This week, Alaska Airlines was in the news again for its Hawaiian adventures and because it expanded its subscription offering again. This time, it added Alaska Access, a club-style subscription that offers perks like WiFi, discounts, and personalization. A few weeks earlier, another subscription pioneer, Wizz Air, doubled down on the model by adding an unlimited flights subscription.
The list goes on and seems to follow the predictions made six months ago in a Phocuswire roundup of flight subscription services. The key takeaway here is that airlines can pursue more of these initiatives, not just to generate recurring revenue or reduce distressed inventory but as an added dimension to loyalty in an era of commoditized frequent flier programs.
Our reactions ranged from ‘Of course’ and “About time’ to ’I wonder if I’m in Kuala Lumpur often enough to justify AirAsia’s all-you-can-fly pass?”
Naturally, airlines are exploring subscription services as they continually search for new, sustainable revenue streams. The recurring fee structure of the subscription model is perfectly suited to that objective. While airlines have benefited from over two years of elevated fares and robust demand, along with record revenues, the threat of the next fare war is ever-looming. Every cent of predictable, bankable and baked-in top-line revenue is vital.
The quest for more stable, higher-margin revenue sources drove the fare unbundling trend of twenty years ago, monetized the in-cabin experience in the last decade, and accelerated the segmentation of fee classes on everything from seat selection to baggage in the past few years. This exploration has now led to the “discovery” of subscription models.
It's time airlines recognize that subscription services can shore up any loyalty strategy, even well-established frequent flier programs. While the first businesses that spring to mind when thinking about subscription models are probably Amazon or Netflix (or maybe the latest SaaS solution your company uses), many companies in other industries with traditional loyalty strategies employ subscription strategies.
A recent eBook from Eagle Eye, a THINKINK client, shows how subscription or membership services offered alongside existing retail loyalty programs positively impact customer retention and revenue. For example, Club Pret, the paid membership add-on of UK-based sandwich and coffee chain Pret a Manger’s Pret Perks loyalty program, not only generates an average of 6.8 million transactions per month, but subscribers spend 4x more with the brand than non-members.
Other examples of the combined effect of subscriptions and loyalty abound in the retail and foodservice industries. Target’s recently launched Target Circle 360. Walmart Rewards and Walmart+. 7-Eleven's 7NOW Gold Pass and Panera’s Unlimited Sip Club. Each represents a premium add-on to a traditional rewards program and loyalty experience.
So why have airlines—which, through their frequent flier programs, offer some of the best-recognized and longest-tenured loyalty programs in history—only now shown a willingness to embrace subscription models?
Partially, it’s because there’s a mismatch between what we, as consumers, typically associate with subscriptions and what airlines can offer. All-you-can-fly options like AirAsia’s ASEAN pass or monthly multi-pass initiatives like Wizz Air’s are most directly analogous to content subscription services like Netflix, but that kind of unlimited consumption of a product as high-value as a flight must be narrowly circumscribed to be economically feasible for the airline.
Club-style subscriptions that offer a bundle of benefits beyond what a frequent flier would enjoy (see Alaska Airlines, easyJet Plus) are more in line with what retail brands are offering, but their value propositions are best realized by hardcore road warriors. Can airlines entice enough new subscribers and tailor the monthly benefits packages to make such a model profitable?
Phocuswire suggests they can and will, and we’re inclined to agree—the reason is simple. As consumers, we have a tremendous appetite for the convenience, ease, and value of subscriptions. If it’s something we think we’ll get utility out of, especially if it will “pay for itself” in a short timeframe, we’ll jump at it. The average American spends almost $1,000 yearly on subscriptions, and 74% of adults worldwide believe that subscription models are the future wave. As a result, the global subscription economy market size is projected to be $1.5 trillion in 2025, up from $650 billion in 2020.
Of course airlines want a piece of that revenue pie. And it’s about time they followed other established brands into this space. If they can leverage their existing loyalty programs, craft benefits and perks packages that justify the periodic expense to members and lean into the technology necessary to enact these services seamlessly, then subscriptions may be the recurring revenue lifeline airlines have sought for decades.