Two months into 2024, airlines, hotels, cruise operators, and travel brands worldwide are bracing for the impending developments and opportunities the new year promises.
In the face of stubbornly high inflation and “revenge travel” subsiding, brands are battling to win over travelers. Although the travel boom might remain in full swing this year, the industry has already seen consumers becoming pickier. McKinsey research shows that consumer loyalty declined in 2021 and 2023, highlighting why brands can’t afford to take loyalty for granted.
For companies, winning back this loyalty is their priority. But that starts with aligning their loyalty programs with what drives consumer loyalty in the first place. In today’s landscape, value is the overarching theme among consumers, which should be no surprise after three years of elevated inflation levels.
For our latest survey report, 2024 Loyalty Trends: The Role of Travel Loyalty Programs in the New Value Economy, we polled American travelers and brands with travel loyalty programs to uncover what today’s travel customer expects from their travel booking experience and what brands provide.
The Consumer Mindset: What Do Travelers Expect in 2024 from Their Loyalty Programs?
Difficult economic conditions frequently test the travel industry, yet it has demonstrated remarkable resilience over the past three years. According to the International Air Transport Association (IATA), global air travel in 2023 grew 36.9% year-on-year. Despite these impressive numbers, however, it’s important to mention that air travel remains at 94.1% of 2019 levels.
Our report showed that even as consumers are eager to travel, 49% prioritize saving money, an increase from 43% the previous year. This is reinforced by a YouGov survey examining 18 international markets that found less than a fifth of consumers expect to spend more on travel. Loyalty programs that can successfully address a desire to save will reap the rewards; we found that 65% of members would engage more if offered better discounts.
These findings are an apparent endorsement of value-driven incentives. That said, consumers still struggle with the perceived value of loyalty programs for travel booking. Of the 30% of surveyed consumers who typically book their flights through an OTA, 34% said they did so because they believed it offered them the best price or value, compared to only 18% of those who typically book through their loyalty programs.
Why does this belief persist among so many consumers? This might be partly attributable to users being unaware of the added value offered by loyalty programs, suggesting a problem with brand messaging. However, our report found another persistent pain point with loyalty programs.
A User Experience Disconnect
Our research also found that user experience is among the most common complaints from travelers. Almost 62% said they experienced frustrations when booking travel through a loyalty program. Despite these numbers, only 15% of loyalty program managers surveyed said this was their biggest obstacle.
These findings reveal that brands aren’t prioritizing the user experience sufficiently or doing enough to resolve current gaps. Additionally, the disconnect between brands and consumers on the user experience extends further: 51% of consumers surveyed said they visited their loyalty programs first, whereas 76% of brands said the same thing.
We can conclude that brands and consumers are not on the same frequency regarding the booking experience. But what do consumers want from the experience, and where do brands need to improve their platforms?
Personalization the Key Expectation
Firstly, they want an experience that feels like it was designed just for them. They want a bespoke loyalty experience perfectly tailored to their needs and preferences. Overall, 75% of U.S. consumers believed personalized offers would help them save money. And 50% said personalized offers ranged from “very important” to “extremely important.”
It’s clear this is a growth driver for loyalty programs. Yet only 28% of loyalty programs plan to invest in personalization capabilities in the next six to twelve months. Once again, this disconnect is a potential opportunity for brands looking to acquire a competitive edge in the loyalty landscape.
Fintech Tools to Simplify and De-Risk Travel
While our report identified several sticking points in the user experience, we also found that consumers and brands align in the desire to utilize fintech tools to streamline the travel process. In particular, we found that consumers favored tools that enabled them to save money while reducing the risk of purchasing travel. Some of these include the option to cancel for any reason, price alerts, price-drop guarantees, and buy now, pay later.
In fact, 73% of consumers said that extra fintech tools would make booking travel through their loyalty program likelier, representing an increase from 68% the previous year.
Despite a disparity between consumers and brands in other areas, such as personalization, this wasn’t the case with fintech tools. Almost 19% of companies said they were investing in price-freezing tools in 2022, and in 2023, this had risen to 28%.
The Brand Mindset: How are Loyalty Programs Fulfilling Traveler Demands?
What are brands doing to increase the value of their loyalty programs, and where are they looking to invest this year? Our research identified several areas where brands are devoting resources to increase value for members and give consumers what they want.
Brands’ investment priorities are primarily determined by the performance metrics they select for their loyalty programs. In this area, we found an overwhelming focus on retention. Approximately 66% of brands said customer retention was their top performance measurement goal, while 50% were focused on membership growth in the year ahead. Interestingly, 65% of companies said they looked to “impact on revenue” as their primary performance metric, indicating a growing financial focus permeating the industry.
How brands seek to achieve their respective goals also differs, indicating yet another split within the industry.
Rewards Diversification
One of the key report themes is rewards that complement the overall travel experience; companies want to expand their inventories and diversify their rewards to appeal to a larger segment of their members. However, they diverged on which areas they wanted to expand their inventories. We found that 36% of companies focused on destination tours and other activities. Another 30% wanted to expand their dining rewards, whereas 22% wanted to add more live events to their rewards portfolios over the next six to twelve months.
Companies are diversifying their investments, yet it's evident that the optimal inventory selection is significantly influenced by the demographics and characteristics of each firm's core customer base.
More Engagement
Another area companies are concentrating on in 2024 is engagement. Engagement is the backbone of retention and is the first step in making a loyalty program a first-choice booking option. Success in this area will help businesses overcome the pull of online travel agencies.
Our survey found that 48% of brands plan to upgrade their loyalty program’s engagement features in the next six to twelve months. If successful, increased engagement will enable brands to upgrade the overall customer experience and create more value for loyalty members.
The Shift to Third-Party Loyalty Experts
Meeting the demands of consumers and integrating the technology required to follow through on those demands is often beyond the in-house expertise of many brands. Our report discovered that brands have recognized the need for cutting-edge expertise to enable them to elevate their loyalty programs.
In 2023, we found that just 37% of companies developed their loyalty programs in-house, compared to 67% in 2022. We also found that 33% of companies were actively contracting with an external provider, an 11% year-on-year increase.
What is the motivation behind brands moving toward third-party solutions? Not all are rooted in efficiency or cost but in the features that brands want to integrate. Forty-eight percent of companies would like next-generation engagement features, with 36% looking to AI and machine learning capabilities.
Only the biggest brands have the internal resources and personnel capable of developing these state-of-the-art capabilities, which is, in part, fueling the industry-wide turn toward third-party technology providers.
Brands and Consumers Align, But There’s Work to Do
Brands and consumers are aligned in several areas, with brands working to engage customers more meaningfully. However, there remains work to do in several areas. For example, although consumers have made it clear they want to save money and that loyalty programs can provide that, just 14% of brands said their focus was on delivering rewards their members find valuable.
Another area of alignment is in providing the right rewards. Surveyed consumers clearly indicated they prefer rewards that enhance their travel experience, such as dining out. Brands are listening to consumers, which is why more companies are investing in offering additional perks, like activities (36%) and live events (22%), in the year ahead.
Yet, there’s a big divide around the user experience. While brands are somewhat aware of the issue--48% plan to invest more in engagement capabilities over the next 6-12 months--many believe their loyalty program remains the go-to option among consumers. Just 15% of brands see user experience as their biggest challenge, whereas 62% of consumers cite user experience-related issues as the most frustrating part of booking travel through their loyalty program.
One cause for optimism is the willingness of brands to shift their operations from in-house to a third-party loyalty solution to take advantage of industry expertise and advanced technologies. This can only make brands more effective in recognizing user frustrations and loyalty program development in the areas members care most about.
The conclusion from our report is that brands and consumers are getting closer to alignment, but issues remain. Conversely, misalignment is an opportunity for proactive loyalty program managers to accelerate their growth.
To learn more about these market gaps and opportunities and many key findings about the state of travel loyalty in 2024, download 2024 Loyalty Trends: The Role of Travel Loyalty Programs in the New Value Economy-.
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