Air Canada Broadens Focus Of Frequent-Flyer Plan

Forty days after acquiring Canadian Airlines, Air Canada is merging the two airlines' frequent-flyer programs into a new division with two goals: to share its customer-relationship management expertise by offering consulting services to other companies and to offer new E-commerce opportunities that use airline points as online currency. If all goes well, Air Canada plans to spin the unit off and take it public on its own.

When fully combined in January, the frequent-flyer programs will include more than 5 million of the airline's best customers, representing more than half its total traffic and more than 60% of its revenue. Its first initiative will be a virtual shopping center at which customers will be able to redeem frequent-flyer points for merchandise and earn points on goods they pay for in cash. The new portal will provide "a significant extension of accumulation and redemption opportunities through both travel- and nontravel-related partnerships," says Rupert Duchesne, Air Canada's chief integration officer during the merger. Duchesne will head the unit.

Industry insiders agree that the focus of IT and marketing resources on best customers is a smart move. They also applaud the idea of spinning off E-commerce initiatives, with their more expensive startup costs and lower revenue models, from the core airline business, much as American Airlines did this year with Sabre Inc.

But the online shopping mall arena is crowded, and competition from the alliance between America Online and American Airlines' frequent-flyer program will be tough, says Rolfe Shellenberger, who invented the concept of frequent-flyer programs for American Airlines in 1981. As far as consulting services, he notes, "I don't think any airline knows enough about CRM to be doing consulting."

But Richard Eastman of the Eastman Group says that after years of partnering with American Airlines, the leader in customer-loyalty programs, the new Air Canada "certainly knows enough about CRM to be a consultant in Canada, especially to others in the travel industry." In a market where consumers travel less often by air and more often by train and car, it's smart for the carriers to broaden the focus of their loyalty program beyond just airline tickets. Says Eastman, "They recognize and understand that their market is different then the U.S. model, and they are going after their own revenue stream."

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