The Loylogic Podcast: airBaltic's Web3 loyalty and engagement strategy

In the latest episode of the Loylogic Podcast, we’re joined by Martin Gauss, CEO of airBaltic, a true pioneer in the airline industry's adoption of Web3 technologies, and Rob Clements, Lead Consultant at Loylogic and Web3 loyalty strategy expert.

Martin's visionary leadership has taken airBaltic to impressive heights, from being the first airline to accept Bitcoin for ticket purchases to launching an NFT series that showcases the beauty of Latvian cities. Now, with the 'Planies' NFT initiative, airBaltic is charting a course toward building a vibrant community around digital assets.

In this episode, which we also discuss here, we explore airBaltic's Web3 Loyalty Strategy, unpack the airline’s pioneering entry into Web3 with NFTs in their airBaltic Club loyalty program and make sense of the strategic use of NFTs in enhancing customer loyalty and engagement, providing insights for brands and program directors interested in digital asset integration.

Click below to listen to the episode in full, or check out the full transcription of the discussion.

(1:31) Looking at your Planie roadmap, it's clear there's an emphasis on building a community around your digital assets. For the benefit of other loyalty program directors, could you please give us a brief background on the Planies project, what you're looking forward to most and the initial goals of the initiative.

Martin Gauss: "The overall goal is to take our existing airBaltic Club loyalty program where you, like in all airlines, collect points when you purchase a ticket that can be redeemed against, or used to reduce the price, of a new ticket, and instead tokenize the whole loyalty program. As a first step, we introduced NFTs, which you can mint/buy in the market. And then, when you own these NFTs, these digital collectibles, there's 10,000 different ones, then join airBaltic club, if you haven't been a Club member, we give 20 points per day without flying. So that's the difference between a passenger who just buys a ticket and is a Club member, he gets the points for flight. If you also buy a ticket now and fly, you get even more points.

"We have 10,000 of these collectibles to see what the NFT can do and how we can integrate it into the loyalty program. And of course, now, after quite a while, what's the behavior of our loyalty club members who are not having an NFT as a collectible and the ones who have one and we already have interesting data, which proves us right? That future blockchain technology is something we will be focusing on and taking the program to the next level with the target at the end of the day having a frequent flyer program, which is completely on the blockchain, and the points are tokens."

(3:31) Thanks for that introduction, Martin. Rob, I'd like to bring you in here given you're Loylogic's resident Web3 expert, a Planie holder yourself and someone who's been keenly watching this project develop. I know you've got questions to ask.

Rob Clements: "The bit I'm curious about is how do we grow the adoption of Web3? My question to Martin is, what sort of strategies and what approaches are you using to help bring customers into this new world?"

Martin: "We have more than a million existing frequent fliers in our club. And of course, we initially approached this group, and we also did some research. I have to say that the knowledge about NFTs in 2021 was very low, it was below 1%. Today it is much higher! We tried to advertise first to the existing club members. But then we used X (formerly Twitter) and Instagram, we used newsletters to our customers who might not be frequent fliers yet, and all kinds of advertising that we had available to us, plus non-paid advertising, all of our communication channels to say that we have an NFT coming. And that's how we approached the public. And it's a global public.

"And now, looking at the success, we still have only 7,500 Planies out there in the market. So, there's still 2,500 to go, which shows you that this new technology, by far, has not been yet accepted. What we do see is a constant increase in pickup, coming from a very, very low base. And that is promising. So, as we go week by week, Web3 and NFTs and the technologies around it are developing. And I'm very sure that next year, we will be minted out as it is called. And we will have all of them placed then with airBaltic club members."

(5:51) Moving on to the impact on customer behavior and loyalty. You discussed there the fact that you are hopefully going to be minted out next year. How will these NFTs allow you to rethink or reshape member engagement in your loyalty program?

Martin: "We see already that Planie holders are much more active than any other loyalty member. There is a Discord Club where they interact with each other. And if I look at the latest statistics, in front of me, I asked airBaltic club, what's the difference between a normal airBaltic club member and one who holds a Planie? And it's pretty amazing. Because a Planie holder takes up to ten flights, while a normal airBaltic club member just above three. Three times as many flights are done by somebody holding a Planie. So, the identification with the loyalty program is, for somebody who holds a digital collectible, completely different. And that is something even when we talk only about 7,500 so far, the statistics show very clearly, a completely different engagement in a positive way with us as an airline, from somebody who holds a digital collectible."

(7:02) Martin, with regards to your roadmap, what are some of the things that you're particularly excited about and things that you think will really make that program even more exciting for members?

Martin: "There are a couple of things which we introduced already, and some still to come. One highlight is that we have a top tier. All airline loyalty programs have a gold card or there's a higher tier you can achieve if you fly more, or you have a certain revenue with that airline. Ours is called VIP, that's the highest tier, and normally you would have to do 60 flights per year to get to such a level. And you would then have the miles for that. If you are buying yourself 25 Planies you get that tier without ever flying. Then on top of that, of course, you are now collecting 25 times the points per day for not flying. And having that tear means you bought yourself the highest tier, which comes in our airline with fast track, business class upgrades, lounge access. So, you can buy the highest tier, but the best thing is you can also sell it again at any time because it's not us, it's the market where you sell the NFT. So, you could sell it in the market. And you would, in an ideal world, return the money you spent.

"Let's assume somebody says, 'I want to use the top tier because I'm using the airline and I want to have fast track and all the other stuff coming with it,' but after a year, that person does not need it anymore, for whatever reason they could sell it again. So that is something we have already.

"We then have different ideas for the future. Where if you hold one of the digital collectibles and you are flying, it becomes more valuable because we're adding to the existing Planie NFT, if somebody uses this for flying, we make it more valuable, which means it would have a higher value in case the owner would sell it one day. And there's a couple of other stuff coming...interaction with the company, so the Planie holder will have different access to company events. In general, the engagement and the communication with the NFT holders is different to what it is with normal airBaltic club members."

(9:44) Sticking to the value side of the discussion, with some US airline loyalty programs valued in the billions, do you see successful NFT projects that manage to build communities around digital assets, actually generating incremental revenues and impacting the overall asset value of these loyalty programs?

Martin: "Definitely, if we look at our program, it's not a secret that if you multiply the Planie price today - if you want to mint one it's around $200 and we've sold 7,500, so we will have more than $1 million in income just from minting out these 10,000 Planies. That is a success, because that is cash to us as an airline. We do not get any money for somebody joining airBaltic club, because that's free, but if you buy yourself an NF T collectible, then we get cash upfront. Of course, the club member then collects points. We said, okay, we give as many points, so that after one year, your initial investment is basically returned in the form of points, and then you have collected a free flight. That was if you look at it for one year. If we now look at the money the club members spend on us and fly on us so much more, we can of course, give in the future also more because for us, it's a positive business case, to first receive the money from selling the NFT and then see the engagement of the customer buying more significant more tickets and spending more money on the airline, then a normal customer will do that."

(10:51) Rob, bringing you in here, given what Martin has just said there, do you think 2024 will be the year programs start looking more closely at Web3 to drive revenue growth in their program?

Rob: "I think they will do. I think 2023 and to some extent 2022, it's really been around testing different models for how to generate revenue. I think to Martin's point, it's been very clear that you can generate profits from direct NFT sales, the minting of those assets. Certainly, there's a lot more creativity around the ways that programs are looking to generate revenues, some of the merchandise that's available for Planies as well. This is one that's probably been very popular within the web2 space, which directly transfers over into the Web3 space.

"There's an idea of unbundling some of the actual rewards that are associated with some of the programs. So, you may see, for example, that you're able to tokenize different elements of status. You could see that maybe the lounge access became its own sort of mini asset, and not necessarily part of just the one overall package of the status program. But then there's plenty of other ideas as well around royalties, whether actually, when that asset gets sold on a secondary market, maybe that royalty revenue stream can be something that can drive the profitability and sustainability of those programs.

"But yeah, I'd say probably the one that I think is emerging, would be around partnerships. So, I think understanding that because you now have this NFT or this asset, actually, you can attract different brand partners that maybe also use that token in ways that wouldn't previously be possible. Maybe that token allows you to get discounts and access to different areas."

(12:37) I guess, Martin, we should bring you in here. As Rob says, one of the emerging commercial use cases for NFT seems to be through partnerships and the ability to enable new brand collaborations. So how are you thinking about new partnership opportunities for the Planies program?

Martin: "Of course, that's a big field, because in general, NFTs, and especially if you look at collections, they offer to their members, for example, you can AirDrop something to people. So, because people have wallets, they have these digital collectibles, it's very easy for you to drop them something. You can bring in a partner, and if you have somebody with an existing NFT, you can drop him from a partner something which has a value. Technically that is done within seconds, it's not difficult to do, you don't go through the old-fashioned way of an email, register, and put your passwords in, you can just drop it in somebody's wallet. With that, a completely new field of co-operation is possible.

"If we look at grocery stores and what you could do here. And of course, we are not disclosing everything we're going to do now, but there's a lot in the pipeline. What we recently did, for example, we opened a disc golf park under the name of airBaltic. We said, if you hold an NFT, you just show that and because of the wallet technology, you play for free. So, it's like an access to a sports club. Because of the technology, it's very simple to just scan the QR code. And that's it. We see many, many use cases for the future.

"Also with other airlines, when other airlines adopt this kind of technology, it will be much easier because the proof on the blockchain that this is the owner or if it has been sold, is much easier than if you would today look at existing loyalty members where many of them are inactive, right. With the NFT, it's very clear even if it's an inactive member, it's very clear which wallet holds such an NFT, and with that the idea of selling or giving something to an individual holder is much easier than it was ever before."

(14:51) Indeed and we'll talk more about the future plans later on. But before we get onto that, I want to focus on some of the technical challenges, certainly around blockchain integration. So, Martin, in integrating NFTs with airBaltic's systems, were there any unexpected technical hurdles that you encountered? And what insights did overcoming these challenges provide?

Martin: "We started a bit earlier with a smaller collection airBaltic cities, 12 different cities. We had a piece of art created and we launched with an interval of one month, between 10 and 100 of them. They still exist. And when we did that, we had to learn everything around creating an NFT, a collection, putting it on a marketplace, writing a contract. And with that knowledge we gained in the beginning of 2021, we then took all the learnings, had the expertise in house, built that in house, to then bring today's Planies collection. The contract, which has to be done for the blockchain, needs to be audited.

"There's a lot of things you need and today, there's many companies offering that direct expertise. When we started, there were not so many. Today, it's easy, you could just Google the internet and you find companies providing these kinds of services, but we developed some of it in house. Today, of course, we are also using experts. If we look at the graphics to generate 10,000, identically, but still very different NFTs. There are also certain technologies you can use today. In our case, it's a cartoon Planie and there's 10,000 different ones, so you cannot hand draw them, right, you have to have a computer program creating them.

"We came across a few challenges, but none of them delayed or stopped the program. We were able to integrate everything we wanted to integrate. What wasn't possible, we will have in the future, because some things you want to do only when you are minted out. As I said, we still have 2,500 and then we will be bringing things because the free trading on the marketplace is something we want to see, when this is happening, what is the value of a Planie in the free market because today, we are basically limiting the value as you can mint yourself one for around $200. Still, once they're all minted out, the market will define the value of such a membership collectible."

(17:22) Rob, what lessons do you think can be drawn for other brands venturing into the digital asset space, particularly in terms of community engagement?

Rob: "So I think scaling from an MVP to a larger program, definitely makes sense. I think there are things that you learn across the way, and you can't help but iterate and improve your delivery as you go through. I think you may also want to consider having a dedicated team, there are some brand new skills, and also some need to respond really fast. So, I think if you have a dedicated and agile team that can be really helpful for you to make progress.

"And maybe one of the key technical challenges that you want to really focus on is how do you connect your wallet, that's your blockchain wallet, to your existing profile service. I think those two elements are really what comes together to drive that personalized experience. And of course, you want to be drawing on your existing data that you have, but also some of those behaviors that you're seeing on the blockchain as well."

(18:16) I guess one of the other challenges all brands face in this space is the regulatory landscape and compliance. So, Martin, navigating that environment for NFTs can be complex. How does airBaltic approach this, especially considering the different markets that you operate in?

Martin: "That was a headache, and it was a very simple headache? What do you do as a company in Europe in the year 2021 when you want to deal with cryptocurrency, like ether or Bitcoin? We had some advantages here as being the first airline in the world accepting cryptocurrencies, Bitcoin, as a form of payment. We had learned how to deal with it, because we still today are not holding on our balance sheet cryptocurrency, we are exchanging it with a payment provider into Euros once we receive the cryptocurrency, to avoid the accounting for having cryptocurrencies on the balance sheet.

"So, the best way to do that is, you are selling crypto, and for euros so you can today do both with providers, and then you don't have to hold these currencies. Holding crypto on the balance sheet as a company today is not in all legislation so easy and would be complicated. But, you should not see this as something or a reason to not do it because there's many ways today, there are providers which let you do that without you holding ever any crypto, which would be held by the by the payment provider and you would only be dealing with euros."

(19:46) Rob, considering some of the regulatory nuances discussed what pre-emptive measures and considerations should programs and brands take into account when building communities around digital assets.

Rob: "Intellectual property is a really interesting area. I think we've seen that with programs generating these unique artworks, sometimes up to 10,000, we have to be clear about who actually owns the artwork. Is it the program? Or is it the individual? And actually, giving that ownership right to the individual can create some interesting new ideas for them as well. So, we've seen with the Bored Apes, who have built their own coffee shops, coffee brands, and also burger chains, that when they have that ownership, they can actually do some interesting things with it.

I think it's also important that these digital assets don't become overly speculated. When those projects get hyped up, members buy in at higher prices, and that kind of becomes a bit more of a risk, and tends to be where the SEC gets a bit involved, and would say that you're not really managing that project in the right way, and is behaving a bit more like a security."

(20:53) So, as promised, we're now going to come back to the future plans for the program and the wider use of NFTs and new technologies at airBaltic. Martin, looking ahead, what are airBaltic's ambitions for evolving the role of NFTs or new technologies to keep your customers engaged?

Martin: "So the first is, of course, to mint out the existing Planies. Then we want to see a trade. If we look today on OpenSea, which is a marketplace for Planies, there is only 53 of the 7,500 listed for sale. That means the holders of the Planies want to stick with them. We want to achieve maximum engagement, which means it would be very difficult to find one to buy, to join. So certain exclusivity for the 10,000. And the benefits are obvious because you get points for not even flying. And when you fly, you get business class upgrades and other stuff.

"For the future, for the existing members of that first NFT program, we have a roadmap where we say and tease already there will be free events where they can join, there is monthly drops of certain things, there's competitions about the Planies.

"Earlier it was mentioned you have the IP rights. If you own one of our Planies you have all IP rights, which means you can take that little cartoon, produce a series of t-shirts, hoodies if you want and sell them. But you could also make it the brand of whatever you set up, whether it's a travel agency or a bar. And that's got to be your logo. So that piece of art that NFT is owned by you with all the IP rights.

"What comes next? Let's say we are there, we are minted out, and Planies will not be traded, other than at a very high price, because there's a lot of exclusivity coming on top of it. We of course want to take the next step and see, can we get all frequent fliers to own an NFT rather than having a frequent flyer card, which means we bring all frequent fliers onto the blockchain. We are working on this. Longer term, we would like to change the points to tokens.

"The issue with tokenization is that there's a value against these points, a monetary value. And there is a lot of technology available today. But we need to be clear in the total, and we're talking double digit millions of points which we are giving to our customers, what that means, from the accrual point of view, if we would have a token, and that would be a token exchangeable against a crypto currency, what that means. So, we're not we're not final on this one, we are still looking into different ways of how to address that.

"First, now, we're looking at how can we get every frequent flyer to own an NFT? Not a Planie, it could just be your frequent flyer card being an NFT. And with that, take more learnings of what we can do with the existing customer base."

(24:00) Are there any new sectors or emerging technologies that Rob you're keeping an eye on?

Rob: "Yeah, so I think we're seeing some advancement in the use cases of blockchains and some new, dedicated blockchains as well. If we take NFT gaming, we're seeing that there are requirements of those assets that are a little bit different to some of the existing tokens. So, you may need faster blockchains capable of holding more data. We also see that tokenization is becoming a really popular topic. And that can mean anything from taking some of the off-chain IP or off-chain memorabilia and putting them on chain, making them tradable. And also, the decomposing of existing assets. As we mentioned with status. Maybe you decouple some of those experiences and build them into their own individual asset classes.

"But one area I think that we haven't seen take off just yet is how do you bring some of these NFTs into a more immersive experience? The Vegas Sphere is a great example of how you feel fully immersed in an experience. But I'm yet to see how NFTs or other digital assets can be involved in this area. It'd be great to see."

(25:12) Excellent, definitely space to watch them. So, to wrap up the conversation today, I just want to capture some of the key thoughts or highlights from you both. Martin let's start with you.

Martin: "Yeah, so for me the highlight of the conversation today is, of course, we now have technology in place, which enables us to add to existing loyalty programs. It's actually pretty easy to implement. And we have then the possibility to expand on it.

“Advantages of having an NFT collection in your loyalty program for me is that you can identify it very clearly, the activity and who it is, much better than on existing databases because the blockchain records every step, what is not on the blockchain hasn't happened, and there are no mistakes happening on the blockchain. So, I think this is a big advantage and the learnings from all of this take us to expanding the whole frequent flyer program onto the blockchain and going into tokenization. A nice upside is that we are making money with that, so already around a million dollars in income, just by having the Planies in the market, and that income is going up, because once a Planie is traded, then there will be royalties coming to us, while of course, also giving to Planies holders a significant amount of money back. So, these are the highlights for me. And I look forward to a future when more and more companies start adopting certain elements of blockchain technology in their loyalty programs."

Rob: "I would echo some of those points. And in particular, I think we've seen the maturation of a lot of those revenue generating opportunities. I think there's been a bit of a buzz and excitement for me whenever I've been minting those assets, but also to know that those experiences are really driving new revenue streams for programs and being able to be considered as growth for the program and development for that program asset. I think that's an area that's really exciting."



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