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30 years of frequent flyer programs

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Abstract

Since American Airlines launched the first frequent flyer program in the US on May 1, 1981, the programs have ballooned in size leading to skepticism around the airlines' ability to manage both liabilities and members' satisfaction. Over time program changes have addressed a number of idiosyncrasies in the original model by aligning customer value better to rewards offered. More appropriate earn and reward structures were developed and clearer reporting standards introduced. In this article we review how the programs evolved over the last 30 years and introduce three typologies of frequent flyer programs: legacy programs, advanced programs and autonomous next generation programs. The article concludes that airlines operating autonomous next generation programs are more likely to run a frequent flyer program that is sustainable and transparent, resulting in increased profitability.
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... Jones et al. (2002) found that the source of loyalty is switching costs and that the strength of a customer's connection to a particular product creates consistency in product selection. As for the airline industry, Basso et al. (2009) andde Boer andGudmundsson (2012) indicated that airlines have strategically introduced frequent flyer programmes in order to increase passengers' cost of switching over to competitors. This is an example where airlines use economic incentives to strengthen their connection with customers. ...
... Jones et al. (2002) found that the source of loyalty is switching costs and that the strength of a customer's connection to a particular product creates consistency in product selection. As for the airline industry, Basso et al. (2009) andde Boer andGudmundsson (2012) indicated that airlines have strategically introduced frequent flyer programmes in order to increase passengers' cost of switching over to competitors. This is an example where airlines use economic incentives to strengthen their connection with customers. ...
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