As the sheer number of miles outstanding increases, carriers have clamped down on the availability of redemptions, which make much less money for them than paying passengers do. For many carriers, a typical mile may have an internal cost of around one-half cent. Public announcements of the internal rate are rare. But Lufthansa put its internal valuation of a mile at about 0. Lufthansa Annual Report , p. Redemptions are good value for airlines if no paying customer is available for a seat that would otherwise fly empty.
But as the number of miles soars, balancing them with redemptions becomes much harder. In our experience, 20 percent of redemptions end up on flights that take off full. Defined as flights that depart with 95 percent of their seats filled. Airlines could probably have sold those seats for real money.
This problem is all the worse because flights are now generally fuller than they used to be: the average load factor across all airlines has increased from around 55 percent in to more than 81 percent today Exhibit 2.
Improved pricing and inventory-control systems fill up flights by exploiting powerful computers and advanced analytics. That explains why some carriers have made redemptions harder to get—for example, by introducing additional fees, tightening stopover rules, and restricting redemptions through partner programs. Almost every airline has gradually increased the number of miles needed to redeem a seat. For all these reasons, their worth to customers is falling, as the regular valuations on two major frequent-traveler blogs show Exhibit 3.
While it is difficult to get like-for-like data on the availability of redemptions, research suggests that availability has declined over time Exhibit 4. IdeaWorks press-release archive, www. It looks only at economy class and does not account for variations in seasonality across carriers. Individual airlines shift around in position; the overall average shows a trend.
Airlines have begun to address the problem. Most begin by changing accruals. Classic airline loyalty programs based the number of miles customers received on the distance they flew: someone with a cheap economy-class ticket would get the same number of miles as a late-booking corporate traveler who paid a good deal more.
Airlines are now rightly moving away from this miles-flown approach and toward awarding points more closely matching the price of a ticket. But to make customers more engaged and satisfied, airlines should also rethink redemptions.
We have a few ideas. Redemptions can be great value for customers, since airlines are willing to accept a low price for seats that would otherwise go unsold. Airlines need to find redemption categories that have distressed inventory and a similar gap.
Airlines should also look internally. They have many opportunities to provide redemptions at a low or even no cost across the business—and to please customers to boot. Such close-in bookings represent a great opportunity to offer redemptions. The opportunity comes with two challenges, however.
Airlines can find innovative solutions that work both for them and their customers—for instance, redemptions that can be reallocated: fewer miles would be required if you accept being moved to a different flight one day on either side of the current booking, with notification one week out from departure.
Hotels already offer similar innovations, such as srprs. The second challenge of close-in bookings is dilution: allowing customers to redeem miles for a seat they would have been willing to buy with cash. Close-in redemption bookings could be attractive for business travelers, especially owners of small and midsize companies.
Certain airlines now actually charge more for these close-in redemptions to discourage them. In our view, airlines should require fewer miles for such bookings. Today Star Alliance provides connectivity to more than airports served by its 28 alliance members. Flexibility in fleet plan which can be leveraged in an economic downturn: During the economic downturn in , United Airlines were among the major airlines to suffer from a string of losses.
This fall of load factor was majorly due to the improper fleet management of United Airlines which the company have learned from the past experience as around aircrafts operated by United Airlines consist of flexible-fleet which loosely relates to in case of an economic downturn a fleet size of aircrafts can be returned to the lessor to help United Airline become leaner and agile.
Shortage of pilots: Many international carriers off late have recently experienced shortage of pilots as these airlines were not able to fully utilize their jets as they would have liked to and is denting their business goals as quite a significant amount of capital goes into hiring and training of pilots.
This gap between demand and supply of pilots is expected to grow more as Boeing which is the leading civil aircraft manufacturer in the USA has projected that airline traffic will double over the next 20 years and to keep up with these numbers more than 6,37, additional pilots will be required to cater the demand.
Changing demographics and cost of travel favoring increased air transportation: Besides the GDP per capita being a good indicator for measuring and observing the air travel patterns there are also other factors. A recently concluded study by the International Air Transport Association mentioned how the changing demographics of the population were affecting the air traffic, according to the study countries experiencing a shift in demographic trend towards increased working-class population showed higher growth and propensity for air travel, countries such as India, Indonesia, China, Brazil and Turkey score high in this parameter.
Regulations over passenger security, safety and cargo: Because aviation industry is highly prone to accidents that can prove to be fatal for the customers sometimes even death safety and security of all the stakeholders involved i.
Each day around the globe more than 1,00, flights take to the sky and land and utmost care and responsibility is taken by the concerned authorities that day to day operations happen without occurrence of any incident. International Air Transport Association in collaboration with International Civil Aviation Organization works towards establishing standardized protocols and introduced airline safety ratings for the safety and security of the passengers.
Because in increase in the volumes of passengers many new problems in aviation sector have emerged such as Cargo security, cyber threat and insider threat. International air transportation is subject to extensive government regulation. United faced backlash on the social media when a passengers pet dog died because the passenger was told by the cabin crew to put the pet dog in overhead bin, after this event a detailed enquiry was conducted and it came out that Department of Transportation rules require airlines to allow passengers to fly with their service animals in the cabin, this came as a major embarrassment to the airlines for which they had to publicly apologize for.
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No Thanks. Our insightful and holistic reports have helped corporates, academia and researchers take their research forward. ID : Sep 15 pages. The airlines was founded in It is the third largest airlines in the world with a mainline fleet size of airliners and a service capacity to cater to destination airports as of The airline also offers cargo transport services along with offering auxiliary services like selling fuel, providing catering services, ground handling, and maintenance services for third parties.
The airline operates mainly through its subsidiary United Express. The company has an employee size of more than 96, as of and is also one of the five founding members of the Star Alliance. Uniting the World. One of the largest aircraft fleets 2. Wide serviceability and reach 3.
Customer experience through loyalty program and member lounges 4. Strong brand image through marketing and strategic alliances with other airlines 5. Our Work. Client United Airlines. Office Argentina. Expertise Production. Challenge United sought to inspire greater loyalty through more personalized communications. Inspiration In order to be relevant, their loyalty program had to be adaptable and had to mold to the varying needs and interests of different customer bases.
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