Air New Zealand's Airpoints innovations (again)

Air New Zealand has recently delivered a comprehensive renewal of the Airpoints Dollars Frequent Flyer scheme. While it follows similar actions by Qantas Frequent Flyer in Australia it is a very Kiwi and innovative solution.

First mover - Qantas in Australia

Air New Zealand's new innovations follow moves in Australia by Qantas over the last 3 years. Qantas first signaled a partial listing of it's 5 million member Frequent Flyer Programme in 2008 which could have fetched it AU$1.5billion (for many airlines there's more money made in the frequent flyer scheme than in flying planes). The listing strategy was based in large part on Carlson Marketing's parent Groupe Aeroplan's success in Canada according to Simon Hickey - boss of Qantas Frequent Flyer in 2008. Qantas changed tack, held onto ownership of the Frequent Flyer programme, (which produces more profit than subsidiary Jetstar) and took it on an aggressive expansion drive.

Most frequent flyer programmes struggle with too many points being issued (typically by partners such as credit card companies and at a a compound annual growth rate of 10%) and not enough seats being available to redeem them (new planes add only 5% more seats to the global fleet per annum).

Qantas first addressed the redemption options from difficult-to-find-free-flights to include an online store stocked with merchandise and gift cards (full disclosure - we deliver this service for Qantas) and an any-seat, any-Qantas-flight redemption options. It then required all banks who were offering Qantas Frequent Flyer points on their credit cards along with other rewards to offer cards with Qantas Frequent Flyer points only (know as Direct Earn credit cards) - or not at all. Then last year it struck a deal with Woolworths Australia in which Woolies offered Qantas points to its shoppers and along the way added 700,000 new Qantas Frequent Flyer members.

The result? Depending on who you talk to either Qantas or FlyBuys is now the biggest and best loyalty programme in Australia. Either way - FlyBuys has a new attacker. And for Qantas it's a big earner : in the year to June 30, it generated underlying EBIT of A$328 million and now has a base of 7 million members.

Air New Zealand's strategy here

Air New Zealand didn't face the issues of limited seats being available for redemption in its Airpoints programme. In fact it could be argued that anything that got passengers onto it's planes was positive with the Centre For Aviation describing them as a "small airline getting smaller". The world first Airpoints Dollars innovation introduced a few years ago means any seat on any Air New Zealand flight could be bought with Airpoints (rather than the roughly 3%-5% of seats reserved per plane in other classic frequent flyer schemes).

Air New Zealand's advance in 6 steps

1. Flying on Air New Zealand flights had always gave customers Airpoints Dollars which could be redeemed for..
2. ...more Air New Zealand flights.
3. BNZ had long issued the GlobalPlus credit card on which customers earned even more Airpoints Dollars. ANZ (our client), Kiwibank and American Express have all issued new Airpoints Dollars credit cards over the last year.
4. Then recently - Air New Zealand enabled Fly Buys customers too to convert their Fly Buys points to Air New Zealand flights.
5. The really interesting piece has been the issuing of a new Airpoints membership card last month which is co-branded with Fly Buys by Air New Zealand. With this Airpoints card customers can now earn even more Airpoints Dollars (earned instead of Fly Buys points) at any of the Fly Buys merchants. This is a significant innovation and not one we've seen elsewhere. It's a collaborative local solution which is in contrast to the development of Qantas's programme in Australia.
6. The unexpected piece has been last week's release of an online Airpoints gift store. Airpoints Dollars can be used to buy goods and gifts from a $50 digital camera up to a $1,670 high end camera. Some goods are delivered in the same fashion as Fly Buys such as the new iPod Nano which must be picked up in store from Noel Leeming.

There are strong arguments in Australia to support the primacy of either Qantas Frequent Flyer or FlyBuys. In New Zealand - it looks like Air New Zealand's trumped them all.

New generation fuel rewards - the Smart new orange card

While we're all now used to fuel dockets in New Zealand we may soon have a better alternative available to us. It's the result of solid Kiwi entrepreneurship together with some solid marketing discipline.

Australia - 1

Woolworths Australia (who own Countdown and the rest of the Progressive Enterprises stable here) were offering fuel dockets (as we currently have here in New Zealand) successfully in 2005. At the Caltex Woolworths sites there was an average 80% increase in petrol sales. When the offer was 12 cents per litre, sales went "through the roof ". Also - sales appeared to be up in grocery competitor Coles who also offered fuel dockets - maybe as much as 3.8%.

Woolworths Australia have since progressed to offering an orange card which collects the various cents/litre discounts (doing away with the paper dockets) in 2007, launching an online community the same year, partnering with Qantas Frequent Flyer in 2009 and then this week launching a Woolworths Everyday Rewards Qantas Frequent Flyer credit card -with fuel discounts. Pretty impressive customer strategies.

New Zealand - 1 up?

Smartfuel is a Kiwi startup running a pilot programme in Palmerston North. Like Woolworths Australia it offers an orange card that collects fuel discounts. Unlike the Australian example these discounts can be earned at an array of retailers who print the running total of the discount at the bottom of the till slip. They also accumulate into a single large cents/litre discount which can then be used at the next fuel purchase . And there's two major chains participating : fuel discounts can be redeemed at either Mobil or Caltex.

Scott Fitchett (owner of the Caltex in Palmerston North) is the Smartfuel inventor. Ian Sutcliffe is the experienced marketer (previously head of marketing at McDonalds and Westpac and a past 1to 1 Customer Champion). The offer to customers is pretty compelling. So too is the offer to the participating retailers. While they pay for the discount at time of purchase - they don't pay for discounts which aren't used by the customer. These unused portions are credited back to the retailer.

Fuel discounts are not materially costly for the retailers who offer them (maybe a 1% to 2% discount equivalent) but they drive an out sized customer behaviour change. When fuel dockets first became popular one analyst noted that "The discount is worth $1.60. You wouldn't stop in the street to pick up $1.60 but customers are changing retailers for it."