By John L. Guerra
Editor, GRC & Fraud Software Journal
For more than 30 years, major airlines have offered frequent flyer programs and other incentives to encourage travel on their respective airlines and secure customer loyalty.
In June, the Department of Transportation released results of an audit of airline loyalty programs. The DoT reviewed airline programs after consumers complained about changes to their plans without notice, additional fees for upgrades, and other unannounced changes to their frequent flyer benefits.
The DoT’s report states that “failure to adhere to DOT’s guidance could constitute an unfair and deceptive practice in which enforcement actions can be pursued against the airlines.”
The result: Airlines must find ways to comply with DoT requirements for transparency across frequent flyer programs, payment platforms to ensure they aren’t accused of unfair practices.
GRC & Fraud Software Journal interviewed French Caldwell, chief evangelist at governance, risk and compliance software company MetricStream on how airlines can improve their handling of customer loyalty programs as well as predict public reaction to program changes.
Question: How can airlines predict public reaction to changes in their loyalty programs? Are there predictive risk models in GRC platforms that can help them do this?
French Caldwell: Airlines certainly consider their loyalty programs to be a strategic asset; a differentiator that if carefully managed can provide an edge over the competition.
To understand how changes in these programs could trigger responses from the public, stress tests used by banks offer an example – essentially these are “what if” thinking exercises where subject matter experts debate and surface interdependencies that could trigger unanticipated risks.
Companies can use customer surveys and focus groups to test for customer reaction. An advisory panel of customers and customer advocacy experts can also provide feedback.
However, these “means of predicting impact” may still not predict the actual public response. Hence, when a change is made, it is critical that airlines capture and measure actual customer reaction when changes to frequent flyer programs go into effect.
Airlines should use their passenger data to determine if they are getting the expected response to the change, conduct surveys, and also monitor social media and the blogs of influencers – including media reviews of the changes. They should also be prepared with contingency plans in case of a strongly negative reaction.
GRC platforms can provide some of the tools, such as surveys and scenario analysis tools. Airlines can also use GRC platforms to assess the risks associated with changes to their programs. Furthermore, GRC risk management applications can be integrated with social media monitoring tools to enable social media risk management. However, much of the analysis is heuristic, using focus groups, advisory panels, and tapping subject matter experts and customer advocacy experts.
Q: The DoT report cites airlines’ “lack of transparency for consumers when airlines change their frequent flyer program terms and conditions.” How can MetricStream help them meet those requirements for transparency and manage their changes in frequent flyer terms and conditions?
FC: DOT regulations require that airlines meet certain standards for customer service. What GRC software like MetricStream can do is help airlines to manage their policies for customer service, and ensure that the procedures and controls that are put in place to ensure those policies are being followed.
Q: The report also states, “We are making recommendations for DOT to improve its process for reviewing consumer complaints for unfair and deceptive practices. This means airlines also must improve their processes for reviewing consumer complaints to make sure they are not using ‘unfair and deceptive practices.’
Would internal, risk-based audit and risk/compliance components help here?
FC: In many places. GRC software can also provide the complaint management capabilities to be able to follow-up on customer complaints, and have an audit trail to prove to government regulators that the customer service program is working and complaints are being resolved.
Q: Finally, the DOT urges, “Air carriers to be more transparent with award-seat availability and redemption information.” How can this be accomplished? How about a platform that flyers can access that tells them which frequent flyer upgrade seats are available on a given flight at which redemption level?
The platform could let the flyer pick a seat, automatically show the number of miles applied to the seat upgrade and any extra fees that preferred seat might cost.
FC: That would certainly be a plus. However, whatever the airlines do, it should not be so complicated that it cannot be explained to customers. Frankly, I was surprised last year when I exceeded 100,000 miles on an airline for the first time, and found that I also had to meet a minimum dollar spend that had recently been raised to $12,000. What a disappointment.
Airlines could go a long way with just making their policies for designating award seats much more clear. But keep in mind that loyalty programs are about more than award seats.
Frequent flyers get other benefits – seats with more leg room, free baggage, and shorter premium lines at check-in and security for example. One of the social effects of the loyalty programs has been to create a caste system, with frequent business travelers seated in the front of bus, and the less frequent tourists and families seated in the back.
And the less frequent travelers, many of whom are travelling on their own budget, not their company’s budget, pay more through baggage fees, fees for expedited check-in, and seats with more legroom. I expect that if airlines continue to encourage this caste system, pressure will build to regulate not just loyalty programs, but also the fees that airlines can charge for baggage and other services.
Careful attention to public perceptions is needed if airlines are to avoid an expansion of customer service regulations.