Pointshogger reader asked a great question in the comment section of our post: Loyalty Program COVID-19 Updates:
- “Hi Matt – do you think a frequent flyer program like Aeroplan is at risk of going bankrupt due to it’s relationship with Air Canada as a result of the CV-19 pandemic?”
This is actually a question that I have been thinking about. But I felt the topic was too controversial to write about. But since someone asked, it gave me the confidence to attempt to answer!
Let’s start with the elephant in the room, expenses versus revenue. Let’s take a simple example to set up the context of what I am about to explain, as this is the most controversial part. Let’s say pre-pandemic, companies needed to earn $1 billion a year to cover about $1 billion of expenses per year, things are balanced out. But let’s say now their revenue gets cut to $250 million, the way to balance things out is to cut expenses down to about $250 million. This would be the most simple way of looking at it, and in theory, why wouldn’t the company survive? In my example, they are not incurring more debt, which highly increases their chances of survival.
What is frustrating for people is that jobs will have to be lost in order to keep revenue and expenses proportional. But think about it this way, at least if the company survives, there is a chance for them to rehire people when they go back into expansion mode. If the company goes bankrupt, then everyone is out of luck.
Do you want them to survive?
If I had a job that is at risk, of course I rather not be the one who loses my job. There is a lot at stake in one’s personal life. Unfortunately, on the other hand, a company is also fighting for survival. Imagine frequent flyer programs go bankrupt and members lose millions, even billions of hard earned miles? Would we have wished that companies would have done more to cut costs to survive instead?
So as an employee, one may want fight to the bitter end to save his or her job. But there are also millions of members who have something at stake that want the company to survive. Don’t we need some sort of balance somewhere?
This is why I have been recommending diversification since the day we started Pointshogger. But I am going to take diversification to another level. I am talking about the perspective of an employee and a member of a loyalty program.
Let’s talk about employees for a second. Personally, I practice what I preach (diversify), or else I feel that I have no right to preach it. I personally have multiple sources of income, this is a big reason why I may not dedicate as much time to Pointshogger as I would like. Nor matter how much I make on any of my income streams, I never want to just depend on one source of income. It’s just too much risk for me to take.
The same goes for my miles and points portfolio. I have always preached diversifying because we cannot predict what will happen in the future, whether it’s bankruptcies and/or devaluations. Conversely, I want to take advantage of different offers to help boost my account balances quicker or take advantage of different reward redemption promotions.
Disclaimer- I hope that I do not sound insensitive, as not everyone has the ability and resources to diversify their income streams and points portfolio, but if you can do it, I personally highly recommend it to protect against risks.
Compromise – Mergers
Let’s go back to the topic at hand. What will happen with loyalty companies, will they go bankrupt after or during COVID-19? I think that before we get to the point of bankruptcies, we may see mergers happen. We may also see the American Airlines model, where they go under bankruptcy protection and emerged out of it, so that members remain unaffected affected.
I hope, and doubt, that we do not see loyalty companies completely shutting down one day and leaving everyone hanging to dry, employees and customers alike.
Either way, one thing is clear, everyone is fighting for survival, whether it’s the employee at the front desk, or multi-billion dollar corporations. Everyone needs to do what they need to do. What I would say is that be careful not to take things too personally, as business decisions (personally or corporately) need to be made at some point.