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Jet Airways has denied plans to sell its frequent flier programme to Etihad Airways. On Tuesday, Bloomberg reported that Jet Airways may sell 50 percent stake in its frequent flier programme for about USD 150 million (Rs 813 crore). The two airlines are currently negotiating a stake sale agreement under which Etihad will pick up 24 percent stake in Jet Airways.
"Not correct. We are not selling it,'' a senior Jet executive told Business Standard. The airline, however, will outsource the management of its frequent flier porgramme also referred to as loyalty programme to its own subsidiary.
Currently, Jet Airways manages its JetPrivilege frequent flier programme in-house. It also has several tie-ups with hotels, retail and lifestyle brands. Last August the airline's board secured shareholder approval for setting up a marketing service company to manage the loyalty programme. According to an industry source Jet Airways has already set up a subsidiary to manage the programme but this could not be reconfirmed.
Typically, outsourcing involves design, implementation and management of loyalty management programmes. This includes fixing reward points and ‘earn and burn’ programmes, managing records and mailing point statements and details on rewards. Loyalty management companies prepare an activity-based calendar and communication touch points, including special email offers on festivals, for clients.
Industry experts say the move could help Jet Airways clean its balance sheet. Companies that carry out loyalty programmes have to report the fair value of the liability of points to the company in the balance sheet. Outsourcing the process could mean transfer of the points liability to the new company, though it can be retained by an organisation.
Jet Airways did not respond to an email query on the issue.
The transfer of airline of Jet Privilege programme to its subsidiary company will help transform the programme into a larger retail-based coalition loyalty programme to unlock commercial value. The marketing services company would initially be a 100 per cent subsidiary. However, the airline proposes to sell stake in the company later, the airline told share holders last year.
"Valuation will be based on the revenue potential of the loyalty programme. It helps in cash generation as programme partners buy loyalty points upfront but the redemption takes place later. The net earning for the company is the arbitrage it gains in issuance and redemption of points. Recently Jet expanded its programme after it tied up with HDFC Bank and ICICI Bank and this has helped increase its customer base,'' said Brian Almeida, managing director of Direxions Marketing, a leading loyalty management company.
