ARGUABLY, there has never been a better time for that theory to be well and truly tested.
The RBA noted that “the recovery in domestic tourism spending in 2022, to around or above pre-pandemic levels, is evident in all states and territories”, while more recently, BITRE stats show that “there were 5.34 million passengers carried on Australian domestic commercial aviation (including charter operations) in July 2023, an increase of 4.7 per cent on July 2022.”
Major protagonists Qantas and Virgin are also in trouble.
Qantas has become the whipping boy of a large portion of the travel and tourism industry (as well as a significant group of politicians) and Virgin Australia is recording month-on-month of poor on-time and cancellation stats, according to BITRE. For August, 5% of all VA flights were cancelled while only 69% managed to depart on time.
A loyal following
It leaves the timing of the launch of Rex Airlines’ loyalty program Rex Flyer (02 October) as utterly brilliant. Probably by chance, as these initiatives take a long time to build, but handy for Rex nonetheless.
Make no mistake, the launch of Rex Flyer could be a game changer. If executed correctly, Rex could establish itself as not only the true third domestic player, but possibly go even higher than that.
Rex Flyer is key because a lot of what keeps Qantas strong is loyalty, thanks to its immensely popular Frequent Flyer program – the carrot dangling in front of every traveller’s face that is free products, flights, and more importantly (for the ego and the association), status and the access to lounges around Australia and the world.
Virgin Australia learnt this and built something similar – the Velocity loyalty program and its own network of lounges.
There are now 11 million Velocity members as of December 2022, while Qantas is said to have 14.7 million. Not all are active or frequently used, of course, but that’s one mighty database of customers, many of which will have locked-in loyalty.
While on the surface loyalty programs are a mainstay for many consumer brands, it’s important to note their influence on buying behaviour.
Consider this from consulting firm McKinsey’s Australian Consumer Loyalty Survey of 1,400 Australians earlier this year, when the cost-of-living crisis had well and truly begun.
“Sixty percent of consumers surveyed indicated that simply being a member of an organisation’s loyalty program had prompted them to change their spending behaviour by at least one of the following: increasing their purchasing frequency, more frequently choosing the organisation over competitors, being more willing to recommend the brand to others, or being more willing to pay a premium for loyalty points or enhanced loyalty status.”
Unsurprisingly then, it led McKinsey to report that “organisations with top loyalty programs can expect higher sales and greater bang for their customer acquisition bucks, with customers enrolled in these programs spending more, churning less, and demonstrating a greater willingness to recommend their favoured brands to others”.
It goes further than that, though. There is a psychology to loyalty programs which makes them akin to a vice.
As marketing consultant Jano le Roux wrote, “when we invest time or money into something, we are less likely to abandon it. This is known as the sunk cost fallacy. In the case of loyalty programs, customers have invested time and money into earning rewards. They have built up a sense of ownership over those rewards, and are therefore less likely to switch to a competitor”.
Qantas has swathes of passengers that are so deep in Frequent Flyers that it is unlikely the brand will ever lose them. There is some serious sunk cost. But don’t underestimate the loyal following that Rex has as well.
Rex built itself up slowly. It’s been in operation since 2002, with its first flight taking off from Wagga Wagga to Sydney after it purchased the Hazelton and Kendell turbo-prop passenger airline businesses.
Its slogan is ‘Our heart is in the country’ and it has supported regional Australia since inception. It’s been a very small thorn in the side of Qantas for a while now and it’s developed a valuable following for that.
It has a large footprint in regional Australia built up over time and more recently added a fleet of 737s that are now flying the golden triangle and more. Thanks to low fares in trying economic times, full-service airline offerings like complimentary snacks and luggage and solid reliability, Rex is in a good position to grow its following.
Rex Flyer will turbocharge that progress.
And it may be able to capitalise on the competitor’s mistakes.
Le Roux asserts that, “the real danger of loyalty programs is that they can be used to manipulate you. Companies can create an illusion of value with their rewards, making you spend more than you normally would. They can make you feel entitled, and if you don’t get your rewards, you’ll leave them for someone who will cater to your every whim. It’s a vicious cycle that you willingly fall into”.
That final point is important.
Points expert Steve Hui of iFlyFlat recently suggested that Qantas has left this door wide open. You can read his post here where he said, “Qantas needs to re-evaluate its frequent flyer program’s balance to ensure that its customers can access some benefits”.
With the current status match offer that Rex has initiated and its claim that all unsold seats will be available at ‘classic award’ rates, it’s going for the jugular.
You can read about the finer details of the Rex Flyer system in Travel Daily if you’re curious about what you can gain and how the Rex Sapphire, Emerald and Diamond stack up against the competition.
There is another key piece of the puzzle that goes hand-in-hand with loyalty programs, and that is lounge access.
It’s the tangible bonus you get almost every time you fly, no matter how many points you have (so long as you have reached the right status level) that reminds you you’re special. Psychologically, it also gives you the perceived opportunity to seek out even more value.
Rex’s current Sydney lounge does not do that. But in the same release it used to announce Rex Flyer, the airline announced construction of lounges in Sydney, Melbourne, Brisbane and Adelaide would commence imminently.
A few more interline agreements like the one it has with Delta, and the difference between the Rex offering and that of Virgin and Qantas will be essentially indistinguishable, other than on cost, so long as Rex continues to largely undercut the competition.
Will it happen and will Rex become that fabled genuine third major competitor on the domestic front?
I’ll leave you with one more comment from Lim Kim Hai, Rex Airlines Executive Chairman, taken from the carrier’s annual report that dropped this week.
“So while Qantas announced with great fanfare a record profit of Underlying Profit Before Tax of $2.47 billion, Rex reported one of its worst-ever performances with a Group operating loss of over $30m.
“It is most disheartening to see the wicked prosper. However, in this darkest of hours, I am reminded of, and draw strength from, Rex’s guiding principle that headlines Rex’s Value Statement published in every single annual report since 2005: What does it profit a Company if it gains the whole world and loses its soul?”
Those sound like fighting words to me. Game on.