Airline sky miles programs: emergence, marketing strategy, and industry impact

Aviation Marketing

Airline Sky Miles

Emergence, Marketing Mix and Effects upon the Airline Industry

The contemporaneous business industry is significantly different from how it used to be only a few decades ago. The primary change that occurred regarded the nature of the business. As such, in the past, business activities had a more practical and technological nature and they were generally product oriented; but today, they have become more human oriented. For instance, during the twentieth century, the focus was on the products manufactured and the technologies used, without much emphasis on the human resource or on customer satisfaction. So low was the interest towards customer satisfaction, that Henry Ford even said once that his customers could have their cars made in any color they desired, as long as this color was black.

Today however, the industrial sector places increased emphasis on both employees as well as customers. Employees have transformed from the people operating the machines into the company's most vital resources and the customers are the forces that drive businesses.

An industry sector which is extremely relevant of this change in the nature of the businesses conducted is the airline sector. There are numerous airline companies that compete against each other on the market and strive to present customers with the best products and services. Furthermore, these companies invest millions of dollars each year in order to improve the quality of their products and increase customer satisfaction. A more and more common means of achieving this is that of offering customers the possibility to fly for free or, at least, to benefit of deductions and special offers.

2. Emergence of airline sky miles

Airline sky miles programs were first initiated in order to attract more customers. Delta Airlines was one of the first companies to ever implement these programs which were soon adopted by most national and international airline companies.

The basic principle of acquiring additional sky miles is that of purchasing airline products and services, gathering value points proportionally to the fees paid and then using these value points to pay for future services. The practice has spread around the globe generally due to its benefits and its easiness. There are numerous possibilities of acquiring sky miles, but the most common one is through credit cards. By paying the airline fees with credit cards, the customer can earn air miles.

The amount of miles earned per fee depends on the airline companies. For instance, Delta Airlines and Blue Airlines grant customers one mile for a dollar paid. (Dial Abroad, 2007) as such, if one pays $350 for a ticket, he will be granted the right to fly 350 miles for free. Capital One on the other hand grants customers 1.25 miles for each dollar spent. This means that for a $350 ticket, the buyer can earn 437.5 air miles, 87.5 extra miles that those offered by Delta or Blue Airlines.

Among the most common credit cards that earn customers free sky miles are: Delta Sky Miles Gold Credit Card, Starwood Preferred Guest Credit Card from American Express, Hilton Honors Platinum Card from American Express, British Airways Visa Signature Card, Continental Airlines World MaterCard from Chase, United Mileage Plus Platinum Business Card or Alaska Airlines Visa Signature Credit Card. (Credit Federal, 2007)

When they first emerged onto the market, the air miles were aimed to attract more customers and could only be used for flying services. However, in time they have evolved at such a level that they are now able to significantly influence the airline industry and the customer satisfaction at unforeseen levels.

Price

Sky miles are services that are earned, rather than paid for However, they are not free and they are established proportionally with the amount of products and services previously acquired from the issuer. For instance, most companies offer one mile for one dollar spent, but this varies based on each issuer's internal policies

There are price variations based on the buyer's relationship with the airline company that issues the sky miles. As such, Delta Airlines offers one mile per one dollar on general purchases and two miles for one dollar at participating retailers (Knox, 2006)

When indirectly purchasing the sky miles from a customer who desires to sell them the price is negotiated between the two parties and it considers the number of miles, their transferability and their particular usage possibilities

Also included in the air miles prices is the process through which the customer earns the miles. As such, in the case of the credit cards, clients have to pay for the account maintenance costs

The annual fees of the credit card vary form an airline company to the other. Generally, most companies offer a six to twelve months period which is free of charges. After this period has expired, some companies demand fees while others do not. For instance, the Gold Delta Sky Miles Credit Card has an annual fee of $85 starting with the second year, while the Blue Sky Mile Credit Card from American Airlines charges no fee for the entire validity of the credit card. Other companies have annual fees of $19 (Miles Edge), $55 (Northwest Airlines) or $75 (British Airways). (Credit Cards, 2007)

Promotion

The sky miles are in their essence promotional services used to attract more customers and increase their level of satisfaction. Even so, issuers need to implement several promotional strategies that familiarize customers with the services

The marketing departments within each airline company enquires customers as to their content regarding the company's products and services and develops strategies to improve them, based on a well defined budget

The advertising campaigns developed generally focus on the benefits of the sky miles, the easiness of using them and their multiple features, such as the possibility to use them while renting hotel rooms or cars and also the possibility of reselling them to other customers

The core of the advertising campaigns is generally the airport, where companies directly present their products and services to the final customer

The advertising campaigns can also take the form of television advertisements, radio announcements, street banners and flyers as well as online publicity.

4. Effects upon the airline industry

Sky miles were initially granted to customers in order to attract them. From their emergence up to present times, the sky miles have developed in form and usage possibilities and are now features that influence the global airline industry. Their effects are best represented in two directions. First of all, air miles increase customers' satisfaction in regard to the issuer's products and services. Secondly, they influence the airline industry in the meaning that they increase the competition among airline companies.

Increased customer satisfaction

Air miles are a most efficient means of attracting customers, familiarizing them with the company's products, services and policies and increasing their fidelity to the issuer. The concept is based on the reward strategy and the sky miles are presented as the company's reward for their customers.

Being granted additional traveling opportunities, customers become more content with the airline company and tent to return. Furthermore, not only that they increases existent customers' fidelity to the issuer, sky miles are also a guarantee of new customers. For instance, when considering a flight, be it for social or business purposes, most travelers look into the company's benefits. If they find that one company offers more miles for a spent dollar or has lower annual fees for credit cards, they are likely to pick that company.

The increased number of customers generates the company increased demand of their products and services. This offers the issuer the opportunity to expand and develop his business, leading to his registration of higher sales revenues.

Consider that the large majority of the airline companies operating on the market are striving to present their customers with high quality products and services. This means that the customers are offered a wide palette of services from which they chose those that best meet their needs. As such, the sky miles represent a selection criterion for those searching for the perfect flight.

All in all, increased customer satisfaction generates increased customer needs and expectations. On a market where customers become more exigent and demanding with every day, airline companies have to constantly develop their strategies, products and services. But not only do they have to improve and develop in order to satisfy customer needs, they must also develop in order to remain competitive on the market, this being the second effect sky miles have upon the airline industry.

Increased competition among airline companies

The competition between airline companies is generated by their desire to number as many customers as possible, register high incomes, develop, expand and become leaders on the market. This competition directly affects the entire airline industry in the meaning that:

It forces companies to constantly develop, deliver better products and services and consequently improve the overall image of the airline industry

It forces companies to expand, hire more workers and as such create more jobs and reduce the unemployment rate

Strong airline companies register increased revenues, ergo pay more taxes. The collected taxes aid the community and sustain other developing industries

It forces companies to function based on the concept survival of the fittest. The strongest companies will survive, while the weakest ones will have to cease their operation.

5. Conclusions

Sky miles are travel services offered by airline companies as a reward of previous purchase of the company's products or services. They are generally earned through payments with credit cards and they can be used for flights, car rentals, hotel rooms' rentals or for shopping from airport stores or other partners' stores. Air miles are easy to use, have numerous applications and can even be sold, donated or transferred. The costs of purchasing sky miles are generally reduced, but these vary with each issuer. The costs include the amount of dollars clients have to pay in order to earn a mile and the annual fees demanded by some issuers.

Air miles were basically used by airline companies as a promotion strategy aimed to attract more customers. However, currently, the sky miles hold a growing role with the airline industry as they lead to increased customer demands and increased competition between the airline companies operating on the market.

Sky miles represent a selection criterion when choosing an airline company; they increase the issuer's number of customers and subsequently his sales revenues; they force companies to continually develop; they create more jobs and they improve the overall image of the airline industry.