Not only are customers who buy an elite status match good for airline and hotel loyalty programs, they’re likely more profitable by many metrics than those who the programs previously attracted through free match or challenge programs. This is the thesis behind Loyalty Status Co., the company that helps manage the process for those organizations, and CEO/Founder Mark Ross-Smith is not shy about amplifying that view.
It’s an introduction to that world. And you know what it’s like once you’ve had status and try the benefits is really hard to go back or try something else. And so status light, aka credit cards, and an easy path to a status match or the low tier status are almost the same thing. So it’s the same mindset going after the same thing, just customer in a different way.
– Mark Ross-Smith, CEO Loyalty Status Co.
Speaking on the sidelines of the World Aviation Festival 2023 in Lisbon this week, Ross-Smith focused on a trio of factors that define the value proposition for paid status matches:
- Customers more likely to spend after the match
- A virtuous cycle of funding for marketing that delivers more matches
- It grows the pool of customers who are in the status world, rather than a zero-sum game
And it turns out the programs are, at least so far, impressively profitable for the airlines, too.
See below for more of our conversation (mildly edited for readability) and some other interesting nuggets.
PaxEx.Aero:
You built an impressive business and some incredible offerings these days in terms of putting together status match opportunities with properties that one probably wouldn’t think of, companies one might not think of in that context. Frontier Airlines does have elite status. It’s not something that most people would necessarily aspire to in the traditional loyalty status world, and yet, people are signing up in droves, as it were. What what what’s the psychology behind that? What’s the motivating factor that’s getting people to do this?
Mark Ross-Smith:
So firstly, Frontier is totally killing it. The programs are super popular. I think there’s a few things driving this happy to talk about that. Frontier – and I’ll Spirit in the same bucket – they are not top of mind when it comes to status and aspiration and first class lounges and champagne, all that kind of stuff. But most people, that’s not what they’re looking for. Most people are just looking to get through the airport a little bit easier to you know, a waiver on some bags or fees, that kind of stuff, they’re just trying to get from point A to point B, because most people in the world fly less than once a year. So keep that in mind.
And people who have status, the of top 5% of the loyalty program’s base, those people book about 30% of seats, but they generate about 40% of revenue for airlines. They they fly more, they spend more, they’re in premium cabins. Airlines need these customers. But most those people are at the silver kind of level, they’re kind of just scraping in to the status world. And a lot of these people are not on corporate managed contracts. The money is coming out of their back pocket, you’ve got a lot of retirees, all sorts of people. Not everyone’s flying first class around the world, drinking champagne. They want to be, but they’re not. Enter low cost airlines. If you look at value dollar for dollar, you actually got a lot more value with low and ultra low cost. So you still get from point A to point B, there’s still minimum safety requirements they’ve got to adhere to. There’s still a seat that’s more or less the same, give or take two or three inches of a TV and a meal and a few other things. You get there and you’re okay.
And so status is about taking some of the pain out of that. You get the carry-on bag, the checked bag, the priority boarding, as much priority stuff as you can. And if you think about Something like spirit, you’ve got big front seat. It’s an ancillary factor, you can pay for it, and it’s a lot cheaper… And you’re almost at the same levels as if you had Executive Platinum with American Airlines, flying domestically so you didn’t have lounge access, for example. And so you’re almost in the same position, but you might have saved a few hundred bucks. And that’s only on one flight. Then the next flight and the next flight. Suddenly over 20, 30, 40, 50 sectors at a year you save a bunch of cash and still got from A to B. It’s more or less the same.
So this type of status is appealing to a large group of people for that reason.
PaxEx.Aero:
You mentioned making it a little easier with waivers on some of the fees and stuff. A lot of airlines have done similar with co-branded credit cards. Pay an annual fee, you get the card, but you buy it not because you want to charge money to it, you buy it because you get the free bags, legroom, priority check-in, whatever. It is akin to elite light, if you will. Are some of these status match offerings that you’re describing is basically just that without the bank involved? Is the bank now Mark Ross-Smith; have you become the bank in this case?
Mark Ross-Smith:
There’s an article recently that airlines are now banks, right?
We started a promotion with Frontier a few months ago, which is still live now, where even if you don’t have status, you just need the right credit card – a US-issued issued travel credit card – this could be a co-brand card or a Chase Sapphire card or an AmEx platinum, just something travel like something that has a miles component to it. Use that card, pay a small fee, and you get 20K status, which is the base elite tier that gets a bunch of benefits*. We’re taking consumers who don’t have status yet and helping get them into that status ecosystem.
Think about brands and outside travel, and how they target people, especially when they’re young. They try to target the young folks out there. The idea is get them into the brand early. Then, when they grow up, when they hit 18, 19, 20, they’ve got some money, who are they going to continue with sure? If you’re the bank, since you’re a kid you loved this bank for some reason, now you’re going to get get the car loan, you’re going to get a mortgage. You go do all these things with the bank you’re more comfortable with. So why aren’t airlines doing the same thing? Why aren’t airlines getting you, when you have a little bit of money, getting you into status as fast as you can legitimately through whatever means it is? That could be through a credit card which brands are pretty good at these days. But status is the other path to that. Giving you a little bit of taste of the benefits …
It’s an introduction to that world. And you know what it’s like; once you’ve had status and try the benefits it is really hard to go back. And so status light, aka credit cards, and an easy path to a status match or the low tier status are almost the same thing. It is the same mindset, going after the same customer in a different way. And Frontier has done phenomenally well out of this.
PaxEx.Aero:
I understand what you’re saying about sort of bringing people along through the funnel for more longer term commitment. It is a little hard for me to see that with Frontier just based on longer-term, what does it take to keep status with them, as opposed to just get in the door? Sure, I could get it. But is it going to last? Would I ever spend enough time and money with them to keep it? And so I do wonder, longer-term how that makes sense?
Mark Ross-Smith:
Just get the credit card and spend. You don’t need to fly. Put your everyday transactions on there and that should be enough to get status.
And then when you do need to fly, who are you going to fly? If you’ve got status on one airline, and not all a bunch others, you’re going to at least look at the one where you’ve got status first. And you might pay a little bit more as well. You’re going to book direct. You’re going to do all the right stuff that the airline wants you to do.
And so sometimes it’s not about the frequent flyer, it’s about frequent spender. Let’s face it: credit cards in the North American market are what’s driving a lot of the loyalty business these days.
For the hardcore frequent flyer that they’ve got more options… But that’s not the case for going after this frequent spenders [segment]. Or people who spend a bit and fly a bit. You’ve got all these different segments of the market and I think what we’re starting to see now, especially the US, is airlines carving out where they want things to sit and which type of traveler they actually want.
PaxEx.Aero:
The other interesting thing about the type of status match that you deal in is that it’s paid. It’s not free. Historically, people would use status match to keep the hamster wheel spinning without having to spend extra. That’s that’s not what your business proposition is. That’s not the loyalty proposition you’re making to the airlines or to the consumer.
Mark Ross-Smith:
Well, we have done a bunch of free matches…But yeah, most of them are a paid. There’s a lot of logic behind this. I’ll give you kind of the top three. This is not the vast, extensive list of why a brand should or should not, but I’ll give you a few.
Firstly, if someone’s paying a fee to do it, their intent is considerably higher than someone who is doing a free match. So if you pay a fee, call it 100 bucks, the chances of you actually using that status are through the roof versus if it was given for free and you just put it in your back pocket like well, maybe I will try this brand in three months, maybe I won’t. I don’t really care because it was free…. But people pay a lot of money for free stuff. So the intent is significantly higher, which means you kind of get rid of a lot of tire kickers as well.
Second thing it does is a small element of fraud reduction. Fraud in status matching is astronomical. And when it’s a free match that can be as high as 50-60%. That has major financial impacts on airlines in two different ways, the biggest being it destroys ancillary revenue. So they’re all conscious of that.
And then the third biggest thing is it means they can work with us without paying a cent. Typically when we engage a program we don’t we don’t charge anything. There’s fees on it and we we take a cut of that. What it also means is money for marketing, because we get a bunch of that we put into marketing to promote the offer even more, which drives even more volume than they could ever get doing a free match.
So what we see is in a paid status match will get more people doing that then the equivalent free status match. For example, one US airline brand (not Frontier) they ran their own free status match. And then the following year they ran one with us, a paid match. We has 12 times more people on the paid match with us than under their free match. And that was under a shorter time period with us as well.
A significant number of those people flew. They’re also more likely to get the co-brand card. So it’s actually a quasi co-brand acquisition channel.
PaxEx.Aero:
A co-brand acquisition channel where the person pays to be acquired instead of you paying to acquire them?
Mark Ross-Smith:
Yep.
So the fee itself is not the magic part. The fee has some has some upside, but it’s all the other stuff. It’s the volume. There are a lot of benefits that we bring to the table in terms of the marketing power and the fraud, that kind of stuff. But ultimately, we are seeing a trend towards paid status matching.
PaxEx.Aero:
Do you have data yet on how many are sticking around past the first match? Is it working?
Mark Ross-Smith:
Emirates at a industry event earlier this year, publicly stated that 50% of people will did the status match requalified for the second year, which is more than I would have expected. And 75% book and flew a new fligth within 90 days… We’ve seen similar stats with other brands. It varies depending on the market, but the engagement is a lot higher on on a paid match versus free.
PaxEx.Aero:
What’s coming next?
Mark Ross-Smith:
There’s a LATAM match. Fees vary by market, and obviously they’re not matching Delta, but a bunch of other airlines. It’s a good proposition. It’s a year and a half of status. No challenge. Just get in, try it out. See how you like it.
We are launching our first hotel brand this week as well. It’s not like a Hilton or Marriott. It’s about brand introduction; I think that’s gonna do reasonably well.
Alaska just launched theirs last week, effectively a one up, which which we introduced to the market originally with LATAM a year or two ago. So you match in at a certain level, and then if you get the credit card within a certain time, they bumped it up one. So it’s a way to get you into the credit card and the status it sent on.
PaxEx.Aero:
So I pay 100 bucks, I get my gold and then I sign up for the credit card to go up a level. They get their commission back from the bank. It’s baffles me that the airline basically gets to double dip on the signup bonus. And instead of paying out they’re taking it in.
More news from World Aviation Festival 2023
- Consumers really do pay to be loyal, and that’s good for them
- Air Canada’s 737 MAX fleet is (finally starting to get) online
- SkyFive sees “wildly inconsistent” performance across inflight connectivity services
- Less Artificial, more Intelligence, please!
* Yeah, that’s an affiliate link. Because if I’m writing about this stuff anyways, why not…
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