How blockchain loyalty points can save frequent flyer programs

Blockchain loyalty points could help consumers protect their frequent flyer points. Redeeming these rewards is often easier said than done. Up to 36 percent of frequent flyers say that airline loyalty rewards expire before they’re able to use them. 64 percent of airline customers also claim that airline frequent flyer programs are too complex for them to navigate. Of course, if the airline suddenly collapses, you also lose the points you worked hard to collect. We need to hold airlines accountable for their promises. Rolling out blockchain loyalty points could be one way to do just that. The immutability of blockchain systems serves as a model for how to improve frequent flyer programs.


Origins of frequent flyer programs

Frequent flyer programs encourage customers to stay loyal to the airline companies and prevent them from choosing competing carriers. Since there is very little difference in the underlying product, airlines have to come up with attractive perks to keep consumers coming back. These programs emerged in the early 1980s as a way to do just that. Airlines then would use a customer database to track miles flown and this birthed a reward system of a mile earned for a mile traveled. 


The trend spread and has now become a common marketing tool for many airlines. In theory, the programs offer a range of free flights, accommodation, and exclusive services such as a faster check-in. Members earn points for each flight depending on the length of the flight — the longer the flight, the higher the fare and the higher the point score. 


To redeem their miles travelers book tickets with their frequent flyer number. However, some issues exist that can make the process harder for customers. For example, airlines are notorious for blackout dates. These are peak travel periods where airlines raise prices around holidays or popular sporting events at destinations. Limited seat availability can also make airlines inflate seat prices. In a way, this not only makes it hard for customers to retrieve their loyalty rewards but can also cause them to forgo their rewards altogether.


Loyal customers deserve better and as pressure from low-cost carriers drives costs down, new ways to lure frequent flyers are increasingly important. One way to do this is to transform airline loyalty points into immutable digital assets with blockchain.


Blockchain loyalty points

If we look at blockchain as a way to protect digital assets, treating airline flyer miles as non-fungible tokens could help airlines keep better track of these points, and make it easier for consumers to spend them. We’ve already designed the blockchain architecture for a customer loyalty management company called Gabrotech. The Singaporean firm is revolutionizing loyalty points programs. With the issues facing traditional loyalty programs, blockchain is a perfect fix for these problems. Better transparency and security are some of the main advantages.


  • Ease of retrieval: with blockchain, customers can redeem their flyer miles more easily as opposed to the traditional method. The biggest issue customers have had with the existing method is the limited rewards. The added flexibility blockchain brings will enable them to redeem flyer miles easier, and in more ways including redeeming in installments. Additionally, blockchain tokens can be used across a wide variety of platforms. Instead of juggling different cards for different loyalty rewards, a system leveraging blockchain could allow consumers to switch between cryptocurrencies and even store tokens with ease. Customers will also be able to convert the cryptocurrency rewards into actual cash if they want. This doesn’t come with the old system.


  • Smart contracts:  a smart contract is a blockchain feature that helps two or more parties to digitally facilitate, verify and enforce their contract. In other words, they allow you to exchange anything of value in a transparent way while passing over the traditional need for a middleman. Blockchain removes the need to pay any middlemen and thereby saves the customer, and airline time and money. A smart contract is an automatic bind, it won’t let either of the parties to make changes to the contract without the permission of the other one. That’s why blockchain-based airline loyalty reward is transparent.


  • Security: blockchain is an algorithm that creates a rigid and time-stamped database of every transaction on it. This makes it easy for customers to follow every transaction. The rigid rules drastically reduce the chances of any kind of fraud.  


Airlines ahead of the blockchain curve

Singapore Airlines won the highly coveted first spot at the Startracks airline awards in 2018 for several reasons. From their impressive customer service, the beautiful airport to the magnificent cuisine served on its flights, they have proven themselves the absolute best at what they do. So, it was no surprise to see them top the list. In addition to all these, however, Singapore Airlines is the world’s first airline carrier to launch a blockchain-based airline loyalty digital wallet. The airline collaborated with KPMG Digital Village and Microsoft to come up with the blockchain-based solution they dubbed KrisPay


In a company press release, head of KPMG’s Digital Village in Singapore, Jan Reinmuller said, “with the blockchain-based digital wallet, it is a straightforward process for participating with merchants to connect with the program and for customers to make a purchase with their tokenized miles.” The process used in KrisPay is relatively simple to use. All airline customers have to do is download the KrisPay app and convert their KrisFlyer miles into KrisPay miles. Customers can then spend their loyalty rewards by scanning the KrisPay QR code at any merchants cooperating with Singapore Airlines. At launch, there were about 18 merchants available and the number has since increased. 


It works too, unlike in the traditional system where customers have to wait for their flyer miles to accumulate before being able to use them. With a simple scan, customers can use as little as 15 KrisPay miles to pay for purchases made with partner merchants. Even if a customer’s loyalty reward is not enough to book a flight, less than frequent travelers can convert and spend their points elsewhere. 


As shown above, blockchain has the potential to change the way companies structure loyalty programs. Singapore Airlines is by no means the only carrier adding the use of blockchain to its operations. Cathay Pacific and Air New Zealand have already followed suit in 2018. 


Conclusion

Blockchain loyalty points could make it easier for airlines to track, and attract consumers to their service. Additionally, reassuring frequent flyers that their digital assets will not go away will encourage them to actually use them. The high percentage of consumers that express frustration with their frequent flyer programs should spur airlines to act. Nearly 8 trillion flyer miles go unused, which should signal a breakdown in the service.


Soon, airlines still using the traditional frequent flyer programs to reward their customers lag behind tech-savvy carriers. They already are, but they may soon start losing customers to rival airlines that are using the better means blockchain offers to reward their customers.