Etihad Airways goes the extra mile with loyalty programme spin-off

Guest Miles can be redeemed on any of Etihad’s 3,000 routes. Pawan Singh / The National

Etihad Airways will spin off its 2.3 million member loyalty programme, Etihad Guest, to take advantage of an industry growing at a rapid clip as the demand for fine-grained consumer data grows.

Etihad said the programme's spin-off would create "a separate legal entity" and is "designed to support its growth".

Airline officials did not reply to requests for further comment yesterday.

Loyalty programmes are no longer just about selling flights and using up spare capacity on planes, said Paul Lacey, the managing director of Aimia, which operates Air Miles Middle East. As they expand into retail stores, loyalty programmes become tools for gathering information about consumers’ habits and tastes – which is incredibly valuable for retailers.

“Loyalty programmes give companies the ability to understand who their consumers are and allow them to acquire new consumers. Companies use the power of loyalty programmes to get consumers to spend away from the competition. Programmes have certainly evolved in terms of how the data is used and the insights companies extract,” said Mr Lacey.

The data gathered by loyalty programmes is then used by commercial partners, to aid them in better marketing their products.

“Brands want information about customers so they can use that data to mould their marketing strategies,” Mr Lacey said. “Once you understand consumer shopping habits you’re able to provide relevant offers back to them that are appealing.”

In 2012 in an interview with The National, James Hogan, the chief executive of Etihad Airways, said: "The loyalty programme sector is a faster growing and higher margin business than the airline industry."

Mr Lacey said the sector was “growing globally in different markets”.

High fuel and labour costs and slow revenue growth for airlines have meant that the air industry as a whole has struggled to make sustained profits. According to a special report by the International Aviation Transport Association last year, industry-wide profits totalled US$6.2 billion in 2012 – just $2.56 per passenger.

In this context, loyalty programmes with large margins look like increasingly attractive business propositions.

Etihad bought a stake in airberlin’s frequent-flyer “topbonus programme” in 2012 in a bid to add the programme’s customers to its own network. Etihad customers can also claim Etihad Guest Miles from flights on airlines in which the company owns equity stakes – such as Virgin Australia and Air Seychelles.

Setting up a loyalty programme as a separate company “allows the loyalty programme to evolve”, said Mr Lacey. “The new company becomes self-funding and is able to reinvest money in the loyalty programme, while the airline can invest its own capital in the airline business and not worry about developing the loyalty programme.”

The loyalty programme funnels customers into the airlines’ flights, Mr Lacey explained, so it becomes “a supplier relationship, and can be quite a lucrative relationship because of the volume of flights customers redeem with airlines.

“Any loyalty programme, whether … airline or retail, is all about making the right offer to retain the customers that you’ve got, to make new customers and to get them to spend more when an active member of programme,” he added.

Guest Miles can be redeemed on any of Etihad’s 3,000 routes, while the company offers 6,000 products from 250 companies through its online shop.

Middle East airlines have some catching up to do with North American carriers in terms of offering rewards other than flights, said Mr Lacey. "The ability to use points and miles for non-flight redemptions is not as mature here yet … although Emirates and Etihad are developing their non-air reward portfolios."

Etihad recently announced that customers would be able to accrue Guest Miles for transporting pets, possessions and vehicles on the airline’s flights.

In its latest route expansion, Etihad on Tuesday began daily flights to the Indian city of Jaipur.