Is the Singapore Airlines Blockchain Loyalty Program Too Good to be True?

by Tim Sloane 0

The original press release from Singapore Airlines suggests a very simple blockchain implementation, yet this article in e27 suggests that its blockchain-based loyalty program will deliver an incredible range of benefits for customers and the airline:

“The move by Singapore Airlines is a well calculated move that brings many benefits to both its customers and its investors. For consumers, a loyalty program that is based on blockchains could be more valuable than a regular miles rewards programs for several reasons. Normally, rewards programs limit how members can redeem their points, with blackout dates and other limitations. Not only that, loyalty points also tend to depreciate in value over time due to inflation, changes in loyalty programs and even expiration.

Instead, the newly proposed alternative has the potential to address both of these issues. First, they would be flexibly interchangeable with other digital currencies, programs or money. Secondly, the market could decide the value of these tokens, which would create the potential for value appreciation.

On the flipside, the newly proposed alternative has even bigger benefits for the company and its investors. Traditional rewards programs were effectively discount programs that cost companies a lot of money. For example, it would cost Singapore Airlines and extra seat every time a customer decided to redeem his miles for a free flight.

This is a pretty big cost center for Singapore Airlines, which carries over $700 million of deferred revenue due to the outstanding miles waiting to be redeemed.

However, that would no longer be the case with a blockchain based loyalty program. If a customer redeems 50,000 miles for a business class seat, for example, the company could then immediately sell the miles in the market for an equivalent amount of cash. This implies that the traders of Singapore Airlines’s “miles cryptocurrency” would be funding the company’s loyalty program (or a discount marketing campaign), reducing the firm’s financial burden to basically zero.

That’s not all. Combined with the aforementioned benefits of these loyalty tokens, the lure of earning a free “altcoin”, which many view as a form of alternative investments, while shopping at these stores could attract consumer attention and attract more customers to fly with Singapore Airlines.

The launch of this program through an ICO would also mean that Singapore Airlines could raise more capital by either selling its own miles (or tokens) in the market, or by issuing more stocks if and when their stock prices rebound.”

The original press release from Singapore Airlines suggests that this blockchain loyalty program is far less fantastical. For example, it does not indicate that this is an ICO nor does it suggest that the loyalty points can be bought and sold through an exchange. Instead, the goal is to allow customers to burn their loyalty points at retail partner locations. My interpretation is that the points will have a value set by Singapore Airlines and not influenced by trading. As a result, the loyalty program will continue to be a major liability on the Singapore Airlines books and will not be “funding the company’s loyalty program (or a discount marketing campaign), reducing the firm’s financial burden to basically zero.”

So almost everything this article suggests as a benefit actually isn’t. However, if Singapore Airways does create its own open cryptocurrency the benefits described might be possible; but that’s a very large “might” since the value of cryptocurrencies is highly volatile.

Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group

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