Summary

Air Canada created buzz throughout the aviation industry when it spun off its frequent flyer program (FFP), Aeroplan, in 2005, ushering in a new era of loyalty program monetization for airlines. As long as valued customer relationships aren’t jeopardized, airlines reap substantial benefits from a partial or full separation of their FFP. However, L.E.K. recommends that airlines answer a series of questions to ensure the concept is both financially sound and tactically achievable.

Over the past decade, airlines have racked up nearly $3 billion in liquidity from partial or full loyalty program separation, and while comparable transactions provide a representative view, each FFP has its own distinctive profile. Assuming the “size of the prize” meets internal requirements, those considering FFP separation should examine a multitude of factors around the commercial structure and governance considerations. Some of the key questions include:

  • What structures should be put in place to maintain alignment of interests between the airline and the loyalty business?
  • How long should an agreement run?
  • How will exclusivity be addressed in the future?

Separating the FFP may not be right for every airline, and though there isn’t a one-size-fits-all approach to divesting the FFP assets, there are plenty of opportunities for airlines to extract value from their FFPs.

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