redemption will be a source of revenue for WJ. By comparison, Air Canada gives its passengers Aeroplan points now, and then owes them a reward in the future. Leveraging into an existing reward base. Reward points are more attractive if you have already collected some. If WJ started an in-house program, their passengers would have to start collecting from zero. A key benefit of Air Miles is that WestJet can immediately benefit from the loyalty of the 7.6 million Canadian households that are already collecting Air Miles points. Using Air Miles to reduce Distribution Costs. WestJet only offers Air Miles for tickets purchased through their website, thereby encouraging passengers to use the least expensive distribution channel. Furthermore, WestJet customers earn Air Miles on the basis of money spent (one mile per $20), rather than on the basis of flight segments or miles flown (as with Aeroplan and SmartRewards). This subtle difference ensures that WestJet is giving the most rewards to passengers who give them the most revenue.
After paying the fee for Air Miles points, WestJet incurs no further costs, including administration costs, nor does it incur any liability for future travel. WestJet is paid by Air Miles for any reward travel that uses WJ.
The Program Costs. WestJet’s Air Miles participation costs it only a fraction of what Aeroplan costs Air Canada. Consider a passenger travelling exclusively between Vancouver and Toronto, paying an average return fare of $1,000 on Air Canada. Depending on the booking class, Air Canada offers about 4,000 Aeroplan points for each flight between these cities. An Aeroplan member can redeem 25,000 points for a free Vancouver - Toronto flight; therefore, the passenger must make 6.25 Vancouver-Toronto return trips to earn a free flight. The payout ratio for Air Canada is 0.16 (4,000 miles / 25,000 miles). By comparison, a WestJet passenger on the same routing will earn one Air Mile for every $20 spent, or 50 Air Miles per $1,000 flight. Depending on the season, between 2,800 and 4,400 Air Miles can be redeemed for a free Vancouver - Toronto flight. Excluding bonus offers or other discounts (which are common in the program), the Air Miles collector must spend between $56,000 and $88,000 to earn their free flight. The payout ratio for WestJet is 0.017 ($1000 free trip / $56,000 in spending). This is roughly one-tenth the payout ratio of Air Canada.
Comparison of WestJet and Air Canada Reward Programs Program Miles needed for YVR-YYZ Point rewards Spending needed for YVR-YYZ Administrative costs Cost of providing reward
Payout ratio: reward trips per paid trip trips needed for reward
Page 5
WestJet
Air Canada
Air Miles
Aeroplan
2,800-4,400
25,000
1 point per $20 of ticket cost
4,000 points for one YVR-YYZ
$56,000
$6,250
None
Considerable costs to track point earning and reward usage
WestJet is paid by Air Miles if reward use is on WestJet
Air Canada must provide the reward flight at Air Canada’s cost – no revenue
0.017 56
0.160 6.25
InterVISTAS Consulting Inc. July 2003