Costs vs. benefits – the big gamble of Air France KLM and Accor

01 July 2019

The tie-up between the loyalty programs of Air France KLM and Accor is definitely beneficial to customers. But will it justify the potentially huge costs for the two programs, too? It could, but it is far from sure.

Privileged partnerships between FFPs and hotel loyalty programs have been around for a few years, since Delta and Starwood started that concept some time ago. So far, they have mostly focused on elite members in either program, offering them limited recognition and benefits with the other company. The relevance of these offers is therefore somewhat limited.

Air France KLM and Accor are taking this game now to a completely different level by simply offering a double dip option to all members of both Flying Blue and Le Club Accorhotels (soon to be renamed into ALL) under their new Miles+Points option. It is enough to link accounts once and a Flying Blue member earns bonus miles for stays at Accor properties while an Accor member earns bonus points for any Air France or KLM flights – all while continuing to earn points at the main program in the usual way.

Given this free and easy currency gift, there is no reason not to benefit from it from a customer perspective, generating obviously considerable costs for the two programs: Even if they may avoid direct payments between them by balancing the additional costs off between each other (since transaction volumes might indeed be pretty similar), there is nevertheless a (liability) cost created by issuing more currency.

So, what is in there for the two programs?

To look at it from Accor’s perspective, a Le Club member earns 5 points per 10 EUR spent with Air France or KLM. So, a ticket of 1,000 EUR would yield 500 Accor points, which equals to a redemption value at Accor properties of 10 EUR (2,000 points equal 40 EUR) or 1% of the ticket price.

Let’s make a simple calculation to try to estimate the costs of this tie-up: Air France KLM recorded a turnover of 26.5 billion EUR in 2018, of which about 80% is accounted for by the passenger business. Assuming that 25% of that revenue is covered by Flying Blue members and (only) 20% of Flying Blue member pick up that double dip offer, that still results in more than 10 million EUR annual costs for Accor in form of additionally issued points. This might not be huge compared to Accor’s overall turnover of 3.6 billion EUR – but it starts to be a considerable sum nevertheless (and even more so if you make some less conservative assumptions).

The bet all comes down to is how well data will be exploited. The terms & conditions when signing up to the database state that the programs just receive data from each other to fulfil the offer – but nobody talks about using it in a proactive data mining sense.

However, it is certainly in such data mining that the value of the partnership would lie. Imagine Air France would obtain data from Accor showing that a Paris-based customer stays each month at an Accor property in Nice, but never flies there on Air France (but presumably on easyJet). Or Accor sees that a Flying Blue member travels regularly to a city, where it has several properties, without ever staying at them. Or even better, Accor got (automatically) the booking data of any upcoming flights, knowing that customers would typically book the flight first, ahead of looking into accommodation.

All this seems not to happen though, at least not if you take their terms and conditions literally. Of course, there is a natural cross-selling impact of such offers for truly engaged members. But whether this impact will offset the costs of existing clients just using the double dip option without changing their behaviour is probably the big bet of that offer.

Only time will tell whether the offer might be too good to last or whether it will pay off for both sides as hoped for. But it is definitely an interesting case study to watch where two programs have teamed up to dare to put the benefits of customers at least at the same level as other considerations.

This thinking alone might serve as inspiration to many other programs.