down to it, a travelling executive will invariably go for the loyalty points and go off policy as a consequence.

However, there’s an increasing middle ground where both sides benefit. “A lot of executives now try to do both – they’ll look to book within guidelines, but then use their own money and points to manufacture a trip that fits policy but is also the best possible journey that they can get,” says Concur UK managing director Chris Baker. “When someone’s been a constant business traveller for a number of years, they do tend to have less patience when it comes to poor trips.”

A lot of corporates are allowing travellers a degree of flexibility to retain and use their existing memberships, as long as they achieve the best rates within a mandated booking policy. This way the company and the individual both do well. As one travel manager puts it: “I am prepared to downgrade suppliers who market direct to employees but do not offer benefits as part of a corporate programme.”

Technology and smart apps are certainly making life much easier for executives to identify, select and track the company’s preferred travel suppliers. Personal and corporate loyalty can also be aligned, so long as the traveller is made aware of the preferred hotels and airlines in no uncertain terms. “One of our customers recently enforced a new travel policy mandate,” says Hillgate Travel CCO Warren Dix. “It said that if the trip is not booked using the preferred carriers and properties and through the correct channels, then it will not be reimbursed, and the booker will be liable for the total cost. A formal notification went out to all employees with no exceptions, including the CEO.”

While collecting air miles creates its own issues, hotels do have a silver lining. Many of the big chains now have different brands that account for many price points, in many more locations. This means travel managers can effectively align their travel programme to one chain and cover employees right up and down the price points in their policy, while still providing loyalty points.

“Think back ten or 15 years and Hilton and Marriott were just that,” says ATPI’s Knights. “Now you have Marriott Courtyard and Westin, Hilton Garden Inn and Waldorf Astoria. The CEO might stay in the Waldorf Astoria and most others will stay in a Doubletree or Garden Inn, etc. This means you can negotiate with the central chain for a global discount rate. In my experience, hotel points are easier and more flexible, so this is an easy ‘give’ to a traveller.”

Air tickets can be seen in a different light as price differentials, security and destination pretty much dictate the choice of carrier. Loyalty points are with airlines and not aligned as much with travel policies – “although British Airways has tried to address the corporate side of this with their On Business programme, which surprisingly hasn’t been replicated too much elsewhere,” says Advantage’s McLeod.

Time for disruption?
Are antiquated loyalty programmes ripe for a rip-roaring 21st-century makeover with the help of technology? Barcelona-based start-up Wanup is active in this space, offering loyalty points to independent hotels and smaller chains. The company was named in BBT’s 2017 Hotlist and has been billed as a ‘sharing economy’ loyalty scheme.

“We’ve seen the massive impact disruptors have had on travel from giants such as Uber to smaller start-ups, so I think it’s naive to think loyalty won’t be the same. There will be disruption if travellers want it and if they’re not getting what they want from their loyalty programmes,” says CWT senior director Aubrey King.

There is also talk of GDPR (General Data Protection Regulation), which comes into force in May this year, affecting how travellers are marketed to and approached by the providers of loyalty schemes. Suppliers will soon have to reappraise how they target new travellers and obtain their data, so this could be an area ripe for disruption.

“We are seeing companies starting to clamp down on preferred hotels and with GDPR and data security becoming more prevalent, they are starting to mandate and monitor out-of-policy bookings much more closely,” says Hillgate’s Dix.

Blockchain – the technology-based ledger that doesn’t lie – could also be used in this sphere. It’s been bandied around as a panacea for all the issues facing the travel industry, so why not loyalty? “I personally love the idea of blockchain disrupting this space,” says Concur’s Baker. “It would work because I would own my data and would have full control over which companies I chose to share this with. This means they’d need to compete for my loyalty, which would add a degree of active engagement that’s currently missing from the travel sector.”

There is no quick fix for loyalty programmes. Making the most of the schemes out there while treading a fine line between the corporate and the travelling executive is the order of the day. ATPI’s Knights concludes: “Loyalty will never go away; you just need to work out how to work with it.”