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Airline Loyalty Programmes in Customer Patronage Proposal


Abstract

This paper delves into the effectiveness of airline loyalty programmes on customer patronage based on a benefit versus affordability approach. It attempts to determine whether airline loyalty programmes continue to be an effective marketing tool for legacy carriers in the face of changes in the current airline industry due to the creation of budget carriers.

Problem Statement

At present, there are two types of carriers within the aviation industry that act as the primary method of air transportation. The first are legacy carriers which are composed of some of the oldest carriers within the industry that have come about through mergers, acquisitions and a variety of other similar practices. Examples of this type of airline consist of British Airlines, United Airlines, Lufthansa and other similar carriers that can be seen in the UK.

On the other end of the spectrum, budget carriers are defined by their “no-frills”, low cost, and lean business models that focus on creating cheaper flights for their passengers. The main difference between the two is that legacy carriers offer frequent flyer benefits for their consumers while low cost/budget carriers do not. The end result is a market environment that has two aspects vying for the attention of consumers. The first is the benefits that can be obtained through the frequent flyer loyalty program of airlines while the second is the affordability that low-cost carriers offer. These two competing perspectives call into question the effectiveness of airline loyalty programmes on customer patronage based on a benefit versus affordability approach.

What is a loyalty programme?

Based on the work of Berman (2006), a loyalty program can be defined as a structured marketing effort meant to encourage loyal buying behaviour for a particular service or product. In other words, it is a marketing tool that focuses on creating consumer patronage through the implementation of a reward-based system. One example is the Starbucks loyalty card which tallies the number of drinks you have bought at the various stores of the company.

Through the purchase of a certain number of drinks, a customer can get a free drink once all the conditions have been met. As can be seen, this marketing tool focuses on encouraging repeat purchases resulting in a higher overall profit for the company despite giving one free drink to the customer (Schoenfeld, 2013). By ensuring that a customer continues to return to patronise what they are selling, the company is able to reap greater long term benefits from such a relationship (i.e. higher profits).

What are Airline Loyalty Programmes?

Loyalty programmes for various airlines come in the form of frequent flyer miles wherein, depending on the amount of time a customer flies with a particular airline per year, these “miles” become redeemable as either:

  1. A free airline ticket.
  2. A hotel room.
  3. Goods or services depending on the promo at the time.
  4. Seat upgrades from Economy to Economy + or from Business Class to First Class.

lUnder this system, the benefits increase depending on the number of miles flown with that airline which in turn encourages customers to continue flying with the company in order to gain the maximum amount of redeemable miles.

Changes in the current market environment

Despite the popularity of frequent flyer miles as a loyalty program, there have been changes to the current market environment. These changes create a certain level of doubt regarding the continued viability of airline marketing tools as an effective method of creating consumer patronage. Based on the analysis of McCartney (2012), there are three changes to the current landscape of the airline industry, which have altered the manner in which customers view airline patronage.

The first of these changes has been the creation of “no-frills”, low-cost budget airlines which have become a popular method of air travel. The lack of extra “frills” when it comes to the services offered enables budget airlines to charge far lower prices as compared to their counterparts in the industry. This makes them an attractive alternative for people looking to travel on a budget (Bhagwanani, 2013). Traditional airlines, also known as legacy carriers, also have to contend with their ageing fleets and higher fuel costs resulting in a subsequent increase in ticket prices (Lubbe, Douglas, Wieme, & Fabris-Rotelli, 2013).

Budget carriers often have newer and more fuel-efficient planes as compared to legacy carriers. This enables them to lower their ticket prices at a rate that is below that of legacy carriers. Lastly, cutbacks in the benefits gained from loyalty programmes have created fewer incentives to patronise a particular airline (Airline loyalty programmes, 2013). Do note that unlike legacy carriers, budget carriers do not have the same frequent flyer miles program. While some may consider this as detrimental towards the marketing efforts of budget carriers, the fact remains that ever since the 2008 financial crisis, consumer attitudes and behaviours regarding airline travel have changed (Brierley, 2012).

Many passengers have now started to focus on affordability rather than patronising a single airline for the miles that they could accumulate (Glusac, 2014). It is based on such information that this paper will investigate the continued effectiveness of airline loyalty programmes on customer patronage through the context of an approach that focuses on benefits versus affordability.

Hypothesis

Frequent flyer miles as a marketing tool only appeal to a niche segment within the current airline industry with a majority of passengers today preferring cheaper flights over company patronage.

Research Objectives

The objective of this marketing report is to examine the continued effectiveness of airline loyalty programmes in the face of the current trend in passenger preference that has focused on affordability over loyalty to a single airline. The primary method of the examination will be through a series of questionnaires that will be given out at a local airport. Through the questions and data that will be accumulated, the researcher will be able to determine the preferences of the various passengers at the airport (i.e. loyalty programmes versus affordability) and whether or not the benefits accrued through frequent flyer miles is sufficient to cause them to patronise one airline over the other.

The focus of the report is whether customers would choose a legacy carrier based on the rewards they can get for their patronage or if they would choose a budget carrier for the cost savings.

As such, the objectives of this marketing report will consist of the following:

  1. Examine the current biases passengers at the airport have towards the rewards from frequent flyer miles or the cost savings accrued from budget carriers.
  2. Determine, if within the past few years, consumers have shifted towards patronising low-cost carriers as their primary means of travel due to the inherent cost savings.
  3. Lastly, examine if airline loyalty programmes have had any significant impact in retaining passengers for legacy carriers.

It is expected that through the objectives that have been outlined thus far, this study will be able to examine the current effectiveness of airline loyalty programmes on customer patronage.

Report Outline

The report will consist of the following parts:

  • Chapter 1 will contain the introduction, background of the study, the study limitations, as well as its aims and objectives.
  • Chapter 2 will consist of a literature review detailing airline loyalty programmes and their intended impact on consumer patronage.
  • Chapter 3 will consist of the methodology that will be utilised in the study as well as the means by which data will be collected.
  • Chapter 4 will contain the results of the study and will discuss the implications of the results.
  • Chapter 5 will consist of the conclusion and recommendation section of the paper.

Research Methods

Based on an examination of the needs of this marketing report, it was deemed that a qualitative based approach would be the most effective means of acquiring the necessary information. Qualitative research can be described as a type of exploratory research that tries to explain the aspects of a scenario through an in-depth method of examination. While it is applicable to numerous disciplines, it is normally applied to instances which attempt to explain human behaviour and the varying factors that influence and govern such behaviours.

When taking into consideration the fact that the main objective of this report is to examine the behaviours of airline passengers in relation to their choice of carrier based on the presence of loyalty programmes or more affordable tickets, this method of examination seems far more ideal given the parameters that have been set. Since qualitative research focuses on exploring various aspects of an issue, developing an understanding of phenomena within an appropriate context and answering questions inherent to the issue being examined, this makes it an ideal method of examination for this report.

Research Design

After evaluating the needs of the marketing reported, it was determined that a survey-based method of examination that utilises questionnaires would be the most effective method in getting the necessary data. A survey-based qualitative study works through a sampling technique wherein a small segment of the population is utilised in order for a statistical inference to be made on the population as a whole.

Using a survey enables a researcher to understand a particular population by making a statistical inference through sampling. Thus, the researcher can take a small sample size of the various passengers within the nearest local airport and use it as a means of inferring the orientation of the rest of the passenger population.

Utilizing this method, the researcher can then compare and contrast various aspects of the research results collected and come up with conclusions that are effectively backed up by quantified data. This is particularly advantageous in cases where numerous factors need to be examined and then correlated into succinct answers that can be easily understood.

Data Gathering Technique

A questionnaire technique is used when the researcher is principally interested in descriptive, explanatory or exploratory appraisal. The justification for choosing a questionnaire-based approach for this study is grounded on the fact that the participant will have the ability to respond to the researcher’s questions more directly and thus provide more information. An analysis of related literature will be used to compare the study findings with research on various strategies utilised by the airline industry.

Data Collection

Data collection for this study involves utilizing a questionnaire to gather the opinions of up to 30 respondents in order to determine whether the loyalty programmes of legacy carriers are sufficient in ensuring the loyalty of the passengers despite the presence of low-cost alternatives (i.e. budget airlines).

Participants

The research participants that will be used for this paper will consist of various individuals that will be recruited at the local international airport. Prior to the start of this research paper, the researcher will ask the permission of the airport administrators in order to conduct the study. 30 individuals will be recruited with no distinction being made regarding the type of passenger they are (i.e. business class, first-class, economy, etc.).

All participants will be given a consent form encompassing what the study entails as well as assuring them that all responses will be kept strictly confidential and will observe proper research ethics when it comes to ensuring that the data will not be leaked to the general public. Once the research subject has consented to be part of the survey, they will be given the questionnaire in order for them to fill out.

Data Analysis

The primary method of data analysis in this study involves an individual review. The individual review will primarily be the researcher examining the collected response data from the passengers that were interviewed and comparing it to the data obtained from the literature review. The researcher will then attempt to determine the main themes that arise from the investigation and use this information to assist in establishing the key findings of the study. This method of data analysis is appropriate for the qualitative design that was chosen.

Study Concerns

One potential concern that should be taken into consideration is the potential that the responses given by the study participants are in fact, inaccurate or outright false. While the researcher is giving the passengers the benefit of the doubt, the fact remains that there is still the potential that the information being given has been crafted in such a way that it was made to ensure that it is false. Unfortunately, there is no way for the researcher to verify the information since only one research subject is being interviewed at a time.

This methodology exposes the participant to an assortment of risks that need to be taken into consideration during the research process. The main risk the participants will encounter is if any of the answers that criticise or indicate dissatisfaction with carriers leaks. This may have consequences on the attitude and opinion of company officials towards them and can result in victimisation. To eliminate this risk, the responses will be kept in an anonymous location. This way, the only way to access the information will be through a procedure that involves the researcher. The project thus observes proper research ethics in sampling as well as during the data collection process.

Theoretical Framework of Study Approach

The four fundamental concepts of consumer choice must be taken into consideration when it comes to conducting this study. These consist of: rational behaviour, preferences, budget constraints and prices and are invaluable when it comes to determining what drives the decision-making process of consumers to choose a particular type of airline to patronise.

It is the assumption of this study that as income levels increase the propensity for consumers to go beyond the demographic of price and consider other factors in the decision-making process such as loyalty programmes increases as well. In order to prove this point, the four fundamental concepts of consumer choice will be utilised in order to trace consumer behaviour in this study and will attempt to explain how passengers make their decisions regarding what airline to choose.

The concept of rational behaviour assumes that all consumers are rational individuals who try to use their earned income in order to derive the greatest amount of satisfaction/ utility. In other words, consumers try to get the most out of their income through rational buying behaviour, which results in a maximisation of total utility from the products or services used.

It must be noted that while the concept of consumer preference plays an important role in the choice of a particular product or service, the fact remains that the remaining concepts of rational behaviour, budget constraint and price also play roles that can actually override the concept of preference.

While a consumer may prefer to utilise an airline that has a loyalty program, barriers to this choice in the form of higher prices that directly conflicts with a consumer’s inherent budget constraints and, as such, would change their pattern of behaviour to choose a more affordable solution in order to conform to what is rational.

Timetable

Timetable
  1. Task A will consist of the development of chapter 1 of the marketing report and will detail the background of the study, the means by which it will be undertaken and its importance. Through this section, readers will be able to understand what path they study will pursue and why the topic is relevant when it comes to present-day marketing strategies. Do note that this section is dependent on approval from the professor and is subject to topic revision.
  2. Task B consists of the development of the literature review of the study. This task will delve into the present-day use of loyalty programmes, what strategies companies have utilised to improve on them, and whether they are successful in the long term. Furthermore, this section will examine current trends in the airline industry and will determine whether such trends are concurrent with the manner in which loyalty programmes are implemented within the industry. It can be expected that through this section, a greater level of understanding can be developed regarding the present-day application of loyalty programmes and whether or not they can continue to be effective in the future.
  3. Task C involves the data gathering procedure that was explained in the research methods section of the paper. Basically, the researcher will go to the local airport (after getting the approval of the management division of the venue) in order to ask random passengers regarding their views on airline loyalty programmes as well as the various budget airlines that are currently present. Through this research method, the researcher should be able to get all the necessary information to create a plausible conclusion regarding the topic.
  4. Task D consists of combining and interpreting the data. This basically involves the creation of the discussion and conclusion of the study, where the researcher will showcase whether the data collected reflects the hypothesis that was determined early on.

Proposed Budget

Based on the needs of the project, it is estimated that £50 should be enough when it comes to going to and from the airport in order to obtain the needed information.

Consent Form and Questionnaire

Effectiveness of Airline Loyalty Programmes on Customer Patronage: An Examination of Benefits versus Affordability

Dear Participant,

You are cordially invited to participate in a research study involving the examination of the effectiveness of airline loyalty programmes on consumer patronage from the standpoint of benefits versus affordability. You were selected as a participant based on your experience as a passenger over the course of the past several years as well as your patronage towards a particular airline. Prior to participating in this study, please read through this form in order to familiarise yourself with the responses expected of you. Should you have any questions or concerns, please voice them out to the researcher at any time.

Background Information

The purpose of this study is to determine whether airline loyalty programmes continue to be effective as a means of encouraging consumer patronage of a particular carrier in the current market environment.

Procedures

Should you agree to participate in this study; the following will be expected of you:

  1. Sign the consent form indicating that you are willing to participate in this study and that you are allowing the researcher to utilise the information you give as part of the data analysis.
  2. Give clear, concise and above all, honest answers on the questionnaire
  3. Fill out all the segments of the questionnaire

Assurance of Anonymity

All information that will be obtained via this method of data gathering will be kept strictly confidential with all research participants being assured of the anonymity of their responses. None of the responses will be released with any indication that they were given by a particular individual. The results will be quantified into basic statistics to ensure that no personally identifiable information can be created. Information gathered from respondents of the survey will be destroyed after a period of 10 years to ensure further that no personal information will be leaked in any way.

Voluntary Nature of the Study

Your participation in this study is strictly voluntary. Your decision whether or not to participate will not affect your current or future relations with anyone involved in the study. You may withdraw from the study at any time without any penalty, even if you initially decide to participate.

The risk from Undertaking the Study

While there are no outright risks in participating in a study of this nature, there are some long term risks that should be taken into consideration. There exists the possibility that participants in the study may face victimisation or undue criticism due to the views they present which may or may not appeal to the “image” that various airlines wish to portray themselves as. In order to prevent such problems from occurring, all the data will be sealed within a locked cabinet and will not be presented without ensuring that all possible methods of identification have been removed beforehand.

References

Airline loyalty programmes. (2013). Entrepreneur, 41(6), 18. Web.

Berman, B. (2006). Developing an Effective Customer Loyalty Program. California Management Review, 49(1), 123-148. Web.

Bhagwanani, R. (2013). Customer loyalty. Airline Business, 29(1), 31. Web.

Brierley, H. (2012). Why Loyalty Programmes Alienate Great Customers. Harvard Business Review, 90(7/8), 38. Web.

Glusac, E. (2014). Frequent disappointment ahead. Entrepreneur, 42(7), 26. Web.

Lubbe, B., Douglas, A., Wieme, L., & Fabris-Rotelli, I. (2013). Frequent-Flier Programmes as a Determinant in the Selection of Preferred Airlines by Corporations. Transportation Journal Pennsylvania State University Press), 52(3), 345-364. Web.

McCartney, S. (2012). Finding the Elusive Formula for Cashing in Miles. Wall Street Journal – Eastern Edition. pp. D1-D2. Web.

Schoenfeld, B. (2013). Miles to nowhere. Entrepreneur, 41(2), 24. Web.

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IvyPanda. (2020, June 19). Airline Loyalty Programmes in Customer Patronage. Retrieved from https://ivypanda.com/essays/airline-loyalty-programmes-in-customer-patronage/

Work Cited

"Airline Loyalty Programmes in Customer Patronage." IvyPanda, 19 June 2020, ivypanda.com/essays/airline-loyalty-programmes-in-customer-patronage/.

1. IvyPanda. "Airline Loyalty Programmes in Customer Patronage." June 19, 2020. https://ivypanda.com/essays/airline-loyalty-programmes-in-customer-patronage/.


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IvyPanda. "Airline Loyalty Programmes in Customer Patronage." June 19, 2020. https://ivypanda.com/essays/airline-loyalty-programmes-in-customer-patronage/.

References

IvyPanda. 2020. "Airline Loyalty Programmes in Customer Patronage." June 19, 2020. https://ivypanda.com/essays/airline-loyalty-programmes-in-customer-patronage/.

References

IvyPanda. (2020) 'Airline Loyalty Programmes in Customer Patronage'. 19 June.

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