Recently there has been a lot of talk about the customer travel experience. Specifically around the idea of improving the entire process from point-to-point by providing a more streamlined approach.

Dating even further back, there have been discussions about revamping loyalty programs to better serve the traveler of today.

Could customer experience and loyalty programs be converging to create a more synchronous travel journey? Recent events might be signaling a new future of travel.

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Deutsche Bahn Joins Star Alliance

One of the more interesting pieces of news coming from the aviation and travel sectors was the announcement of German rail service Deutsche Bahn (DB) joining Star Alliance. This marks the first time a non-airline has joined a major airline alliance.

“Our new model for intermodal partnerships promises seamless coexistence between different modes of transport throughout the alliance. We welcome Deutsche Bahn as our first intermodal partner to Star Alliance.”

From August 1, DB will officially be a member of Star Alliance and travelers will reap the following benefits when traveling to/from Frankfurt Airport (FRA):

  • Customers gain access to priority baggage handling and other services at Frankfurt’s AiRail’s check-in area.
  • Star Alliance customers using Lufthansa Express (with a through rail-air ticket) will earn points or miles.

Although this is a small start, it could be the prelude to more to come. “Today brings great forces together and opens the Star Alliance doors beyond the airline ecosystem,” said Jeffrey Goh, CEO, Star Alliance.

“Our new model for intermodal partnerships promises seamless coexistence between different modes of transport throughout the alliance. We welcome Deutsche Bahn as our first intermodal partner to Star Alliance.”

The primary drivers of this initiative is a combination of improving sustainability and unclogging runway congestion, but it could also give us clues to the future of loyalty programs and how the traveler's customer experience can be improved by a more streamlined approach.

Ancillary Opportunities for Airlines & A Better Experience for Travelers

Before we can see where we are going, we need to take another look at where we are today. The DB news is a natural progression of the Lufthansa Express Rail, which began more than 20 years ago.

It not only gives travelers the option to book their train and flight tickets together on one itinerary, but also automatically rebooks travelers on a later flight if a connection is missed because of the train arriving late. When these tickets are purchased separately, this is not covered.

Benefits like these make upsells more enticing for travelers, giving airlines airlines additional ancillary revenue streams, while providing a simpler and more streamlined booking and traveling process.

It's expected that Star Alliance will build on this partnership with DB and not only expand within Germany, but attract additional train, bus ferry and other transport providers in a push for intermodal travel.

Beyond the benefits of having all points of travel on one itinerary, travelers may also be enticed to purchase more ancillaries if they are provided with both more loyalty points earning and redemption options through these intermodal tie ups.

For example, imagine a daily train commuter could collect loyalty points every day she/he goes to work and put those towards a seat upgrade or lounge access to make that long-awaited summer holiday even better.

"Carriers whose passengers each spend at least $20 on ancillaries generate 8.2% ROIC on average, which is more than five percentage points higher than it is for airlines whose passengers spend less than $5 on ancillaries."

Ancillary revenue is only becoming more important for airlines as time goes on. McKinsey recently published The six Secrets of Profitable Airlines, which outlines ancillaries as a major driver of success.

In the report, McKinsey's analysts write, "ancillaries are an under-tapped channel of value for many airlines. Our analysis reveals a mildly positive relationship between ancillary sales performance and ROIC (Return on Invested Capital). Carriers whose passengers each spend at least $20 on ancillaries generate 8.2% ROIC on average, which is more than five percentage points higher than it is for airlines whose passengers spend less than $5 on ancillaries."

In addition to driving the bottom line for airlines, these additional ancillaries also improve the customer experience by presenting travelers with both more options for customization and a simpler booking process.

This also goes a long way to improving the profitability of airlines because, as the McKinsey report states, "the best airlines effectively wield the tools they have at their disposal to engage with customers directly and establish themselves as trusted brands: loyalty schemes, online sales, and mobile apps."

Beyond intermodal transport, it's also fascinating to ponder what a loyalty program could look like that encapsulates other parts of a trip such as insurance, entertainment, dining and accommodation.

But especially the latter would come with complications because hotel groups have their very own lucrative loyalty programs. Could we perhaps see inter-sector loyalty program mergers in the future? Something to ponder and a topic possibly for a future article.