Why Are Embedded Loyalty Programs So Important For Airlines?

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Summary

  • Airline loyalty programs are crucial for customer retention.
  • Embedded loyalty programs are increasingly integrated into daily life.
  • The future of loyalty programs may include more personalization and blockchain integration.



Airline loyalty programs have increasingly become a more and more important part of carriers’ business models throughout the years, morphing from traditional reward programs to complex, multi-faceted organizations that promote customer loyalty through a number of different channels. From United Airlines transforming its award-winning MileagePlus program into a multi-billion dollar financial asset to younger carriers like Breeze Airways launching their own programs, key passenger experience benefits are increasingly becoming more and more important parts of airline strategy.

Over time, the emergence of new technologies and the shifting of customer preferences have forced airlines to adapt their business models to include more fully integrated loyalty programs. Failing to offer such a deeply embedded loyalty program has proven to be a challenge for carriers, especially those attempting to compete in premium markets or establish a reputation for customer service.


Delta Air Lines Boeing 757-200 landing at New York-JFK Airport.

Photo: Lukas Wunderlich | Shutterstock

One key institution that helps airlines transition their loyalty programs to meet the latest customer demands is the management consulting industry. To get a better idea of where embedded loyalty programs may be headed in the future and the important role they play for airlines, Simple Flying connected with two experts at the consulting firm Arthur D. Little.


What exactly is an embedded loyalty program?

Throughout the past few years, new technologies have emerged that have drastically changed the nature of the passenger experience and have opened new channels for airlines to offer unique rewards through their programs. Furthermore, the pandemic significantly shifted passenger preferences, with airlines experiencing both an increase in premium travel demand from non-business travelers and additional pressure from budget airlines to reduce their fares in economy class.


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Loyalty programs have also become more embedded in people’s daily lives, with the extensive convergence of loyalty programs and financial services. Airline credit cards, partnerships with hotels, rideshares, and rental car companies, alongside dozens of other ways to earn points or miles, have led loyalty programs to become an even larger part of people’s daily lives.

As a result, loyalty programs have become increasingly embedded in various stages of the passenger experience. Arjun Singh, Arthur D. Little’s Head of Financial Services consulting, and Bernhard Krupka, Head of the firm’s Aviation Practice in the Middle East, had the following words to share regarding the importance of embedded loyalty:

“Loyalty programs which are more deeply embedded into the various customer journeys are bound to become more mission-critical for airlines – especially as they transition from traditional transaction-based models to more integrated versions.”


The partners went on to add that effectively executing an embedded loyalty program can greatly enhance the customer experience, increasing the convenience of using such systems and eliminating pain points along the way. For those who have the most to spend on flights for business travel, ensuring a smooth and enjoyable experience when traveling for leisure can be essential to ensure continued loyalty.

Chase Bank

Photo: Chase Bank

Intuitively, the partners’ argument makes a lot of sense, as passengers are more likely to take advantage of a rewards program if earning benefits from it is easier. As counterintuitive as it may sound, airlines are actually incentivized to have more passengers redeem miles for award tickets. The system works as such:


  1. Airlines sell points or miles in bulk to a credit card company or other partner
  2. These partners use points or miles to reward their customers and incentivize continued purchases
  3. Passengers will be able to redeem these loyalty points with the airline for a free ticket or other benefit

As such, encouraging passengers to keep using cobranded credit cards and spending money with loyalty program partners is essential for continued success and revenue generation. Some airlines have chosen to reward such passenger loyalty at even lower thresholds, such as American Airlines introducing a new lower tier of elite status.


So what is to come?

Many in the industry are unsurprisingly curious about where embedded loyalty programs may be headed in the near future. As a result, we asked the partners to predict what airline loyalty programs might look like five to ten years from now.

3 aircraft on ground with sunset sky

Photo: Oleksii Halutva | Shutterstock

For starters, the partners were quick to note that the rapid pace of technological progress, as well as the current unpredictability of passenger preferences, has made it difficult to forecast exactly where the industry will trend. Nonetheless, Singh and Krupka did share a few developments that they anticipate making a major impact on the industry within the next few years, including all the following:


  • An increased drive toward the personalization of the passenger experience
  • Increased integration of loyalty programs across airlines and reward programs
  • Further embedding loyalty programs into financial systems

Some of these developments we have already seen taking place within the industry. For example, European low-cost carrier Wizz Air recently launched a new online shopping experience to help passengers prepare for their journeys by leveraging artificial intelligence to recommend products and offer exclusive discounts.

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Other projections made by the partners are a little more eye-catching and could be more than a decade away. For example, they anticipated the creation of a new travel “SuperApp,” which would integrate all forms of mobility and sync loyalty programs together. Lyft and Delta Air Lines currently partner under this strategy, making the idea of hailing a ride via the Delta app not all that crazy of an idea.


The partners also projected an increased use of blockchain software to ensure the security and transferability of airline miles. Eventually, they noted, it may even be possible to trade loyalty points publicly, just like any other commodity, something which could significantly increase their market value.

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