Flair Airlines

Case Study

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Case Study

Status: Early Thinking, Ideation, Planning

Updated: April 6, 2023

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Problem Alignment

The Problem

Ultra-low-cost-carriers (ULCCs) typically have very thin profit margins on their core product (flight tickets). By offering a basic ticket at a low charge, they are able to attract price-sensitive customers who may not require additional services and are willing to forego certain amenities to save money. At the same time, ULCCs can generate additional revenue from customers who are willing to pay for add-ons, such as seat selection or priority boarding.

Flair Airline’s mission statement is to disrupt the monopolistic practices of other airlines, and democratize air travel for all, by providing an affordable alternative.

In order to increase profitability—while maintaining affordability—with this model, ULCCs need to focus on the following north star metrics:

increasing volume (increase conversion)

increasing ancillary revenue

as % of total revenue

per passenger

Selected Initiatives

Selected Initiatives

Initiative Name

Description

Improve Cash Flow

Increase cash flow by collecting payments upfront (via gift cards) for “future” flights

Subscription Service

Annual subscription plan that allows customers to travel monthly by paying a monthly fixed fee

Loyalty Program

Redeemable frequent flyer points program & co-branded credit card

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Goals & Success

Goals & Success

Initiative Name

Intermediate/Trackable Measures

Umbrella Metric

Improve Cash Flow (via Gift Cards)

Gift Card Breakage Rate OR Redemption Rate

Average Gift Card Value

Days Sales Outstanding (DSO)

Gift Card Sales

Subscription Service

Monthly Recurring Revenue

% of total customers who signup

Churn Rate

Avg. Revenue per User

% of customers retained > 1 year

Frequency of Flights

% of users signing up for subscription service

Customer Lifetime Value

Loyalty Program

Redemption Rate

Repeat Purchase Rate

Customer Retention Rate

Customer Satisfaction

Average Order Value

Customer Lifetime Value

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# 1 — Improve Cash Flow

Description

Flair can initiate a program where customers are incentivized to purchase gift cards that can be redeemed for future travel. This program will allow Flair to increase cash flow with relatively little effort. By encouraging customers to purchase gift cards in advance, Flair can effectively borrow against future revenue. This allows Flair to increase cash flow immediately, which can be used to finance operations or invest in growth opportunities. Additionally, by collecting payments upfront, Flair can reduce its exposure to payment defaults or chargebacks.

Flair can promote the gift card program by offering discounts or bonuses to customers who purchase gift cards. For example, Flair can offer a 10% discount to customers who purchase gift cards worth $500 or more. Flair can also offer bonuses such as free checked bags or priority boarding to customers who make purchases with gift cards. In addition, Flair can maintain cash flow during non-peak seasons by offering discounted gift cards during this time.

An additional benefit of purchases made via gift card is that Flair can save on payment processing fees to credit card and banking companies.

Targeting

This initiative would need to be sold/advertised during the “dreaming phase”. In other words, the target customers are those who are currently thinking of flying soon. However, realistically it can be sold at anytime. If sold during the confirmation phase (post-booking), Flair can capitalize on price sensitive customers’ desire to not miss out on potential savings. Sending an email post-booking that mentions the customer could have saved a certain % of money if they purchased with a gift card will increase gift card sales for future purchases.

Future Phase

An MVP of this initiative should be digital gift cards. This will keep costs minimal as the viability is tested in accordance with the metrics listed under the “Goals and Success”.

In the future, the sale of these cards can be expanded to physical locations with physical cards. This will allow customers to actually “gift” the cards, as opposed to buying them for their own use. This is because people typically like to gift “physical goods”.

Risks

It is worth noting that based on customer reviews, people unfortunately tend to find ULCCs unfriendly & untrustworthy. This issue may result in hesitancy when purchasing/gifting gift cards. In order to mitigate this risk, it would be important to improve customer satisfaction and engender brand trust. This could be done by having dedicated customer service agents who can solve any issues that may arise. This would need to be an ongoing effort, however its dividends would pay off longterm.

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# 2 — Subscription Service

Description

Flair Airlines can launch, “Flair Pass”, an annual subscription plan that allows customers to travel once per month by paying a fixed monthly fee—with the option to purchase additional flights at a discounted rate. Flair Pass would be designed to incentivize customers to fly more frequently with Flair Airlines, thereby increasing the number of segments per year.

The pricing of the subscription service needs to be designed to appeal to customers who fly frequently but are price-sensitive. By paying a fixed monthly fee, customers can save money on flights compared to purchasing tickets individually.

One of the key benefits of the subscription service is that it creates predictable revenue stream, as customers commit to a fixed monthly fee for a set period of time. It is also the case that customers may not redeem every flight they are allotted. Similar to gym memberships where customers may pay for access, but not necessarily use their pass to its maximum capacity.

The subscription service can offers different tiers based on the number of flights included, with customers able to choose from up to three tiers: 1 flight per month, 2 flights per month, or 4 flights per month. The program also offers additional perks such as priority boarding and waived change fees.

Alternatively the tier structure can be advertised towards different group sizes. For example, solo traveller tier, couples tier, family tier.

Overall, launching a subscription service like Flair Pass can be a creative way for Flair to increase the number of segments per year, capture market share from competitors, and increase loyalty to Flair.

Future Phases

This should be rolled out gradually with only a single tier option to small group of customers who would likely be early adopters (frequent past flyers). After learning from these customers, the product can be expanded to include additional perks, tier, and customers.

Risks

There is the possibility of confusion among customer if both a loyalty program and subscription service are implemented. In order to clarify this confusion, Flair can collapse the loyalty program into the “Free Tier” of the subscription service. This free tier would include all the benefits of the loyalty program, but not any of the free flights included in the paid subscription service.

In addition, developing and maintaining a subscription service would likely be a large undertaking, with costs including technology infrastructure, marketing, rewards, and customer support. It is important that the subscription service be carefully structured and priced. These risks can be mitigated by outsourcing the implementation and maintenance to a third-party vendor with expertise in this area.

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# 3 — Loyalty Program

Description

Flair Airline can launch a loyalty program and co-branded credit card initiative to increase customer lifetime value.

The loyalty program could be structured to offer rewards points for flights, as well as for purchases made with the co-branded credit card. Customers could redeem these points for discounts on flights, upgrades, free baggage allowances, and other perks. The credit card could offer additional rewards points for purchases made on the airline's website or with partner retailers, as well as exclusive discounts and access to premium services.

In addition, Flair can increase loyalty program sign-ups by offering incentives to its customers. For example, Flair can offer BOGO deals during the month of a customer’s birthday. Considering signing up for loyalty programs is free—this should be sufficient to increase sign-up rates.

To further increase the customer lifetime value and ancillary revenue, Flair can offer tiered membership levels within the loyalty program. Higher tiers could come with additional benefits, such as priority boarding, lounge access, and dedicated customer service. The credit card could also offer higher rewards points earning rates for customers who reach these tiers.

Flair Airlines can use customer data to personalize ads and better target loyal customers. For example, they can send targeted emails promoting flights to destinations that the customer has previously traveled to, or offer discounts on ancillary services that the customer has previously purchased.

Flair, and other ULCCs, typically target price-sensitive, leisure passengers. Offering a co-branded credit card may open up the possibility of targeting additional business travellers.

By launching this initiative, Flair can incentivize customers to remain loyal to the airline and generate repeat business.

Targeting

Users should be targeted during the “Booking Phase”. This is because the user is likely making an account anyways, and the barrier to sign-up for a loyalty program has already been traversed (considering the user is about to purchase a flight).

Future Phases

The MVP for this initiative should be the loyalty program. If there is enough interest in this initiative based on the aforementioned metrics, the program can be expanded to included a co-branded credit card. Additional loyalty tiers with different perks can also be implemented.

Risks

Co-branded credit cards are subject to regulatory scrutiny and must comply with consumer protection laws, which can result in fines and penalties if not properly managed.

In addition, developing and maintaining a loyalty program and co-branded credit card would likely be a large undertaking, with costs including technology infrastructure, marketing, rewards, and customer support. For an ULCC with thin profit margins, these costs may outweigh the benefits of the program. These risks can be mitigated by outsourcing the implementation and maintenance to a third-party vendor with expertise in this area.

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Prioritization

Many prioritization frameworks exist, and often times it is necessary to use a combination of frameworks depending on a variety of factors including the type of product, stage of development, availability of resources, and availability of/confidence in data.

Prioritization "Pillars"

Prioritization "Pillars"

Factor

Details

Business Value

Does this initiative bring in more money?

Decrease costs in a significant manner?

Urgency

Is there a clear window of opportunity or deadline?

e.g. First to market, peak season, investor meeting, etc

Risk Reduction or

Opportunity Enablement

If the initiative isn’t bringing value immediately, is it setting up the business for future dividends?

Effort

Is implementation complex?

Is stakeholder buy-in difficult?

Are there regulatory hurdles?

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Lean Prioritization

Considering these initiatives are in the “ideation” stage, it is important to not make incorrect assumptions about business value and effort—especially when we have imperfect or incomplete data.

In order to come to a consensus, we need to leverage relative estimation, as we don’t have the metrics to prioritize based on absolute measures.

For this reason, I will start by doing a first pass using a 2x2 value/effort matrix.

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Screenshot 2023-04-06 at 12.45.25 PM.png

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WSJF/T-shirt Sizing Prioritization

In order to delineate between the items within each quadrant of the above matrix—while still only performing relative estimations, we can use a modified version of WSJF and T-shirt sizing.

Backlog

Business Value

Urgency

Risk/Opportunity

Effort

Score (opp cost/effort)

Subscriptions

Gift Cards

Loyalty Programs

There are no rows in this table

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The subscription service would be a novel idea in Canada, hence the XL urgency. In being first-to-market, Flair will be able to capture a large market segment from competitors. It will be difficult to convert customers if they subscribe to a competitor’s subscription service first due to switching costs and loyalty. This is a major risk especially considering the resources available to WestJet and Canada. It is worth noting that the Aeroplan program is top 10 in the world in generating revenue, so it will be difficult to compete against.

Considering the loyalty program should be collapsed into the “Free Tier” of the subscription service, I think the development efforts can be consolidated.

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