Like any other travel reward program, Aeroplan needs flights for travelers. So how does it go about securing them in the quantities that meet the needs of its members?
The process of reserving flights for loyalty programs is a relatively easy one and isn’t restricted to a single airline.
Anyone – businesses, individuals and loyalty programs – can reserve flights on any airline at publicly available prices. Throughout the year, airlines sell seats on their flights. These seats and associated prices are viewable online to anyone buying directly from the carriers or online travel agencies.
Many travel loyalty programs and online sites, such as Hopper and Expedia, reserve seats from multiple airlines to provide their customers optimal flexibility between price and flight availability. Other programs, such as Aeroplan, work with one carrier exclusively. Currently, Aeroplan has a commercial contract to purchase seats exclusively from Air Canada and its Star Alliance partners. But as Aeroplan looks towards the end of that contract in 2020, there is an opportunity for the program to evolve to include more carriers and their partners while continuing to provide competitive value to its members.
Companies that require a large quantity of seats can purchase them one of two ways. They can either take a ‘contract’ approach and select the exact mix of seat class, dates and destinations they need at a slightly discounted rate or a ‘tour operator’ approach and reserve 50%-100% of entire flights at a wholesale price.
These companies and loyalty rewards programs have an advantage over the ordinary buyer because they purchase a high volume of tickets. These relationships function as exceptionally large corporate contracts. Like most industries, airlines offer lower prices if you buy at a high volume and/or guarantee a minimum volume. While a smaller corporate contract might only earn the company a modest discount, loyalty programs are able to gain a larger volume discount to the benefit of their members because they buy tickets in such large quantities.
“For loyalty programs such as Aeroplan, with 5 million active members, redeeming billions of miles for flight rewards annually, the volume of seats reserved is much larger than most businesses,” said Pierre-Jean Mayol, Director to Travel Products for Aeroplan. “This makes it very appealing for an airline to have supply agreements with the program. In most cases, these agreements discount the publicly available fares in exchange for the program promising to purchase a certain volume of seats. The exact discounts will vary by specific routes, fare classes, advance purchase conditions, seasons and other factors.”
For example, while the demand for transatlantic flights is highly influenced by season, loyalty programs can accurately predict which destinations and flights their members want and when. Loyalty programs such as Aeroplan consolidate purchasing power as the majority of miles accumulated by its members are used for flight rewards. By accurately predicting volumes and destinations, loyalty programs are able to offer their members more of the flights they want while delivering exceptional value. Once the desired flights are reserved, it’s a simple matter of pricing them, then adding them to the program inventory and making the flights available to the members to book.