boogsbobo

I am a Fulbright scholar interning at a low cost carrier in Latin America. We are considering starting a frequent flyer program and Co-Branded credit card, and I am in charge of designing the program and building the financial model!

I'm from Ohio, but I am working here for a year and I am the only person on this project. I need information on designing a loyalty program and especially tips on accounting and financial modeling. My model is complete and seems to work, but i am missing the insider knowledge and data to back it up.

Recommendations of any good resources or personal advice would be tremendously appreciated.

This is an awesome job, but unfortunately there is no "expert" here at the airline to help me learn as I go.

We are a low-cost carrier, flying mostly domestic but also a few international routes going to the US... we want to build a program similar to Southwest, JetBlue, Virgin, etc. which assign points a cash value (1/60 dollar southwest, 1/80 Jetblue, 1/50 Virgin).

Thanks for helping me with this huge task!

Ocn Vw 1K

boogsbobo, welcome to FlyerTalk!

Your post seems more apt in the Miles and Points section of the site and I'll move it to MilesBuzz, pending more discussion and feedback from the community. Ocn Vw 1K, Moderator, TravelBuzz.

[Solely as a member:] One thing to keep in mind is that while members may well be generous with critique and general suggestions, you wouldn't want to assume that they'll offer you gratis, a complete package of airline loyalty program expertise. For that, your carrier may wish to engage a consultant already steeped in airline loyalty programs.

emma69

Are you aiming that your customers will be almost exclusively from your Latin America country? If so, how would your idea compare with what airlines there currently offer? That is, if I fly Airline X, and by taking 5 x $200 flights I have enough credit for 1 flight, does your airline offer something that is as attractive, or will people still opt for Airline X?

boogsbobo

Thanks moderator. i'm certain that i wont find a full solution here in the forums. I am really hoping that people can point me to good resources which I can use to better my own understanding of the forces at work... especially in terms of accounting and financial modeling.

Emma, our customers are almost all from our home country, and those that fly our airline in the US are generally of the airline's nationality.

Of course we want to build a competitive product. As we have it currently, the top earning customer (using co-branded credit card) can get a free segment after 8.57 segments and a customer without the CC after 12 segments. The top competitor in our market is less generous.

AlohaDaveKennedy

KISS - free segment after 8 segments. The .57 just adds confusion. Is the CC the only tie in?

boogsbobo

We also want to do earnings bonuses with partners... as long as we can keep the program simple and low-cost. Probably work with a turn-key provider for partner earnings.

Our earnings / redemption structure is as follows.
Redemption: 60x cash value. I.E. $100 fare = 6,000 points. We only have one fare type/family.
Earnings:
3 pts per $ on flight
1 pt per $ for tickets booked on-line.
1 pt per $ for tickets purchased with an ancillary (bag, priority boarding, etc.)
2pts per Co-Brand $1 Spent on flights
1 pt per Co-Brand $1 off

potential to earn 7 points per dollar (3 standard, 2 co-brand bonus, 1 web bonus, 1 ancillary bonus)
60/7 = 8.57

ramolnar

I can't help you with the accounting, but I'll make a suggestion about the program. Build "crazy things" into your program. I mean two things:

1. The crazy almost unattainable award. For instance, you're a one-country airline, but you could offer a round-the-world first class award. I think they cost roughly $20,000 from Star Alliance or oneWorld. That's 1,200,000 points. You could bump it up, but I'd make it a nice round 1,000,000. (Find a nice round number in your currency.)
Will people redeem these that often? No, that's the point. You'll buy them when you need them. What you're doing is offering something to the super duper flyer. If I have 600,000 points on your airline, just flying your routes isn't exciting. But going anywhere I want in first class might get me to push.

2. Contests and prizes. Southwest is doing the Chief Reward Officer right now, which is well thought out. Priority Club hotels did the location finding contest last year (not the fastest quiz one, which got broken). Most people don't get that much - 500 points is a few $ - but you get good publicity. I'd make your top prize the Million Point award, for two.

At a lower level, offer super cool things. Send people to World Cup qualifiers in good seats. Send people to the Miss Universe pageant. Have backstage passes for a Shakira concert. Send people to Chicago for a week and put them in a nice hotel on the Magnificent Mile.
This won't cost you that much, but if you do a few a year, people will notice. Use your partners.

Also, let people buy these occasionally. SPG sometimes offers concert tickets. Auction off a few super prizes like World Cup / Miss Universe. You might even make money from the auction. Don't do this for ordinary merchandise like SkyMiles marketplace. Make it special.

AlohaDaveKennedy

"ancillary bonus" - no way! It is a "special bonus" or "super bonus" or something more marketable like that.:-:

emma69

Q - does your airline want you to have everyone paying for e.g. priority boarding? If you get an extra point / dollar by doing so (assuming like the online example it is a bonus 1 point for every flight dollar) it seems like a bit of a no brainer to do that - but if everyone suddenly does it, it ceases to be 'priority' and can cause you issues on that end.

boogsbobo

We are actually changing our fare structure right now, so what will be "ancillary" and what is included isn't totally determined yet for the future. The idea is to put an incentive behind paying for ancillaries. In fact I think we will have a few different "packages" and the bonus point (applied to the entire purchase) can only be earned by purchasing a package. The packages might look like 1: 35lb checked luggage and in-flight premium beverage. 2: 50lb bag, prem beverage, travel insurance. 3: 75lb bag, prem bev, priority board, trav inrance.

sbm12

I would seriously just copy the JetBlue TrueBlue program. Start to finish.

Don't get me wrong - I think that there are quirks to it that make it less fantastic than some others for the biggest "gamers" out there - but I do believe that it provides incredible benefits to both sides in the loyalty equation and still has the flexibility built in to allow for the creative types of promos and pricing that would let you offer great value to the program participants.

The segments->free flights option mentioned earlier works well if all your segments are roughly the same length and cost but it breaks down if there is variation in the route map or pricing model. And as you move towards a more complex pricing structure, as you've indicated you will be soon, this becomes even more complicated to operate on a reasonable valuation basis for the back-end with fixed value earning on a per-segment basis rather than on a per-dollar basis.

And, BTW, the 1/80 of a dollar value you've got listed there for JetBlue points is way off, both in that it is too low and in that the points cover a range, not a fixed value.

boogsbobo

Thanks SBM,
I used the # of segment to a redemption as just an example. I meant that if you buy 8.57 segments for $123.45, then you can get a free segment of that equal value ($123.45)... of course if all of your segments cost a different dollar amount, that multiplier can go up or down.

I meant 1/80 for JetBlue as a redemption value. I know it is flexible, but from my research it ranges from around 1/72 to 1/88. I understand that jetblue gives out bonuses and has other ways to earn points, but when it comes to cashing them in, I was under the impression that 1/80 is about right. What figure do you have?

sbm12

My research suggests that the points are worth between 1.05 and 1.55 cents each, though that was back in May. I haven't checked too recently. So I think it is just that the range I was seeing is a bit broader than what you found.

boogsbobo

I should have clarified that I was speaking in 1/80th of a dollar. so 1.25 cents.. at 72 it is 1.39 cents, and at 88 it is 1.14 cents

rhyme

Please PM me regarding the co-brand credit card. I have some information for you but would prefer not to post directly online.