The frequent flyers' club of El Al Israel Airlines Ltd. (TASE: ELAL) is changing the terms for accumulating points and using them for club members and holders of its Fly Card credit card. The change will take effect in April 2019.
El Al's frequent flyers' club has two million members: 60% residents of Israel and 40% foreign residents. Other than its credit card framework, there are five different statuses in the club: frequent flyer, silver, gold, platinum, and top platinum. Status is determined by the frequency of travel on El Al, the distance, and the class of tickets purchased. The Fly Card credit card, launched in 2014 in cooperation with Diners Club, includes two types of card: Fly Card and Premium Fly Card.
El Al has issued 280,000 credit cards to 250,000 customers, with 75% of the cards being regular Fly Cards. The value of transactions using the cards is estimated at NIS 21 billion annually with an average of NIS 9,500 being spent: NIS 4,500 a month spent by Fly Card holders and NIS 23,000 a month spent by Premium Fly Card holders. 10% of the clearance turnover is converted into El Al points.
What do people do with the points? Most of the members use them for bonus flights. Some use them for duty free purchases on El Al flights or for hotel overnights (incidentally, club members use the points mainly for hotels in Eilat), while some sell their points to others on special websites.
El Al is now falling in line with competing clubs enjoying a built-in advantage: alliances combining several airlines (such as Star Alliance and One World). On other hand, El Al maintains its club by itself, and competition is becoming stiffer.
First of all, El Al is simplifying the accumulation method, which up until now has been quite complicated. The new method is price-based; someone spending more money accumulates more points and customers with a higher status accumulate more point. Under the new method, luxury customers will receive 25% more - they accumulate one point for each $8 that they spend on the ticket, compared with one point for each $10 for a frequent flyer having the basic status. This change will reward more expensive flights. On discount flights, members will accumulate fewer points than under the current system. For example, on a flight to Warsaw costing $302, members accumulated 50-58 points under the old system and will accumulate 42-49 points under the new system. On a flight to London costing $458, the situation differs: 50-58 points were accumulated under the old system, compared with 63-74 points under the new system.
Where segments are concerned, gold status members without Fly Card credit cards need 24 segments to acquire eligibility for a flight to New York on tourist class, while gold status members with a Fly Card need 17 segments.
Where transaction turnovers for El Al's credit cards are concerned, a holder of an El Al Fly Card needs NIS 538,000 in transactions to accumulate a bonus tourist class ticket to New York and NIS 1.1 million in transactions for a bonus business class ticket to New York. In other words, in order to win a bonus ticket to New York, the number of flight segments is fewer than at present for club members holding a Fly Card but more than at present on the London route for a bonus segment.
"We improved our conditions in comparison with the competition. Holders of Fly Cards on the route to New York now need fewer flight segments than for the leading competitor," says El Al Frequent Flyers Club CEO Lior Tanner. He explains that the airline is changing the system in order to "keep in step with existing trends in the industry, with an emphasis on US airlines and members' clubs of Air France, KLM, and Lufthansa. We are making the plan simple and transparent so that everyone will be able to understand it, in contrast with the tables club members have to understand at present."
Tanner adds that the option for using points are being expanded, but that the quota of bonus tickets, which is limited in quantity, is not changing. He also said that the proportion of use had increased by 50% since the credit card was launched.
When the new system takes effect in April 2019, a website will begin operating through which members will be able to monitor the points they have accumulated and use the points that remain valid for three years. What about using the points?
First of all, El Al is offering a 20% discount for Fly Card holders on the price of using points in tourist class and a 15% discount in the higher seat classes. Bonus tickets will also be offered at a reduced price of 25% (similar to the Super Saver product offered by US airlines). There are five usage price groups. Each ticket, including the ordinary pricing, has 26 price classes - one for each letter of the English alphabet. Each class has an allocation of seats that changes according to various parameters, such as demand and flight date. The bonus tickets are those of the cheapest class (Class E). When they run out, it goes to the next class for which usage is more expensive, similar to the ticket price. As for the cash and points track (payment for some of the bonus tickets in cash and partial use of points), there will also be flexibility on connection flights and flights on airlines with which El Al has a code sharing agreement. Another change is a shortcut to the more expensive statuses.
In the competitive civil aviation industry, the frequent flyers club is definitely a consideration that passengers take into account in choosing an airline, especially business class passengers. In this area, El Al faces tough competition from large clubs including several airlines, such as United Airlines and Lufthansa in the Star Alliance, British Airways and Cathay Pacific in One World, and Delta Airlines and Air France in the SkyTeam Airline Alliance. In order to accumulate points, passengers prefer to remain loyal to a specific club, which leads the clubs to extend their services and the quality of their product for the passengers. In the large clubs around the world, the current trend is to highlight the lateral cooperation between the alliance's member airlines, for example by setting up websites through which transactions can be conducted (in check-in and seating, for example) for all the airlines in the alliance.
Published by Globes [online], Israel business news - www.globes-online.com - on August 1, 2018
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