A new generation of airline loyalty programs is coming, developed, tracked, and sold on the blockchain. And airBaltic is leading the charge. The carrier previously announced its “Planies” NFT program. In an exclusive interview with PaxEx.Aero, CEO Martin Gauss explains how the company sees that as a launch pad to a fully tokenized loyalty scheme.
There is no other airline management team in the world where there are so many NFTs held by top management. That helps, because we know what we’re talking about.
– airBaltic CEO Martin Gauss
Loyalty programs as they exist today can be worth billions to an airline. But Gauss sees the current structure as too confining for consumers. He believes the tokenized approach empowers members, while also delivering increased value to the carrier.
Airfare for PaxEx.Aero to meet with Mr. Gauss was paid for by airBaltic. As always, our opinions remain fully independent.
Buy loyalty, guaranteed rewards
airBaltic wants its loyalty program to appeal well beyond the borders of the Baltic states, and well beyond just travelers. Gauss knows that won’t happen with a more traditional program. The next iteration of the airBaltic Club will, therefore, be a tokenized loyalty program, built on the blockchain.
With accounts tied to non-fungible tokens (NFTs), the airline expects that loyalty – or at least the associated benefits – will be freely bought and sold on the open market.
It is not only for our frequent fliers. We also want it to be attractive to someone in Shanghai or New York who will maybe never fly us. If they know they can sell their points or account to someone else, that creates the value.
airBaltic will sell “Planies” NFTs as part of the transition; the target launch price is approximately $300. And simply holding the NFT will earn a member points every day.
airBaltic expects to issue sufficient points for each member to earn a free trip once a year. “If you do nothing you will get at least three tickets over three years,” Gauss explains. “That’s a fair value. If you invest in that NFT you should at least get your money back.”
In many ways this is similar to paying the annual fee on a cobranded credit card and getting a chunk of points as a reward. It opens targeted marketing opportunities.
But Gauss, sipping from a Bored Apes Yacht Club mug during the conversation, sees potential for significant upside as well. “We will not make it super expensive. What the market does with it then, because of additional benefits, we have no influence.”
Making that claim against the backdrop of massive decline of the tokenized economy is not an easy pitch. But Gauss is undeterred.
Developing a benefits ecosystem
The broader scope of benefits tied to these NFTs is where airBaltic hopes to create value. It is also where the tokenization conversation begins to struggle.
airBaltic has experience issuing NFTs. The company has more than a dozen series of its “City Collection” tokens on the market. And, today, holding one affords little in the way of benefits. Gauss wants that to change.
The member will hold an NFT and have a lot of benefits. The collecting of points will be much more interesting.
He describes an idea of program segmentation among the NFT-holders. He notes that program members can, for example, live in different places. “We can think about what do we give to people who have a background in Dubai versus other locations. Why not raffle among these holders of the frequent flyer NFT a Dubai ticket? You will have a completely different interaction with your customers.”
When pressed on why NFTs are required to enable this – after all, a well run program knows which members live in Dubai, even without a blockchain – he deflects. Gauss once again brings up potential – but currently nonexistent – benefits of the City Collection NFTs. Can they be a proof of concept for these benefits, despite that approach remaining just a concept thus far?
“We could look at who holds [a city collection NFT] and offer a free hotel, for example. We wouldn’t issue that. Someone from the tourism side would. It is marketing where the customer gets real value while the city gets additional attention.”
In this scenario customers show some interest by purchasing an NFT. That helps with targeted marketing, but is it loyalty? Most importantly for airBaltic, however, the benefits cost the airline nothing. Gauss frequently noted that closing the business case is critical to every decision the airline makes. With a tourism board or a hotel or a restaurant or literally anyone else covering the cost of the promotion, airBaltic’s exposure remains sufficiently low.
Will consumers purchase an NFT for the chance that maybe a tourism board will find a way to offer a free or discounted hotel room in the future? That’s s tough sell at many levels. Especially in an unproven market.
Developing a tighter connection with customers
Can tokenization of the program drive better engagement with consumers? Certainly a steady stream of points being earned helps make the program a bit more attractive. And Gauss teases the idea of building “community and binding your customers who want to be closer to you in a different way.”
He also believes that interacting with members will be easier. “If you hold an NFT then to check if it is you, to reach you, is much, much easier because of the blockchain.”
But, like all things NFT, he also recognizes the transactional value.
Like all airlines we issue points for flying. That’s a currency. But it is a complicated currency. The potential tokenomics of frequent flyer points give you a completely new way of looking at what you can do with points, making them exchangeable not only to Ether, but any other currency where a swap is possible.
If I give you when you fly or otherwise interact with us something with real value, not just a limited value to redeem with the airline, I think we get into a new territory of the frequent flyer program.
Not only could the points be traded out for other currencies, but Gauss foresees a scenario where entire accounts are traded on the open market. “You cannot move your frequent flyer card to someone else today. You could in the future do that if it is an NFT. This is not something we’re doing yet, but why not? You have a card. You have earned all of that. It has value. Why not? It is provocative.”
Of course, the airline will only allow such transactions if it also benefits. Gauss sees options there as well. Most notably, he anticipates configuring the loyalty account NFTs to pay out royalties on each transaction. Yes, you can sell your elite status to another customer. But airBaltic is going to take a cut, as will OpenSea for processing the transaction.
The value of the frequent flyer status would be detached from the person, but the value itself would stay. It is pretty revolutionary.
Does this require a blockchain? Absolutely not. In fact, the airline has to vouch for the existing accounts for a transaction to make sense. Very little about this benefits from a zero trust environment. But the blockchain-based smart contracts appeal to the company, as does the potential for royalties. And, theoretically, comfort among traders with the underlying technology.
Also missing from the conversation is the broader value airlines extract from owning that relationship with program members. That sort of longer-term value goes away as the account is separated from the consumer. But if the airline is making more money along the
The next generation of tokenized loyalty
Planies are just a first step for airBaltic. It is a proof of concept, just as the City Collection NFTs are a proof that the company can manage to issue the tokens and process benefits associated with them. The next generation, where the program fully converts to a tokenized offering, could look very, very different.
Among other things, Gauss expects that it would live on a different blockchain, one not tied to Ethereum like the current iteration. Today that tie allows the points to be more fungible, but it comes with higher transaction and environmental costs. The future blockchain “is probably not yet developed today” to support a full-blown deployment.
And massive improvements in efficiency and costs will be needed for it to scale. Gauss believes “If as a frequent flyer you hold an NFT as your card and at the end of the day the points are tokens, we would save a LOT of money on the complexity and cost of the programs.”
Exactly where those savings are realized, however, remains confined to internal company documentation.
airBaltic is hardly not the only airline developing a tokenized loyalty program. It is, however, the largest and most established making such aggressive moves. At least for now.
Hedging his bets just a bit, Gauss notes that the market is young, perhaps too young to accept such a dramatic shift.
We have many things in the pipeline. But we first have show that we can issue it and that there is an interest. If the whole thing does not work we will cancel it. Because we will not do something which does not make money for us and increase the value of the program.
While such an outcome would be disappointing, the costs are all borne in-house and Gauss sees the knowledge developed is a worthwhile investment.
As with many other efforts the company has built internally, Gauss is simply “hopeful it will lead to a better airline in the future.”
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