As increasing numbers of people become aware of the value of air miles, is the travel industry at risk of a bubble? Mariam Sharp reports

Through the use of credit cards, the financial industry is the leader in loyalty points’ collection but the travel industry comes a close second, significantly beating even the retail sector. That may sound like good news, but there are growing concerns that the value of unredeemed points are being used as a way to raise finance and investment for major companies including airlines and hotel groups. According to a report by International Travel News, in 2005 the value of outstanding miles stood at more than $700 billion. At the time that was roughly equal to all of the printed US currency in circulation worldwide.

So why are so many points unredeemed? Most of us can all relate to piles of half-redeemed loyalty cards; quite often they are just too much effort. This is backed up by Mintel, a market research company, which finds that nearly 60% of loyalty memberships fall inactive within the first year. More proof that schemes are failing comes from loyalty publishing outfit Colloquy; it says that each year over 30% of reward value goes unredeemed.

Clearly earning rewards in traditional loyalty programmes is a hassle but with the onset of mobile solutions such as Apple Pay, punch cards and plastic loyalty cards are becoming a thing of the past. Traveller behaviour seems to be changing too. In a previous article on the attitude of so-called millennials towards travel, we heard the story of Chris Guillibeau who, helped by air miles, has managed to travel to every country in the world. On his blog, which helps others to do what he calls ‘travel hacking’, he has this to say: “Over the past five years I’ve earned more than one million Frequent Flyer miles and points each year. I’ve used them to travel everywhere—literally.”

It might be funny money, but you can do real world things with it.

There are many other loyalty point sites but one of the most prominent is Flyertalk, which launched back in 1998. This influential web community sees between 1.2 million and 2 million monthly visits. In addition, many other websites that focus on loyalty programme deals gain insights and insider dealings from one of Flyertalk’s 200 forums. Even hotels and airlines keep a close eye on the site when planning changes to their loyalty schemes.

What many of the visitors to these sites have realised is that loyalty programmes are currency. It might be funny money, but you can do real world things with it. But as with other things that are considered valuable they are also vulnerable to theft and fraud.

A growing problem

With growing numbers of frequent flyer programmes - over with around 300 million members, according to Consumer Reports - fraud is on the rise. A recent Airline Information Survey finds that 72% of airline loyalty programmes had experienced an issue and 30% say fraud is growing rapidly each year. 

In November, the hacking of Hilton’s HHonors caused concern. One user on the FlyerTalk forum claimed to have lost 258,000 Hilton HHonors points to hackers. This is an issue that exposes companies to potentially millions in lost revenues and eroded margins, not to mention unhappy customers.

The original aim of loyalty schemes was to create customer loyalty but in a world of big data and personalisation they are worth their data in gold.

Unsurprisingly, technologies are springing up to combat fraud. CellPoint Mobile is one of these and CEO Kristian Gjerding has this to say: “Because frequent flyer miles represent a significant part of an airline’s valuation, airlines need the critical ability to step-check transactions in real time to prevent an individual or group from hacking a member’s account or gaining access to miles or rewards currency they have not legitimately earned.”

Keeping loyalty accounts safe is crucial because of the risk of hackers using information to steal a customers identity or open fraudulent accounts in their name. To do this can take as little as a name, email, address or credit card details. When customers are inconvenienced it can impact a brand’s image.

So how can companies protect their customers’ loyalty in the future?

What seems likely is that loyalty point programmes will change as customers find it easier to collect and redeem points. Against this backdrop, the travel industry will need to continue to innovate in order to develop customer loyalty and sustain growth. While the original aim of loyalty schemes was to create customer loyalty, in a world of big data and personalisation they are worth their data in gold.