Emirates Airline’s Skyward Marketing Program

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Table of Contents

Executive Summary
Introduction
Purpose of Study
Literature Review
Data Collection and Analysis
Recommendations
Conclusion
References

Executive Summary

There can be a risk to the application of loyalty programs. Firms continually compete on being the ones with the most comprehensive packages to meet the desires of their customers. The Purpose of this study is to understand that how the Emirates Airline can increase the number of their loyal customer with the help of the Skyward program. Literature review explores role of frequent flier programs, hub premium advantages, global airline partnerships and opportunities for growth. It reveals insights about consumer behavior, earned miles as a currency, peculiarities of business travelers and the overall nature of the frequent flier programs such as Skyward Program.

The research gathers both qualitative and quantitative data from interviews, with five management staff members at Emirates Airlines and from secondary data retrieved from peer reviewed articles and publications. The data shows a significant increase in membership and route coverage for the Skyward Program arising from increased partnerships in Asia Pacific, Europe, Africa, and America. Last year, the Emirates increased its code sharing service to reach 14 airlines. This allowed the Emirates to enjoy hub advantages in several airports, in addition to its Dubai hub. The partnership network has increased to 12 airlines, 1 bank, 6 car rental companies, 23 hotels, and 12 retail and lifestyle businesses. Customer numbers increased from 27.5 million in 2009/10 to 49.3 million in 2014/15.

The paper recommends that the Emirates should add more routes to codeshare partnerships; it should expand partners under codeshare. It should increase options for transferability of miles beyond codeshare and current partnerships. It should also limit avenues for spending miles and influence customer behavior towards taking more flights. Lastly, the Emirates should increase marketing efforts that target existing Skyward program members.

Introduction

Company loyalty programs continue to boom in mature markets and emerging markets alike. Their growth has also attracted research, with the primary aim being to evaluate the appeal and efficiency of the programs as business development tools for various organizations that use them (Brierley, 2012). Loyalty programs are supposed to create customer loyalty, and this can be measured in the number of times customers prefer to use the same service or buy the same products. Nevertheless, there are additional variables that affect stability and sustainability of firm-customer relationship that exists within the framework of loyalty programs such as frequent flier programs (Mitch-Stuart, Inc., 2013).

Purpose of Study

The purpose of this study is to understand that how the Emirates Airline can increase the number of their loyal customer with the help of the Skyward program. Skyward program is an award-winning initiative by Emirates Airline meant to enhance the value of its services to its most loyal customers. The company has consistently worked on making the service simple, and it has ensured that there is constant updating of the service to accommodate changing customer needs. The main features of the skyward program are earning and spending of miles with a broad selection of partners. Besides, customers get an enhanced travel experience due to convenience and access to exclusive offers unavailable in ordinary travel packages. Customers can personalize their accounts and manage their miles. The members of the program start as blue level members and move up the ladder to the platinum level of membership. Members have an opportunity of enjoying Silver, Gold and Platinum membership benefits for 14 months before going back to blue and accumulating points again (Emirates Airlines, 2015).

An issue with loyalty programs is their involvement with many partnering organizations such that it can be difficult to award benefits equally among the participants. Partners can be operating in different industries and gaining varied forms of customer loyalty that are not equal. For example, an airline and a restaurant may have the same customer but they offer various services and products. Customers develop an association of points and miles with currency, because they can attach a monetary value for the services they get as loyalty rewards (Meyer-Waarden, 2013). For example, they can substitute their miles earned on the actual cost of tickets or meals in restaurants. Nevertheless, there is always a case where a customer would traditionally not utilize an offer if he or she were to pay cash. In such cases, loyalty miles appear less as currency and more as mere discounts (Frabotta, 2000).

Literature Review

Successful organizations in varied industries demonstrate long-term payoffs from the foundation of values and purpose. Meanwhile, competitive advantages come through investment in real people in the organization, in addition to investments in systems (Drèze & Nunes, 2011). Investing in people can allow a company to lower its costs of operations as its employees are empowered to outshine the competition in their productivity (Meyer-Waarden, 2013). This is achievable through an unusual culture and constant training and equipping of the workforce to make it extraordinary. At the same time, it arises out of an organization’s dream that is communicated well to everyone within it. In this regard, senior executive teams and management teams at all levels of an organization have an important role to play to ensure that they energize people in their pursuit of a vision (O’Connor & Annison, 2002).

According to Gillen and Gados (2008), most carriers use frequent flier programs to create brand loyalty. The programs are an entry barrier to startups in the airline industry. The main reason is their high cost of implementation and the need for partnerships with a host of related service providers in the travel industry. Therefore, the frequent flier programs are cushioning established airlines from new entrants and increased rivalry. The programs rely on network size and the availability of a hub and spoke system that promotes decision-making among passengers to fly the incumbent airline to keep earning rewards (Escobari, 2011). This strategy enables carriers to sell empty seats to passengers at low prices. These passengers may not have flown under current market rates. Meanwhile, the reward miles allow passengers seeking low-cost travel options to think about the incumbent airline favorably (Lederman, 2008).

The number of passengers joining frequent flier miles is very high, compared to other loyalty programs by similar businesses such as hotels. Therefore, relying solely on the number of participants in a particular frequent flier program can be misleading on a company’s strategic outlook (DeKay et al., 2009). A valuable insight into frequent flier miles is that part of the rewards includes discounts at hotels aligned in the journey of a given traveler. Therefore, a study by Dekay, Toh and Raven (2009) sought to unravel the connection, point out whether hotel or airline loyalty points were sufficient and whether there was cross-signing up between the two programs. Interestingly, after a survey, the study shows that airline and hotel guests would both prefer to receive airline miles for their rewards rather than a hotel stay. The study points out a high potential for airlines to tap guests from partner hotels into becoming frequent travelers by offering them flier miles, while hotels cannot achieve the same numbers with travelers when converting them into regular guests. This is despite the ability of hotels to customize services to make them personal and a degree unachievable by airlines (Black, 2011).

Even in the marketing area of loyalty programs, airlines find themselves in particular positions in regards to the competition. They can be leaders, challenges, followers or niche. The leader is completely focused and pushes boundaries, while the challenger and follower are in between the leader and niche but focus on the competition. Niche businesses chose to focus on themselves and stay within boundaries. The study by McKechnie, Grant and Katsioloudes (2008) puts Emirates Airline as a leader for its overall business strategy. Features that make it a leader include pushing boundaries to reduce fares to match low-cost carriers and addition of flight frequency to popular destinations as well as addition of new routes (Thurlow & Jaworski, 2006).

A threat to the model is presented by the increasing criticism of the viability of an all-premium business model. As loyalty point earners aspire to gain premium status and be able to fly the premium class for a fraction of the cost, business have to attract the same customer to these classes because of their related high margin earnings. As airlines become bankrupt after trying to sustain a premium business models, low-cost carriers with no frills options and without frequent flier programs, are jumping in to fill the gap. Even the otherwise exclusive business segment for inter-regional transport that was dominated by legacy carriers is now open to low-cost carriers through their collaborative endeavors across countries (Gillen & Gados, 2008). Thus, the competitive advantages of an all premium model and a frequent flier program continue to dwindle. Nevertheless, major global airlines continue to expand and push their miles programs to attract and retain customers.

The study by Dostov and Shust (2014) indicates that businesses have responded well to risks of money laundering and terrorism that could be attached to loyalty programs. In agreement with findings by Frabotta (2000), many people find loyalty points as an alternative form of currency that not easy to trace or scrutinize by authorities. Thus, such points and associated programs can be useful to terrorists and money-laundering organizations that seek to remain unnoticed by policing authorities. However, the study shows that businesses have realized this loophole and made improvements that prevent the misuse and at the same time allow them to continue offering loyalty points. A risk of not finding a proper way to curtail the illegal use would be to face bans on the program. Such outcomes can lead to a business loss when an organization is unable to attract its target customers.

Customer, due diligence initiatives, attached to loyalty programs together with record-keeping initiatives have been most instrumental in preventing misuse of the private currency. Association of a particular program with illegal activities can harm a company’s reputation and cause customers to stop seeing the reward program as an incentive. On the other hand, pressure by firms to prevent accumulation for the sake of doing so, as a way to store value by customers have caused them to come up with various ways of compelling customers to spend their earned points. When collected, points serve as a liability to companies because they represent obligations that a corporation owes its customers. Thus, it serves companies well when customers use their points. A major way of ensuring that they use the points is placing a validity period of redeeming and creating promotional events that ask customers to redeem their points. For airlines, low travel season when seats are mostly empty serve as the appropriate times for calling on customers to redeem frequent flier miles. Downgrading the value of points accumulated after a given period is also a way that airlines use to prevent massive accumulation of awards by customers, which can be catastrophic to the business when such awards are redeemed at once (Dostov & Shust, 2014).

Another question that researchers have pursued is on whether enhancements to loyalty programs affect the demand for particular services attached to those programs. The study by Lederman (2007) sought to answer this question with an empirical approach with the impact of enhancements as dependent variables. The researcher also uses the fixed effect of airline’s origin to control for the influence of a given airline’s hub (Zelenak, 2014). Other fixed effects used for controlling research parameters were airline-quarter to cover airline-specific time effects and router-quarter to cover time-varying hidden features that are present in many carriers on a route. The study’s findings show that enhancements to an airline’s frequent flier program lead to increases in its demand. However, the effect is specific on routes that depart from airports where the airline is dominant. This finding shows that frequent-flier programs are excellent enhancements for already dominant market routes for a particular carrier and that they may perform dismally in new routes. Another insight is that airlines have first to develop dominance in a given course and airport before opting to rely on frequent flier miles to add to its customer numbers. It is a confirmation of the incremental effects of frequent flier miles upon traveling behavior of clients. Clients are motivated by the awards to use the same airline. Most clients prefer the dominant airline at a given airport because the leading airlines tend to give the best offers and rewards. Again, this finding by Lederman (2000) confirms the findings by O’Connor and Annison (2012) on the role of positioning of a company to make gains from loyalty programs sustainable.

Evidence presented by Lederman (2007) shows that airlines have a better chance of charging higher prices and capturing disproportionate market shares when they are targeting routes that depart from their airport hubs and other airports when the airline is dominant. Nevertheless, it should not only be viewed as the role of frequent flier miles to lead carriers to higher profitability from their dominant airports. Other factors that were not separated effectively in the empirical research by Lederman (2007) can also be aiding the findings of the study. In spite of this, the effect of enhancements is apparent that they work well in dominant routes across varied variables (Lederman, 2007).

Based on findings by Hazledine (2011) legacy airlines succeed at beating competition from other carriers by bundling their fixed cost elements into profit centers. For example, such airlines combine business-class cabins, lounges, global alliances memberships, frequent flier programs and long-haul connections such that they are value additions to customers. These bundled services then serve as attractions for leisure travelers and business travelers. On the other hand, other airlines are unable to replicate such strategies because they lack one or more of these services, and it will take them considerable time and resources to achieve them. Therefore, Hazledine (2011) concludes that these services, when bundled together, are a reason for increased customer numbers enjoyed by legacy carriers.

Data Collection and Analysis

As the case for this study, the approach of inquiry was to present these questions to the management staff at the Emirates Airline to obtain a definitive answer on the role that the Skyward Program plays in marketing the airline. After getting, the data insights, the study also collected additional information about the strategic role that the program plays and the way management at the airline are using the program to increase customer numbers. Besides, other expected insights into the exploration include the categories of frequent travelers targeted by the program and its enhancements. This approach provides different points and data for analysis (Malhotra, 2006). First, there is the expectation of the airline versus the outcome of market performance in regards to the use of its Skyward Program. Secondly, there is the development of strategy because of observations by management on the outcome of the program and calls for improvement, which then presents this study with data concerning the response and strategic outlook that the airline is having towards its market growth initiatives.

The variables being investigated in the study are customers who end up upgrading to business or first class services because of incentives offered by the Skyward Program. Another variable, an independent one, is the strategy used by the airline in ensuring the highest number of customers adopts the Skyward Program. A third variable for the study, a dependent one is management’s confirmation of a positive and desired effect of the Skyward Program. This variable is an indication of positive data regarding customer expenditure and volume on the airline’s main routes. This alternative will be considered for this study in place of actually customer numbers that are difficult to acquire under the present formulation and resource constraints of this study. In addition, the study will lump the collected data from five interviews with management staff members at the Emirates Airlines, together with data obtained from secondary sources about the airline’s Skyward Program, then use the data to bring up comparisons with findings from literature review in the analysis process.

The following are the findings from the interviews with five management staffs at the Emirates Airlines concerning the Skyward Program. The responses are summarized based on relevance to the purpose of this study, which was finding out ways that the Emirates could increase the number of loyal customers with the help of the Skyward Program. The airline has made smart market choices and as a result, it has become a global force in the aviation industry. However, it finds that local passengers have the highest expectations followed by those where its routes are most frequent. Passengers expect the airline to offer impeccable style and service for all its classes, without compromise. For the airline, being without any global alliance commitment has been a strength allowing it to collaborate only with businesses and institutions that align with its values. The airline also offers its rewards in miles, which is considered as the best currency for frequent flier programs across the world. Although there is no alliance, the Emirates still partners with some airlines for transfer of miles and connection of routes and these carriers include JetBlue, Virgin America, Thai, Philippines Airlines and Alaska Airlines. The carrier uses two program transfer partners namely American Express membership rewards and Starwood Preferred Guest.

Currently, the awarding of miles is not publicly reported. Customers have to check validity and equivalence of their miles for particular routes. The company provides a miles calculator on its website and smartphone apps. The value of miles varies in different regions. When redeeming miles, customers have the option to go for the saver or flex options. The first one has fewer premium options compared to the second one, and when getting tickets, customers can choose which miles they want to accumulate. The company supports stopovers and mixed awards for its program. The company also limits users of its saver miles. They earn only half the miles traveled and do not enjoy one-way awards. It imposes a $75 amount for canceling saver awards and $50 for canceling flex awards. The miles are also subject to high fuel surcharges and earning them is based on fare category and the zones that a passenger has transited.

An award of first class travel gives passengers a chance to sample the best in the new A380 Airbus fleet, which allows showers, has an air lounge and passengers have access to a bartender. The airline allows upgrades to the next class such as from economy to business or business to first class. As passengers upgrade to elite levels, they enjoy additional perks as well as those benefits available to the previous level.

The Skyward program has been very popular since its launch, and it has ensured that many passengers upgrade to flex awards for the most miles. This also means that they are either flying business or first class. Other than miles, users can stay in hotels like Starwood, Shagri-La, Marriott and InterContinental where they spend about 500 miles per night. Different providers like Budget offer the available car rental services, and they cost between 500 to 2000 miles. Expenditure in partner stores and facilities such as cruises on Danat Dubai Cruises or adventures by Arabian Adventures give travelers a point for every two dollars spent. These avenues award customers miles and compel customers to use those miles by flying the Emirates. Last year, the Emirates increased its code sharing service to reach 14 airlines.

This allowed Emirates to enjoy hub advantages in several airports, in addition to its Dubai hub. The partnership network increased to 12 airlines, 1 bank, 6 car rental companies, 23 hotels, and 12 retail and lifestyle businesses. Customer numbers increased from 27.5 million in 2009/10 to 49.3 million in 2014/15. In addition, there was an average of 5 million in passenger number increase in 2012/13 and 2013/14 financial years. This is equivalent to 12.6% and 11.2% respectively. The Emirates Airlines has been keen to offer service support through regular monthly communication with members using newsletters and its website. Members also have online services for checking their points and miles offers. A drawback of the service as reported in members’ feedback is the fact that they cannot transfer miles earned in partner airlines to the Skyward Program. Besides, it costs more in miles to get a one-way award compared to a round-trip flight.

The program is not the best, and there is room for improvement, but after weighing cons and pros, it stands as one of the most preferred in the world. Although passengers can earn miles when they are using partner airlines that eventually connect them to the Emirates’ routes, they can only earn miles at a partner rate when those airlines do not use the Emirates flight numbers. Another challenge for members and a right thing for the company is that it limits earning of miles, such that without tier qualification, most earned miles are not usable due to their small size. A big problem currently is that transfer options for the partner program are not available in many destinations and members have limited options for transferring their miles to other loyalty points.

The Skyward program received online update termed Just-A-Click-Away, thereby allowing members to upgrade their earned miles to eligible flights with ease. The option available at the Emirates.com gives members 48 hours to make changes to baggage allowance, lounge access, and chauffeur drive. No service fees are charged. The upgrade is available from 5000 miles and above. American Express card holders can transfer as few as 60,000 Members Reward points and be able to book a return ticket for economy class. They have access to Dubai and any other destination among the more than 140 served by the Emirates airlines. Eligible card members from the U.S., UK, and France also get a 25% bonus for a limited time when they transfer points into miles.

In addition, the Emirates has been adding more hotels, where members can earn miles as guest. An additional one was the Taj Hotels, which now gives Skyward Program members 500 miles for staying at any of the 73 Taj properties. With the Platinum tier of the Skyward Program, the Emirates is able to collaborate with partner airlines like Quantas to recognize earnings and reward opportunities for either airline without forcing members to downgrade their earned miles. The partnership is now in its 3^rd year. More than 2 million passengers have used the codeshare platform on either airline. In 2014, the Emirates added 25 new codeshare routes in Asia Pacific region. In 2011, there were 5.72 million people enrolled as Skyward members. In 2010, the Emirates had declared a profit of $964 million and passenger volume had grown by 4.7 million to reach 27.5 million, despite the fact that the airline industry had just reported an industry wide loss of $9.4 billion in 2009. Other code sharing developments are in Africa with Arik Air of West Africa and 10-year management concession agreement with government of Angola, which also includes code sharing with the country’s national carrier. The Emirates has also expanded code sharing with other existing airlines and with SNCF to ensure that passengers using rail in 20 provinces in France also earn miles. In addition to codeshare, Emirates is also pursuing strategies to have its flights co-located in an airport’s main hub user so that its customers have seamless connectivity.

Recommendations

The first recommendation is that the Emirates Airlines should focus on increasing enhancements to its skyward program with code sharing. Code sharing is the biggest source of additional customers to Emirates under its Skyward program. A second recommendation is to increasing target marketing efforts and enrolled members of the Skyward Program. It is easier to convert these customers and make them brand ambassadors. As customers gain bonus miles due to their frequent flying, they develop a sunken cost association that makes it difficult for them to switch to competing programs. Rationalizing on the benefits of earning more miles by flying the Emirates Airlines is a reason that the airline can use to adjust its price progressively.

Third, the Emirates should expand the number of routes that it currently manages under Skyward, both for code sharing passengers and those who transfer points from American Express and other options. A key reason is that business travellers have more reason to fly a particular airline to different destinations (Meyer-Waarden, 2013). They are in a better position of utilizing the airline’s program compared to the other economy or premium travelers.

A fourth recommendation is for the Emirates to look into transferability of its miles across airlines. It continues to lose some passengers who are traveling on global alliance airlines such as SkyTeam, who wish to transfer their earned miles and cannot do so. Getting into such alliances might not go well with the overall strategy of the airline, but finding a way to incorporate miles transfer, even at a higher cost to the member will be a good attempt at increasing the number of customers that sign up and use its membership reward program.

Fifth, the airline should continue limiting opportunities for earning miles to prevent abuse of the service. Some perceptive members do not fly frequently but instead spend money on linked products and services to earn miles, or they transfer their points from cards into miles. This practice is popular with many would-be travelers seeking to get bargains; however, it does not help airlines much. Limiting the options for transferring earned miles from non-travel expenditures is a good strategy that the Emirates Airline is using with its Skyward Program. It should continue doing so. The essence is to design the program in a way that forces most customers to fly to earn points or to fly to make the most use of the earned miles. The airline can then concentrate on upgrading these members to higher statuses.

Conclusion

The Emirates Airline is in a good positive of sustain customer numbers with its Skyward Program. It has already implemented best practices in the airline industry. Nevertheless, it faces challenges of up selling its offers to customers so that they spend more in business class and first class. Therefore, there is a need for more marketing of its offers among members of its Skyward Program. In addition, the study finds out that, in accordance with findings from literature review on the competitive advantages of frequent flier programs, the best strategy for the Emirates is to tap into transferability of points from other airlines, boost its program membership, and at the same time tighten usability features such that miles are mostly earned and redeemed through flying. A limitation of the study is the reliance on self-reporting by managers, which can exaggerate some facts.

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