State of Airport Loyalty Programs (2023)

Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

5   This chapter provides an overview of existing literature addressing customer loyalty programs in different domains. Considering the focus of this synthesis, studies investigating airport loyalty programs are reviewed first (2.1 Airport Loyalty Programs). Next, studies analyzing airline loyalty programs, also known as frequent flyer programs, is reviewed [2.2 Airline Loyalty Programs (Frequent Flyer Programs)]. Loyalty programs are also widely adopted by other tourism sectors, for instance, car rental companies, hotels, and cruise lines. Studies about these programs are discussed in Section 2.3 Loyalty Programs in Other Tourism Sectors. Finally, the review was expanded to published literature about other customer loyalty programs. The findings of these reviewed studies are expected to deepen and widen the understanding of customer loyalty programs. To build a comprehensive and representative pool of literature, various keywords were used, such as “airport loyalty program(s),” “airport rewards program(s),” “airline loyalty program(s),” and “frequent flyer program(s),” and a combination of such keywords in Google Scholar (https:// scholar.google.com/), Transport Research International Documentation (TRID) (https://trid .trb.org/), and Purdue Libraries (https://www.lib.purdue.edu/), which subscribe to a large body of journals, books, media, and scholarly databases. Scholarly publications retrieved from this process are grouped by research subjects, examined for relevance, reviewed for research contri­ butions, and summarized in the following sections. 2.1 Airport Loyalty Programs Among the limited number of scholarly articles focusing on airport loyalty programs, Jarach (2001) is one of the earliest studies to explain the business landscape of airports and the potential benefits of loyalty programs for airports. He observed the role of airports shifting from being only a “logistic medium” between airlines and passengers into “a commercial hub.” In his view, airports no longer passively wait for passenger or cargo traffic, which was previously believed to be primarily driven by airlines. Instead, airports are proactively pursuing aviation and nonaviation businesses and are under constant competition from nearby airports. Recognizing the operational and financial difficulties of starting B2C loyalty programs, Jarach (2001) envisaged three potential benefits of implementing airport loyalty programs, as follows: • Loyalty programs may encourage customers to make more transactions with retailers inside airports. • Loyalty programs will enhance communication between airports and passengers. Airports could reach out to their customers more effectively while collecting customers’ preferences more efficiently. • Loyalty programs enable airports to reinforce their advantages within catchment areas and prevent traffic leakage to competing airports. C H A P T E R   2 Literature Review

6 State of Airport Loyalty Programs Bæringsdóttir (2009) used Keflavík International Airport (KEF) in Iceland and Göteborg Landvetter Airport (GOT) in Sweden as case studies to investigate the feasibility of introducing loyalty programs to small international airports with less than 5 million passengers annually. Through interviewing airport management and departing international passengers, this syn­ thesis sheds light on passengers’ perceptions of airport loyalty programs and their willingness to pay annual membership fees. Interestingly, passengers from the two airports indicated similar overall interests in airport loyalty programs (37% in GOT vs. 36% in KEF). When respondents were labeled by their purposes of traveling, business travelers displayed much stronger interests than private and leisure travelers in airport loyalty programs. Bæringsdóttir (2009) also asked departing international passengers to rate service attributes in airport loyalty programs using a 7­point Likert scale in which 1 represents “least important” and 7 represents “most important.” This survey provided a comprehensive list of service attributes offered by airport loyalty programs and the corresponding rating of significance by survey par­ ticipants. Among all the service attributes, survey participants rated check­in priority, security­ check priority, and access to business lounges as the most important benefits of airport loyalty programs. See Table 1 for more information on the survey. Regarding passengers’ willingness to pay for airport loyalty programs, the survey conducted by Bæringsdóttir (2009) found that the mean value was €113 out of 142 passengers who responded to this question. Thirty­two percent of the respondents indicated they were willing to pay more than €100 annually to access airport loyalty programs. Maurer and Wittmer (2015) conducted a similar passenger survey at EuroAirport Basel­ Mulhouse­Freiburg in Switzerland (MLH/BSL/EAP). Their survey confirmed earlier findings of Bæringsdóttir (2009) that passengers valued priority security checks and check­in as the most important airport loyalty program benefits. The third­ranked loyalty benefit was free Wi­Fi, which Bæringsdóttir (2009) did not include in their survey, reflecting the change in technology and passengers’ expectations for such technology from 2009 to 2015. See Table 2 for detailed survey responses. Descriptive Statistics N Min Max Mean Std. Dev. Check-in priority 268 1 7 5.38 1.77 Security-check priority 268 1 7 5.24 1.78 Access to business lounges 266 1 7 4.15 2.11 Discounts in shops and restaurants 264 1 7 3.93 1.84 Car park discount 265 1 7 3.58 2.18 Booking availability of parking space 263 1 7 3.33 2.08 Food/drink bag on arrival 266 1 7 3.18 1.87 Arrival service lounge 262 1 7 3.11 1.91 Availability of hired parking 263 1 7 2.88 2.02 Airport assistance services 261 1 7 2.87 1.77 Car cleaning services 266 1 7 2.40 1.85 Access to conference center 264 1 7 1.99 1.38 Possibility to leave dry cleaning 266 1 7 1.88 1.44 Valid N (listwise) 243 Source: Bæringsdóttir (2009). Table 1. Significant rating of service attributes in airport loyalty programs.

Literature Review 7   Maurer and Wittmer (2015) also studied passengers’ willingness to pay for airport loyalty pro­ grams. Over half of the survey participants (N = 262) indicated that they were only willing to pay no more than 50 CHF for airport loyalty program memberships, which suggests a relatively low willingness to pay. The survey found that business travelers and members of airlines’ frequent flyer programs are slightly more willing to pay for airport loyalty program memberships than are general passengers. In a study sketching route development strategies of Romanian airports, Avram (2018) dis­ cusses the potential contribution of loyalty programs to the route development and revenues of airports. Inspired by the success of airline frequent flyer programs, Avram (2018) argues that airport loyalty programs have the potential to create stronger bonds and increase revenues for air­ ports. Avram (2018) believes easy­to­use airport loyalty programs can achieve the following goals: • Bring airport brands to a new level • Improve the traveler experience in the airport and in the region • Offer real­time customer feedback for airports In a more recent study examining whether airport reward programs affect customers’ behav­ ioral intention of visiting airports, Wu and Tsui (2020) surveyed former and current residents of Singapore familiar with Changi Rewards, the loyalty program of Singapore Changi Airport (SIN). Responses from 211 participants helped the synthesis team achieve the following findings: • The benefits of Changi Rewards positively influenced customers’ intentions to engage with the program. • Customers’ intentions to engage with the program had a positive effect on increasing pas­ sengers’ time spent at the airport. • Customers’ intentions aroused by the attractive Changi Rewards had a positive effect on encouraging residents to visit the airport for shopping and other leisure purposes. In addition to scholarly articles, media sites such as Forbes.com (Whitmore 2019) and AFAR .com (Qubein 2017) and travel blogs such as SmarterTravel.com (Hewitt 2017) and NerdWallet.com (Qubein 2022) also publish articles about airport loyalty programs. Unlike research articles that solve research questions through empirical analysis, articles in mass media target a broad reader base interested in travel. These articles focus on introducing program basics and helping inter­ ested readers to understand and access program benefits. Loyalty Benefits N Min Max Median Mean Std. Dev. Fast track at security checks 1 5 5 4.26 1.118 Priority check-in 1 5 4 4.04 1.168 Free Wi-Fi 1 5 4 4.03 1.213 Discounts at shops and restaurants 1 5 4 3.48 1.243 Discount for parking fees 1 5 4 3.43 1.493 Access to Skyview lounge 1 5 3 2.83 1.385 Point scheme and premiums catalog 1 5 3 2.73 1.239 Pick-up service at railway stations 1 5 3 2.66 1.443 Snack box on arrival 1 5 2 2.33 1.300 Reservation of parking lots 1 5 1 2.17 1.484 Valet parking 1 5 1 2.02 1.273 Carwash service 264 266 264 265 264 263 266 264 264 264 264 265 1 5 1 1.41 0.857 Source: Maurer and Wittmer (2015). Table 2. Passengers’ evaluations of different airport loyalty benefits.

8 State of Airport Loyalty Programs 2.2 Airline Loyalty Programs (Frequent Flyer Programs) Given the popularity and commercial success of airline frequent flyer programs, relevant lit­ erature focusing on different program aspects is abundant. In this section, influential studies were selected and reviewed to highlight relevant literature. In 2011, when the airline industry celebrated the thirtieth anniversary of the first frequent flyer program, American Airlines’ AAdvantage, de Boer and Gudmundsson (2012) reviewed the evolution of frequent flyer programs over the past three decades. See Figure 1 for the significant milestones in the evolution of airline frequent flyer programs. De Boer and Gudmundsson grouped the development of frequent flyer programs into three stages: legacy programs, advanced programs, and autonomous next­generation programs. In their vision (de Boer and Gudmundsson 2012), an autonomous next­generation program would have the following features: • Operate as a separate company, owned by the airline and/or outside investors • Maintain its own income and balance sheet • Issue more than half of all miles to nonflying activities, such as everyday spending using cobranded credit cards • Provide flight tickets, merchandise, and experiential rewards • Employ staff of diverse backgrounds (not only airline or marketing) • Allocate awards using both fixed and dynamic pricing Airlines create and operate frequent flyer programs for better commercial success, while cus­ tomers join and engage with frequent flyer programs for various benefits. Mimouni­Chaabane and Volle (2010) group the perceived benefits of loyalty programs into the following categories: Source: de Boer and Gudmundsson (2012). Figure 1. Milestones of airline frequent flyer programs (1981–2011).

Literature Review 9   • Utilitarian benefits – Monetary savings: savings developed from cash­back offers and coupons – Convenience: minimizing the difficulty of choosing among alternatives • Hedonic benefits – Exploration: trying new or innovative products – Entertainment: enjoying the pleasure associated with collecting and redeeming points • Symbolic benefits – Recognition: believing that firm and frontline personnel treat members better than they would treat nonmembers of the program – Perceptions of social benefits: Members consider themselves part of an exclusive group of privileged customers, identify with that group, and share values associated with the brand. The complex structure of modern frequent flyer programs determines how members of dif­ ferent types will react differently to program features and airline incentives. In a study address­ ing the impact of airlines’ post­overbooking handlings on customers’ behavioral consequences, Wangenheim and Bayon (2007) divided their research subjects by their frequent flyer program status (bronze, silver, and gold members). The study found that members of different statuses react differently to events such as downgrading, denied boarding, and upgrading when airlines overbook. Negative incidents such as downgrading and denied boarding would cause silver and gold members to reduce the number of future bookings and cut future spending with the airline, but the effect of such incidents was not significant among bronze members. Meanwhile, positive events (upgrading) would encourage bronze members to increase their future bookings and spendings with the airline, but their effect was not significant among silver or gold members. The findings of this study have implications for both airlines and other customer­facing industries. When travelers are divided by their purposes of traveling into leisure travelers and business travelers, their key drivers of airline loyalty vary (Dolnicar et al. 2011). Membership in frequent flyer programs is a significant factor for business travelers in their choice of airlines, but its effect is not evident among leisure or infrequent travelers. For the latter group, the key driver is airfare. Voorhees et al. (2015) refine the results of previous studies of frequent flyer programs by adding the component of brand equity into the equation. Their study found that the effect of loyalty pro­ grams on consumer spending varied among different brands. For high­equity brands, the effect of the perceived value of loyalty programs on the share of wallet was significant, suggesting members of loyalty programs spent more with such brands. However, for low­equity brands, loyalty pro­ grams may only have generated spurious loyalty from brand switchers. With airlines currently serving both domestic and international markets, members of frequent flyer programs also represent customers of diverse geo­locations. Researchers have used national borders to segment airline customers and study the impact of frequent flyer programs in different geo­markets. Lederman (2007) found that enhancements to frequent flyer programs had the most significant effect on demands and fares on routes that depart from an “airline’s hub airports with a strong presence.” Using a geographic discontinuity approach, de Jong, Behrens, and van Ommeren (2019) have studied brand loyalty advantages of national airlines in their domestic countries in the Schengen area of Europe. The study found that foreign customers earn approxi­ mately 60% fewer miles and are 70% less likely to be program members than are domestic con­ sumers. In addition, domestic customers also have higher purchase frequency and transaction sizes. Both findings demonstrate the loyalty advantage of national airlines in their home markets. Researchers also have attempted to analyze the moderating role of customer involvement in the relationship between frequent flyer programs and airline customers. Wang, Chen, and Chen (2015) confirm that recognition and social factors influence members’ willingness to continue flying with a particular airline and their loyalty; however, three other factors (monetary savings,

10 State of Airport Loyalty Programs exploration, and entertainment) do not have significant effects. The authors speculate that this might be caused by airlines’ decisions to cater to top­tier members’ preferences. This study found that involvement had a moderating effect on frequent flyer programs. Greater customer involve­ ment indicated a better understanding of the airline industry and was associated with a greater influence on frequent flyer programs (Wang, Chen, and Chen 2015). Consumers with different engagements were found to have different perceptions of the relationship between hedonic benefits and the perceived functional value of frequent flyer programs (Limberger, Pereira, and Pereira 2021). Findings of some studies suggest that airlines might be cautious about the potential effects of frequent flyer programs, since not all of them are positive. For instance, a study based on Air Berlin (Zakir Hossain, Kibria, and Farhana 2017) found that, despite the airline’s relatively suc­ cessful frequent flyer program, customers valued basic service attributes, such as airfare and flight schedules, more when choosing airlines. The effect of frequent flyer programs was only secondary in retaining customer loyalty; moreover, when frequent flyer program members could not main­ tain their previous elite status, the demotion could lead them to switch to different carriers due to frustration and social discomfort (Banik, Gao, and Rabbanee 2019). 2.3 Loyalty Programs in Other Tourism Sectors In the broad tourism sector outside the aviation industry, loyalty programs are widely adopted to engage customers and enhance their loyalty. A plethora of literature exists in this sector that studies various aspects of loyalty programs. In a study that summarizes the development of loyalty programs in the hotel industry, Laškarin (2013) lists six major objectives of loyalty programs in the hotel industry: • Acquire new guests • Increase guest retention rate • Gather guest data • Increase turnover in all parts of the hotel • Improve the hotel’s image and publicity • Rise above competitors Laškarin (2013) also mentioned three crucial measures that a hotel loyalty program might use to track customers’ engagement with the program: • Frequency of stays • Number of points accumulated • Customers’ membership tiers in the program (e.g., bronze, silver, and gold members) Tanford, Shoemaker, and Dinca (2016) systematically review the literature on hotel loyalty and reward programs published from 2000 to 2015. They classify the major benefits of loyalty programs into the following categories: • Financial benefits: reward points that customers can earn and redeem for free or discounted stays • Functional benefits: benefits such as early check­ins, late check­outs, guaranteed room avail­ ability, and dedicated service lines • Psychological benefits: benefits such as welcome gifts and concierge lounge access for higher­ tier members In addition, Tanford, Shoemaker, and Dinca (2016) also observe recent loyalty program trends offered by hotels, which are as follows:

Literature Review 11   • More flexible redemption options • More relationship­focused through personalization • Communication through mobile technology and social media • More customer­focused Several studies address the effect of loyalty programs in the tourism sector. One study con­ ducted by Petrick (2004) reviews whether loyalty program members are not better than new cus­ tomers, a claim made by earlier research. Using repurchase intentions, word­of­mouth publicity, price sensitivity, money spent, and risk­adjusted profitability index as measures, Petrick (2004) found that loyal cruise visitors were more likely to visit in the future, spread word­of­mouth advertising, and offer a lower risk associated with their profitability, compared with first­time visitors and less loyal visitors. The value of loyalty programs in attracting customers’ active loyalty, manifested by repeated purchases and rewards accumulation, is confirmed by Xie and Chen (2014). They studied an extensive sample of 15,000 respondents randomly selected from a pool of U.S. domestic tourists using online questionnaires. Their analysis confirms the impact of perceived program value, particularly psychological value, on active loyalty. In addition, Xie and Chen (2014) suggest an additional dimension — externality value — to categorize the benefits of loyalty programs. Some researchers have used social and economic rewards to categorize loyalty program ben­ efits (Lee, Tsang, and Pan 2015). Social rewards include preferential treatment and personalized recognition and attention (Berry 1995), while economic rewards refer to financial incentives and money savings (Gwinner, Gremler, and Bitner 1998). Lee, Tsang, and Pan (2015) found that eco­ nomic rewards were more effective loyalty drivers than social rewards due to immediate finan­ cial incentives. However, social rewards facilitated relational behaviors more than did economic rewards. Therefore, loyalty program operators needed to balance social and economic rewards when designing loyalty programs. The perceived value of a loyalty program is essential in the formation of customer brand loyalty (Koo, Yu, and Han 2020). Through studying a sample of 500 general hotel customers in South Korea in May 2018, Koo, Yu, and Han (2020) found that satisfaction with a loyalty program, affec­ tive commitment, and switching barriers mediated the perceived value of a loyalty program and customer brand loyalty. The perception and effect of loyalty program benefits do not influence members homoge­ neously. Compared with leisure travelers, business travelers tend to value the following hotel loyalty program benefits: quick check­ins, late check­outs, upgrades, customized services, and links to frequent flyer programs. Meanwhile, frequent leisure trips correlate significantly with available upgrades, newsletters, and earned free stays through the program or for overnights (Pesonen, Komppula, and Murphy 2019). When loyalty program members are divided by their membership tiers, members react differently to single deviation (service failure) and double deviation (service failure recovery) (Lee et al. 2021). High­tiered members are more forgiving than low­tiered members during these events. For high­tiered members, financial compensation and an apology could effectively moderate perceived betrayals. By contrast, only financial com­ pensation could relieve perceived betrayal among nonmembers (Lee et al. 2021). This finding contradicts previous findings in the airline industry (Wangenheim and Bayon 2007). Some studies provide constructive suggestions to strengthen loyalty programs for the tour­ ism sector. Rudež (2010) suggests that businesses apply corporate social responsibility to loyalty programs, which can be achieved by introducing joint donations with customers, assuming envi­ ronmental responsibilities, and providing care for people and the environment. When commu­ nicating with members, the choice of communication channel significantly impacts perceived communication style and information quality, as well as their underlying dimensions (Berezan,

12 State of Airport Loyalty Programs Yoo, and Christodoulidou 2016). Therefore, loyalty program operators must carefully select appropriate channels to convey messages to loyalty program members. Finally, Lo et al. (2017) found that employees’ customer orientation, membership communication, and hotel stay­ related benefits determined the quality of loyalty program members’ brand relationship quality. The strongest effect of brand relationship quality was on members’ word of mouth, followed by shares of purchase. Therefore, hotels might develop effective internal branding programs to foster employees’ understanding of the brand promise to customers, thereby enhancing customer orientation (Lo et al. 2017). 2.4 Other Customer Loyalty Programs Outside of the tourism sector, loyalty programs are also extensively adopted by other customer­ facing industries, such as retailing (Arbore and Estes 2013; Zakaria et al. 2014; Brumley 2002; De Silva Kanakaratne, Bray, and Robson 2020) and banking (Ivanauskiene and Auruskeviciene 2009; Hafeez and Muhammad 2012). The findings of these studies are similar to those from the tourism sector, including the aviation industry. 2.5 Summary Reviewing literature addressing loyalty programs in different sectors demonstrates that studies about airport loyalty programs are relatively scarce compared with other sectors. In terms of research topics, airport loyalty program studies primarily address descriptive issues. Meanwhile, loyalty research in other fields has advanced to analyze the mechanism of loyalty programs, evaluate the effects of loyalty programs on different market segments, refine conventional loyalty programs, and maximize program utility. The disparity between airports and other sectors in adopting loyalty programs reflects the status of airport loyalty programs and calls for a systemic review of how airports plan and operate loyalty programs, which is the objective of this synthesis.