StatusMatch says that there would be about 15 million downgrades of elite status members just in first half of 2023
Global airlines that had extended the validity of frequent flier status during over two years of Covid-19 pandemic have stopped it this year with a view to raise revenues and cut costs linked with flier status benefits, like extra baggage or lounge access. But a report by StatusMatch warns the policy may boomerang badly on the airlines.
In a press statement, StatusMatch, a travel tech platform that automates the process of transferring loyalty status between travel providers, says that there would be about 15 million downgrades of elite status members just in first half of 2023. It has warned that as a backlash against the ‘downgrade tsunami’, the airlines stand to lose as much as USD 55 billion in revenues annually, if they proceeded with the plan.
StatusMatch says that the downgrades will happen as airlines have been granting free extensions to frequent flier status programs during Covid-19, but now with full planes and high prices, most airlines are ending the free extensions. With many members with status having not flown enough to maintain their current level, as a result they will be downgraded at the next status review.
StatusMatch estimates that there are 55m ‘elite’ status members for airlines globally and more by adding the numbers for hotels and other travel verticals, and the top three United States airlines accounting for 15 million of them. StatusMatch says that over 15 million of the 55 million elite tier members would be downgraded or cancelled in the coming six months.
Highlighting the importance of these flyers, StatusMatch estimates that the top 5 pc of status members represent 30 pc of an airline’s bookings. Such members don’t shop around, they accept the price on the airline website and hence contribute to higher average fares and they also represent high levels of repeat purchases.
It adds that very importantly, industry accepted estimates show that 75 pc of these members have the airline cobrand credit card. Such cards have been a source of financial funding for major airlines through the pandemic as they have securitised the revenues from these sources to avoid bankruptcy.
On the basis that global airline revenue was worth USD 600 billion per year pre-Covid-19, and that 30 pc of airline revenues come from elite status flyers, that means they represent close to USD 200 billion in sales annually. And as around a third of the members face a downgrade or cancellation, the airlines may be putting annual revenues of about USD 60-70 billion on the line per year.
StatusMatch says that worryingly for airlines, a recent survey by showed that if downgraded, 51.6 pc of status members will try other airlines and 34.6 pc will never fly the old airline again. Together that means that 86.2 pc of those clients who are about to be downgraded are going to start looking for a new airline, representing potentially sales worth roughly USD 55 billion per year.
These status members holding cobrand credit cards have almost USD 300 billion in spend a year, worth over USD 4 billion in points income per year to loyalty programs adding further risk to airline ancillary revenues.
Mark Ross-Smith, CEO of StatusMatch
“This has been a rather long-time in the making and is what we’re calling the ‘status cliff’. Remarkably lots of airlines are edging towards that precipice either totally unaware or hoping they can defy the laws of ‘status gravity’. But as the stark results of our recent research survey of loyalty members showed, almost 90 pc of them will start flying with other airlines if their much-cherished status is removed,’’ says Mark Ross-Smith, CEO of StatusMatch.
“We estimate that this downgrade tsunami will wipe out roughly USD$55bn worth of annual sales for those doing the downgrading, but with so many high value customers and airline revenue potentially moving, smart airlines will see this as a USD$55bn opportunity to target the customers facing a downgrade and switch their loyalty. There are likely to be some big winners and losers in the airline world over the coming year,” adds Ross-Smith.
“Status is the most powerful incentive that a loyalty program has at its disposal. The emotional or egotistical attachment a member has to it drives almost blind loyalty, so underestimate it at your peril. Whilst defensive strategies may be too late now, consider: reduced qualification requirements, if your loyalty system can do this; bonus status credits for flights taken including reward seats; and offering paid renewals,’’ says Ross-Smith. “For those considering acquisition strategies to gain market share-shift as a result of this, consider offering matching status to entice people over from your competitors, but make sure that your operations and technology can fulfil this quickly and efficiently,” he adds.
