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The survival of the airlines depends on frequent flyer programs (marker.medium.com)
135 points by animationwill 25 days ago | hide | past | favorite | 222 comments



For 2.5-3 years I flew continental exclusively, 100s of thousands of miles every year. I was consulting from Houston, TX to NY, CA, AZ, Dallas (sometimes I would fly instead of drive), and CO, after a certain number of miles you basically are auto upgraded to first class every single flight, and then you scale your way up through the membership levels.

I had around 500k unused miles in my account because the last thing I wanted on vacation after flying back and forth each week to different places was to go fly somewhere.

My vacations were usually cross country road trips. My wife and I would rent a nice car, pile the trunk with luggage and just hit the road stopping whenever we wanted. It was the perfect vacation from an overly structured life.

Within a few months of me no longer consulting on the road like that, I was alerted that United was buying Continental, and I'm sure in that press release I didn't read, it probably said something about all my miles, but I didn't pay attention to it until about a year later when United told me my miles were expiring.

So I logged to trade those miles in for a couple tickets to somewhere far far away, and saw my 500k miles from Continental had be devalued to 50k miles at United. Worth at the time 2 domestic round trips if I paid $150 per ticket to redeem them before they expired.

So my miles that used to get me into lounges, and first class upgrades, and basically free flights to almost anywhere in the world got me about a 20% discount on 2 round trip tickets to Denver...

That was the last time I flew United unless it was the cheapest "real" option (I refuse Spirit and Allegiant).


Unused miles are marketed as dollars in a bank. But they're not. They're unsecured claims against the airline.

Worse, they're claims the airline reserves the right to unilaterally devalue. They're deposits in a Venezuelan bank.

As such, the best strategy is eagerly consuming miles. This is admittedly not always easy to do, particularly mileage flights can't be paired with upgrade certificates and do not count towards status. In my experience, frequent fliers with lots of miles and who care about maintaining status are best served by buying others flights with miles.


"deposits in a Venezuelan bank" is elegant simile. I can't wait to use it at work to describe our technical debt!


> to describe our technical debt!

Are you sure? Debt that gets diluted to nothing like those airmiles or deposits in a Venezuelan bank would be best kind of debt.



Unsecured claim I think is the better business analogy ...


Travel is so valuable to perspective, too. I know some people on the woke spectrum who would be a lot less miserable if they traveled even to other U.S. states, but the up-front cost is a barrier. Share your miles, make the world a better place!

The U.S. should invest in sending youth abroad (not excluding domestically). The U.S. should also invest in sending entrepreneurs abroad. Thanks for coming to my two-cent talk.


All in all, one of the silver linings of the covid hysteria is the destruction of airlines. I'm someone who has probably flown very close to 1M miles in my life. Spent about 15 years on planes weekly.

Flying in my lifetime has moved from being something 'fun and exclusive' to 'taking the bus with strip searches'.

After 911 none of the airlines really pushed back on the Orwellian security theater its customers were forced thru...I understand it, perhaps it just wasn't worth the effort, perhaps enough of their customers wanted more searches.

Around 8 years ago, I moved to trying to do online meetings when possible and agreeing to drive for anything less than 8 hours or so. Its been a welcome upgrade in life. As much of a pain as driving 6 hours for meeting is, you strangely feel less stressed out than dealing with the insanity of airports and cattle-cars.


Customers want(ed) it. Remember when the TSA was going to roll back the ban on pocket knives[0] and then due to feedback from a bunch of Karens they backed off and kept the ban in place[1]? I think more rollbacks would have been on offer had that happened but now the safety/nerf people endorse it all. There's no going back at this point, I'm afraid.

[0] https://www.cnn.com/2013/03/05/travel/tsa-carry-on-changes/i...

[1] https://travelinglight.com/can-you-bring-a-knife-in-checked-...


Wow, 1M miles... I don't think I could have handled that. Continental gave bonus miles which is the only reason I had 500k, but I think I made it to 150k actual miles.

The bonuses were self propagating, I would get a bonus miles because I was upgraded for free to first class because I had so many miles.

That is probably why they were devalued so hard when United bought them.


Having friends that work for a major airline I initially reacted with horror at your opening statement. But this, so much this:

“ Flying in my lifetime has moved from being something 'fun and exclusive' to 'taking the bus with strip searches'.”

I’m the same way now too. I will drive up to 8 hours to avoid flying and typically just don’t make the longer flights unless absolutely necessary.


I never flew before TSA, or if I did I don’t really remember because I was only a few years old. But at one point I was flying commercial a lot for work and it became a real hassle. I don’t mind it once in a while, and I’m pretty good at my personal procedure for zipping through the security line, but it’s an emotional drain, all the security and getting to the airport so early. What a drag, I am the same way in that I would prefer a long drive over flying commercial.

In recent years I’ve been lucky enough to largely fly private and it feels like it must have felt pre 9/11, at least on the security and not having to arrive hours early fronts.


I've done all three, and flying private is still far different than what it was like pre-9/11.

Back in the 90s, you still had to go through security checkpoints, you just didn't need to take anything off, open anything up, or be touched/prodded/scanned except for maybe a metal detector.

You still had to show up early, because they still checked people in manually and thus you traded long security lines for long check-in lines. They also were much worse about losing luggage back then, and if it was lost, if was gone for good usually.

Private is another ballgame entirely. If you can afford it (or someone else is paying), and you don't mind the inflated carbon footprint, there's really no reason not to choose it.


Interested in your story about being in your early 20s and lucky enough to "largely fly private"


Not sure what they were referring to, but there are airlines like JSX [1] which are sort of a "semi-private" experience. My experience is limited, but flying JSX was a breath of fresh air. Security was a questionnaire and a short bag search (no scanner, no TSA, no XRay) and took about 30 seconds. Staff hand-wrote my seat/flight info on a paper ticket. Went from arrival to seated in plane in ~15 minutes more than once. Plus unlimited drinks onboard.

[1] https://www.jsx.com/home/search


I agree completely. Now that I have a Tesla and I actually like driving again, I am willing to drive upwards of 12 hours to avoid getting on a flight.

If it’s too far to drive I have to fly first class. The security is still a pain in the ass but at least you don’t have to be stuffed in coach like cattle, people lining up to use the bathroom while farting 2 inches from your face. If that ticket is too expensive then wherever I’m going is not worth the trouble.

This was my opinion long before covid and needless to say I haven’t warmed up to flying in the last 6 months.


I had been flying a lot for business that last few year. With TSA precheck and lounge access I didn't find it to be so bad.


Completely disbanding the TSA would be optimal, but PreCheck + Clear is pragmatically the way to go. The line experience goes back to a pre-9/11 level of sanity.


Pre-check plus clear is a shakedown. And it exposes how the TSA bullshit is just a grift.


Same experience here, it's been quite pleasant to roll through security and then kick back in a lounge before my flights. I would have thought it's the same for most frequent travelers.


No it’s not, because the alternative is to sleep 2 more hours or extending your vacation for 2 more hours!


> That was the last time I flew United unless it was the cheapest "real" option (I refuse Spirit and Allegiant).

Isn't that what most people pick anyways?


I think people optimize for value which is a combination of cost, time and convenience. I won't save 50$ or even 100$ if it means I have a connecting flight or spend more time traveling. My goal is to get somewhere as convenientlt as possible balanced with cost..


For the unaware: what's wrong with flying Spirit?


They're cheap, but they charge for everything, including water, snacks, and carry on items that don't fit underneath the seat in front of you. They also apparently don't have priority for gates at airports, as I've had to wait for over half an hour for a gate to clear after landing on a OAK-LAS flight (a <90 minute flight).

This may have changed, but they also didn't do precheck a few years ago.

Oh, and expect to hear about their credit card offer during the flight. You can get a spirit points voucher for applying today, and can leave the application with your flight attendant as you leave the plane.

That being said, they do get you from point A to B relatively cheaply, as long as you're willing to live with the constraints of a low cost carrier.


Spirit will often only have a flight to/from a particular destination every few days. They used to have a fair amount of cancellations/delays that would cause you to be stranded.

I have never flown Spirit, and I will continue to avoid it in the future because the low fares aren't enough to justify potentially getting stranded and having to book last minute at extreme cost on a competing airline. If your plans are flexible and you just want to travel for the lowest amount possible, it's probably a good option to consider.


I have never flown with them but did work for a startup airline for a few years. Reputation is low-cost, no-frills airline. I believe you only get a personal carry-on (under seat) free. Everything else you need to pay for.

I've heard compare to ryan air in europe


It's basically Ryanair but 2-3 times more expensive for comparable distances and terrible reliability.

I have only flown them once (well twice, round trip to Vegas for a show and back). It cost $400 to go from Houston to Las Vegas round trip, which was only 30% cheaper than the next option... which i should have paid for.

I got on the plane about 10 minutes after take off was supposed to happen, the pilot and co-pilot were huddled talking very fast and low, which piqued my suspission. After 30 minutes of not moving back, the pilot let us know that we had to get off and go to another gate to another aircraft, and that this one had a light that was concerning them.

So then, after everyone had finally boarded the new plane, we took off about 2 hours late. As we got to Vegas, and the flaps were down and we were coming in on final, the flaps went back up, the pilot sped up and we circled the airport for around 45 minutes, and apparently the landing gear was stuck.

I guess they eventually got it unstuck, because we landed. But 2 planes in a row that were screwed up was too much for me. Even after an uneventful flight back home that same night, I swore them off forever.


Short term management greed has destroyed long term shareholder value.


It's more than that, honestly, I feel Frequent Flyer programs are being misconstrued as an asset, when in fact for exit strategies they are probably a liability.

I don't have any real data, but anecdotally, the only people I've known who are truly loyal to a loyalty program are the hyper-milers, and they accumulate so many miles and just sit on them.

United has since changed their program (of which I'm still a member, but only use begrudgingly), and you wont lose your miles so long as you remain active on the program. I'm sure there are more caveats, but I don't pay attention to it anymore.


That article is talking about valuation rather than revenue or profits.

You can have a big valuation without profits

https://www.marketwatch.com/story/palantir-headed-for-22-bil...

"Frequent flyer" programs started as an under-the-table way to bribe corporate flyers to take one airline over another: that is, you tell your employer you want to fly Delta, your employer books you on Delta, you get a kickback.

If some people who pay for their own flights feel some loyalty that's one thing, but the programs have mutated into financial skullduggery, some version of "borrowing from Peter to pay Paul"

https://www.forbes.com/sites/advisor/2020/07/15/how-airlines...


> "Frequent flyer" programs started as an under-the-table way to bribe corporate flyers to take one airline over another: that is, you tell your employer you want to fly Delta, your employer books you on Delta, you get a kickback.

This is a little bit more complicated.

Part of the reason that airlines used to award miles based on distance flown and not on how much you spend is that they weren't trying to incentivize business travelers.

For most business travelers, the company usually has a corporate contract requiring employees (or strongly incentivizing them) to fly on a given carrier. Otherwise, business travelers will book according to schedule (non-stop vs connecting, timing). Business travelers are also often "hub captives" -- if you're in Atlanta, you're taking Delta. As such, they often don't have discretion, so it doesn't make sense to pay incentives to a group who has no choice but to use your product.

For paid luxury travelers, they're going to be picking based on product.

The expensive fare flyers aren't going to be incentivized to the same extent as the low fares flyers by frequent flier programs. These high fare flyers pretty much pay for the flight.

So what was the deal with frequent flier programs? Once the flight is paid for, any incremental passenger you can get into the back of the bus is pure profit, and they're the most likely to engage with your ancillary products like paying to check a bag, buying food, and buying alcohol.

Historically, the idea was to convince a leisure traveler to take a 1-stop American flight instead of the non-stop on United because of the AAdvantage credit card.

Prior to the pandemic, however, load factors were so high, airlines found they didn't need to incentivize people to fly, so they decimated the value of their programs, and started awarding miles based on amount spent, and capped it per ticket. This was a large net reduction in amount of miles awarded.


I'm not so sure I agree with the analysis. If you want to pack an additional leisure traveller onto your 1-stop, make it $10, maybe $20, cheaper and "mission accomplished".

If you want to pull an additional business traveller onto your flight, discounting by a tiny amount doesn't help you much (if at all), but giving them something that they can personally use later does. Business travelers also have more chances per year where you can influence their decision. Getting 10 or 20 chances to land an additional short-notice and/or higher-cabin fare seems like where the money is.

My company does recommend one particular carrier/group, but I have freedom to book other carriers without any fuss or extra effort on my part if the itinerary makes more sense for my trip. I do try to fly our preferred carrier, mostly because of the frequent upgrades I get and much less because of frequent flier miles. (Spouse and I use airlines once, maybe twice, per year for personal travel, so just accumulate miles which will be devalued to nearly worthless by the time we retire and travel more for leisure on airlines.)


Being able to book my own flights was my favourite perk at the last travel-heavy job I had. I’d get the credit card points on booking the flight (that I would later expense), and the miles from the flight. I’d get enough points for a couple of free (and upgraded) international flights per year.

The loyalty program didn’t really work on me though, because I’d fly enough that I managed to get into the top loyalty category on each of the major programs.


> I'm not so sure I agree with the analysis. If you want to pack an additional leisure traveller onto your 1-stop, make it $10, maybe $20, cheaper and "mission accomplished".

This has to do with segmentation. Not all business travelers are allowed to fly in a premium cabin, and reducing all economy tickets to $10 wouldn't allow them to obtain maximum revenue.

This is why historically airlines have priced flights cheaper earlier on (catering to leisure travelers) and raised the prices as the departure time approaches (catering to business travelers). They literally do make flights $10-20 in advance, in an attempt to snag more leisure travelers. Segmentation has gotten a lot more advanced, since, too.

I agree there are some cases where companies allow free choice, although any midsize and large company I've worked at, I've been pretty strongly guided towards the companies' contracted airline -- if not mandated. For many business travelers, they're not the ones making the decision. These earning rate decisions are made for everyone, not for individuals or groups.


Many business travelers are not allowed to buy a ticket for a premium cabin, but most all are allowed to fly in a premium cabin. Thus, all of the rules for upgrades in frequent flyer programs, including rules about which coded-as-main-cabin tickets are upgradeable and in what order.

Even without being the very top tier of frequent flier, I am upgraded on around half of my domestic flights on our preferred carrier.


Yep, but that's not the part of the loyalty program I'm referring to.

I'm referring to earning structure around redeemable miles.

You're referring to rewarding frequent travelers, that's the status program. The status program has also been devalued tremendously as load factors go up, since there's no need to incentivize people to fly at all.

> "Even without being the very top tier of frequent flier, I am upgraded on around half of my domestic flights on our preferred carrier."

That depends highly on which routes, which time of day you fly, and which carrier. As a top-tier Executive Platinum on American, pre-pandemic I wouldn't ever count on getting upgraded on SFO-DFW. That's a hub-to-focus-city route with gobs of money on either side. I had like a 33% success rate. On the other hand, DFW-YUL, you can bet your life on it. An AA Silver wouldn't clear an upgrade on either, though.


Yes, on the airborne bus routes, upgrades are harder to come by. I would sometimes even take an earlier/later flight to maximize upgrades. (If I'm already away from the family for the day, I'd much rather a 0600 first-class seat than an 0730 economy. Same with 2030 departure over an 1830 on the way home. Either way, I arrive after the kids are in bed; I might as well do some emailing and work catchup from the lounge.)

I was really happy when the airlines started holding the exit row seats for their frequent fliers. I could book an exit row and chance an upgrade to first. If the exit row ACDF seats were all booked at ticketing, that meant my upgrade chances were also lower.


> I was really happy when the airlines started holding the exit row seats for their frequent fliers. I could book an exit row and chance an upgrade to first. If the exit row ACDF seats were all booked at ticketing, that meant my upgrade chances were also lower.

As a very tall person, I can assure you, I agree :)


I think sokoloff meant (worded in a slightly ambiguous way) they could reduce economy tickets by $10-20, not reduce them to $10-20


Spirit will charge you $29 one way from LAS-FLL. $26 from OAK-LAS. That's taxes included :)


Yeah, but then you have to fly on Spirit... ;)

For the record, I did mean to make it $X-10 or $X-20, not to make it $10 or $20 in total, but I agree that it was awkwardly worded.


Big Front Seat is the best deal in US aviation. It's literally just a domestic first seat. No service, no food, no drinks. So basically the same as a domestic first class seat on a legacy airline. The only difference is it's a $20-100 add-on instead of a 2X-10X fare delta :) consider it next time! Spirit sucks in general, sure, but BFS is a hell of a deal.

I think your statement has merit whichever way it was interpreted, fwiw.


I've not worked anywhere where I was "strongly incentivized" to fly a specific airline.

Also, your usage of "paid luxury travelers" is suspicious. I get that traveling on vacation is a luxury, but I feel like it implies they pay more.

Businesses may get discounts for picking an airline, but what's the mix of business-class seats sold to business travelers vs personal travelers? I think it's the corporate travel that props up the whole system, even if buying at a discount.


> Also, your usage of "paid luxury travelers" is suspicious. I get that traveling on vacation is a luxury, but I feel like it implies they pay more.

To be clear, by "paid luxury traveler" I was referring to folks who pay for business or (proper) first-class when they travel. The well-to-do retiree or executive type. The people who pay for Lufthansa First.


airlines award varying miles multiplier based on the seat class.

its just a gimmick to call their loyalty points "miles", they can call it "tokens" with same success, as they are have no relation to miles whatsoever.


Broadly speaking the term "miles" was historically due to their correlation with earning rates not redemption rates. You earned 1 base mile per mile flown (conditions apply) based on the great circle distance in statute miles from your origin to your destination (http://gcmap.com).

When that correlation doesn't exist they are usually referred to as "points" instead, as in hotel programs.

So airlines have miles, hotels have points.


There's more to it than that: Loyalty systems do bring in a lot of profit for most airlines. SWA for example made 42% of it's 2017 EBIT on Loyalty.

There is a certain scam in the fact that miles are a "kickback" for employees, but also keep in mind that third parties will pay vast amounts of money to participate in the miles ecosystem: Every co-branded credit card that is printed is 10-15 USD straight from the bank to the airline, without anybody having booked a flight yet..


It's not $10-15 for any premium co-brand card.

Back a few years ago the rough book value of a mile was 6/10th of a cent per point. Credit card sign-up bonuses are easily in the 25-100,000 point range, so every premium co-brand card pays $150-600 to the airline.

Further, breakage is high in the airline loyalty space, something around 20-30% if I recall correctly.


The airlines have successfully squeezed banks a good deal more than that! At this point all the US-domestic carriers are charging their bank partners over 1 US cent per point.

Source: Have negotiated these deals with airlines


These numbers are proprietary so it's really hard to find. Happy to have a better ball-park! Thanks!


> At this point all the US-domestic carriers are charging their bank partners over 1 US cent per point.

I had the impression that the value of an airline mile to the consumer was 1 cent. That would make paying more than a cent nonsensical.

Did airline miles suddenly become a lot more valuable?


Yes, to banks. Banks pay airlines a premium for the opportunity to market and get customers through FF programs.


How can offering the customer 1 cent be worth more than 1 cent to the bank? They can just give you ordinary cash back.


Giving cash back creates wrong incentives and you sign up different audience than if you offer airline miles. Airline miles are in demand for people who travel often (affluent) in comparison to people who wants to get $150 after signing up for cc (poor).

That said there are offers to get cash for signing up. Some time ago First Republic Bank was giving $300 for cc sign up for Google employees (aka rich people).


Airline miles are cash back. They're just a larger hassle under a different name.


I guess kickback is the proper term?


Rebate is the term haha


Points are different in a few ways.

(1) They work because the bank and airline partners are able to offer you something of high perceived value (a vacation, even in business or first class) for very low marginal cost.

(2) This means that (in my most recent redemption) the bank pays the airline $462 in rewards, that cost the airline $400 to deliver, and provides to you with $2500 in value.

(3) Points are great because people don't consider them "cash" but instead something they don't mind parting with. More of a rebate.

So the economics of it are that the bank collects $0.018 in interchange for every dollar spent on a card, converts that to a point that costs them $0.007 to deliver, which the airline services for $0.006 by disposing of inventory that would otherwise go unsold.

The airline wins again because they've created a secondary market for unsold inventory that they can sell to leisure travelers without undercutting the amount they can sell the same inventory for to business travelers.

It's a very nuanced and successful way of motivating people who have a choice to make the choice you want them to make.

On the other hand, $0.01 in cash back costs the bank $0.01, and then if you redeem for travel the airline gets paid $0.01, and you get $0.01 in value.


But conversely the value of points have to be discounted by the risk of loss of utility or future devaluation.

When the credit card says $200 in cash-back rewards, there's a lot less room to play games. 20,000 miles might buy a ticket today, but only an upgrade tomorrow. And that even assumes the ticket you wanted was available through the program you decided to back.


It’s 1 cent if you’re lucky. I’d probably value an airline mile (or hotel point) at $0.003 or less, based on my usage patterns and comparing the USD price versus the point/mile price.


It varies a lot depending on the program. $0.003 for you as a customer is way too low, since you can redeem them for actual goods on their websites for usually $0.007. That's still way too low if you actually want to fly anywhere. Benchmark value of points when redeeming for economy is between $0.01 and $0.015. When redeeming for business its $0.03-0.06. When redeeming for first, its $0.10-$0.20

In general rule of thumb is Alaska miles are worth $0.02, American are worth $0.013, United are worth around $0.013, Delta are worth $0.01 (since you can redeem them for $0.01 as cash towards paid tickets if you have one of their credit cards).

Hotel points are different, Hilton, IHG and Club Carlson are around $0.005, Marriott are worth around $0.009, and Hyatt are worth $0.016.

But I digress, that's value to the end user. We're debating what the credit card company pays the airline for it.


I’ve searched United flights for many years, and have never found one at over $0.01. Plus the usual taxes and fees, end it’s worth less.

If a flight is $500, the miles are always >= 50,000, at least on United.

Hilton’s points are worth far below $0.01. I don’t know what they go buy, but it’s usually $0.005 at best, if not worse whenever I have searched it.


One of the few good things about redeeming Hilton and Marriott hotel points is the 5th night free benefit [1][2], which bumps the value of one's hotel points by around 20–25% in some cases.

[1] https://hiltonhonors3.hilton.com/en/promotions/5th-night-fre...

[2] https://www.marriott.com/loyalty/redeem/hotels/free-nights.m...


If you're booking economy flights, you're probably not getting good value.

International business and first class flights are often 2x or 3x the number of miles, but usually 5x to 15x the number of dollars.


Indeed Hilton is worth about $0.005 as I mentioned.

United, however, are worth substantially more. I just redeemed 77K for a one-way business class flight from SFO to IST non-stop on Turkish, which was priced at $2000 on a half-round-trip basis ($0.025).

It's actually quite easy to get $0.015 on United when redeeming for economy class. Maybe Pandemic pricing is messing with the numbers, but this shouldn't be too challenging most of the time. They don't impose fuel surcharges which helps a lot.


And better yet, should the airline be in trouble it will be able to void or devalue unspent points. It is like a debt you might be able to write off in the future so there's got to be a present value of that which is baked into the valuation.


Sorry I wasn't clear. Indeed the banks buy miles from the loyalty system. But those will usually be spent later, so it's not a pure profit. Whereas there is also a flat fee paid immediately as a "printing right"


What does breakage mean in this context?


The miles expire unused.


Cost of customer acquisition in the financial space is enormous, so no surprise there.


At least on an accounting basis though, airlines do actually make remarkable profits on their frequent flyer programs. In 2015 or so United disclosed their FFP business was earning ~67% margins, as against ~2% for the rest of the airline. I don't think they have disclosed more recent numbers, but margins are probably higher now.

That said, these profits are in part an accounting artifact. This is because up until very recently airline accounting rules only required carriers to realize the marginal cost of carrying a passenger when frequent flyer miles were redeemed. Since the marginal cost of a passenger is only ~$20 or so, this yields great margins.

These days however the overwhelming majority of airline miles are awarded for credit card spending rather than actually flying, though. As your second article notes, for United the split is 70/30 or so.


Does that mean they would make more money if their planes were filled entirely with frequent flyers, and not with regular passengers? I don't see how that makes sense. Flying the planes still costs the same. I doubt those frequent flyers pay significantly more (isn't the whole point that they get a discount?), so it's weird that they make so much more profit there.

I feel like one of those numbers includes all the costs while the other doesn't.


Your read is exactly correct - the frequent flyer costs aren't 'fully loaded', and accounting rules in the US have changed to more fully account for these costs.

That said, the logic behind structuring the rules this way isn't completely crazy. Essentially, award seats are intended to be seats that the airline cannot sell to paying passengers. Since those seats would otherwise earn the airline nothing, accounting for them on a strictly 'found-money' basis makes some sense.

This sometimes creates amusing situations when new loyalty program managers look at their margins and conclude massive sales make sense. For one example, see below - Garuda selling ~$20,000 first class tickets for ~$200 worth of points. On an internal accounting basis, this was still profitable for the program!

https://onemileatatime.com/garuda-indonesia-first-class-awar...


Agree ... Over the years there have been numerous articles about how these miles have gotten away from better business focus.

A side comment somewhat in humor is the killer app that's used to explain rete rules engines which is frequent fly programs: how in heck can you compute what a customer is due with all thr crazy rules. This is akin to fica scores for loans and credit cards.


The goal of award programs is not to lure business travelers into a specific airline (many times they cannot do this), but to incentivize them to travel more. The highest members of the club are business travelers who fly a lot and spend a lot of money in the airline, while the newcomers are incentivized to do the same to get the status. It is gamification of traveling.


The interesting thing is that Delta (and others) have been devaluing their loyalty points for years, to the point that a few years ago frequent flyers started referring to Delta points as "SkyPesos" instead of "SkyMiles"


It's a beautiful scam. They convince consumers to turn their cash into an in-house quasi-currency that they can devalue whenever they want. The only limits are consumer frustration.


Customers don’t have an option of a cheaper price to not earn points, so customers aren’t being convinced of anything.


> Customers don’t have an option of a cheaper price to not earn points, so customers aren’t being convinced of anything.

Nonsense - buy a cheaper, non-point earning ticket if you don't want the points.


And lose out on things such as a refund if you need to cancel, etc.


Yes, but this should be an option all the time. Not every country has 100 airports.


> Yes, but this should be an option all the time.

I think it is an option almost all the time? It is when I look to buy tickets.

> Not every country has 100 airports.

Sorry I've got absolutely no idea what this has to do with it?

I said 'buy a cheaper ticket', not 'fly from a different airport'.


Depending on circumstances, customers may be able to use a cheaper ticket on another flight with the same airline, to use a different airline, another mode of transportation, or to forgo the trip.


The article says a lot of the profitability comes from credit cards that give you frequent flyer miles.

Customers are being convinced to get a frequent-flyer-miles card rather than, say, a cash-back card.


I’ve seen one place offer a lower price for no points: Apa Hotel in Japan, IIRC. Since I don’t go to Iapan often enough to worry about points, it was a no brainer.


Yup, and you're only limited to using them for that one airline. Find a route where another airline is cheaper? Have fun paying real cash for that.

That's why I opted out of the "points" bullshit and went with a good cash-back card instead.


The only people that I know that actually receive real value for their "points" are: 1. Business travelers who fly internationally or coast-to-coast regularly 2. Business owners who regularly put very large business purchases on their cards, especially AMEX cards that don't have a real limit. When you put $50k/mo on your Delta AMEX, you'll probably never have to pay for a personal flight.


I don't fit into any of those categories, but I feel I received real value. I had an AMEX card - there was an annual fee, but it also came with a 'free' return domestic flight. Since I went to visit my parents (interstate) at least once a year, that 'free' flight meant my card was effectively 'fee-free'.

With a reasonably generous point scheme - and more importantly, one I could transfer to about 8 different airlines, I just accumulated points for a decade.

In 2015, I cashed in 2/3 of my points balance for a round-the-world trip on Singapore Airlines in Suite Class (where you get your own cabin).

I wasn't getting free flights each year like a business traveller, but for an effectively cost-neutral card that didn't require me to change my spending habits, I feel like a Suite Class RTW flight every 6-7 years is a decent reward.


Don't you have to pay tax on the kickback?


Credit card rewards on spend (points, miles, cashback) are usually viewed as rebates/discounts by tax authorities, so they usually aren't taxed.


Accumulating value in a vague currency/credit system that some freshly-minted airline MBA dingdong can reset at any point in order to make the quarter's financial report look a bit rosier, over and over again--what could go wrong?


Could have gone SkyKm or SkyInches


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How is it xenophobic? The point being conveyed is that the points are worthless. Pesos (from various countries) tend to be significantly less valuable than USD. You can probably do the same with Rubles, but I'm guessing that Americans are more familiar with pesos.


Peso does seem to be a decent option. Folks might no longer be familiar with the Italian lira, and "Sky Zimbabwean Dollar" or "Sky Drachmae" don't quite roll off the tongue.


Yes, the dollar sign literally means peso (aka "pieces of silver") -- "PS" where "P" lost its curved part, and only vertical bar left, written on top of "S".


Peso means "weight" in Spanish, a peso is a weight of whatever metal was used as currency at the location.


Thanks, I stand corrected


In recent history, the devaluation of the peso was a big event. I remember it from my childhood, so I imagine it was pretty well known if even teenagers knew about it.

https://en.wikipedia.org/wiki/Mexican_peso_crisis


I don't think it's meant to be xenophobic. I think, in USA at least, a peso is a better comparison because a) it's not worth much, but more importantly, b) you can't use it to buy anything.

SkyPennies would be more accurate since that's about what they are worth, but to me implies it has some monetary cash out value.

Just my .02


Maybe Naira (nigerian currency) would be a better fit.


If you've flown American Airlines in the last few years you already know this. They hawk their credit cards so heavily on the flights that I almost feel bad for the flight attendants. Back when I was flying regularly (3-5x/week) it was almost funny how every flight I was on was "selected" for a "very special offer" available for a "limited time".


The flight attendants on many airlines make a commission for credit card signups, so many (most?) of the ones I’ve worked with don’t mind hawking them.


For sure.

I was flying weekly as a consultant to and from an AA hub last year. I was hired down here this year, so no more corporate expensed AAdvantage points for me. I just got my AAdvantage card so I can earn airline points when I buy groceries or whatever.

Sometimes I need to travel, but if I had enough points for a roundtrip or two, I might take a weekend and fly to go see someone some weekend - when things get back to normal any how. If I had to buy a roundtrip plane ticket for over $300, I might think twice about it, even though I can afford $300. If I get the flight on points, I might just go for a weekend getaway. My card has no annual fee, and I don't plan on carrying anything other than a small balance, if any, so it all works out for me as far as I can see.


They make one announcement after takeoff, and one more before landing to collect the filled-out applications. They do make like $100-150 per approved application.


> They do make like $100-150 per approved application.

Whaaat? How on earth can a credit card sign up be worth that much?


A (card-)lifetime of annual fees, merchant fees, and potential interest surely goes over $150 quickly.



>They hawk their credit cards so heavily on the flights that I almost feel bad for the flight attendants.

This really should be illegal along with advertisements on every screen on the aircraft that you can't turn off.

edit: either i got a downvote or the hackernews bot decided my discussions aren't up to snuff. more gaslighting from the mods.


Downvotes happen. Complaining about downvotes causes more downvotes to happen. There's a reason the guidelines say "don't comment about voting".


[flagged]


whatever is happening to your posts, downvotes, rate limiting, etc... seems to be working perfectly and as intended.


[flagged]


There is a way to talk to the moderators, and whining in a comment isn't it. Threatening a cyber attack in response to a downvote probably isn't the right way to talk to the moderators either.

If someone has a problem with the moderation on this site, email the moderators. I've done so many times and they have been very honest and responsive. If you've reached out to them and you don't feel they're being honest and responsive, no one is forcing you to use this site. Sometimes I get fed up with the people and/or mods too (I don't always 100% agree with their actions including actions taken against me) and I take a break for a while, go visit other sites and engage in other communities.

What I don't do is threaten a cyber attack on an open-registration Internet forum because someone clicked a button next to my comment.


To be clear, my post is not threatening, encouraging, or advocating for a cyber attack. The reality is that disgruntled members of a community are known to sometimes commit retaliatory cyber attacks. This is a risk that any website with technical proficient members has to deal with.


I do not disagree with you in general, though in a list of "Things airlines do that should be illegal", I'm not even sure this would be in the top 20.


What's your list?

Actively harassing people trapped in a crowded room with no way to exit is pretty serious.

If you did what the airline does with the ads, you'd be kicked off the plane and arrested.


In general, I would start with addressing things they are allowed to get away with in terms of (re)scheduling flights, not updating passengers with relevant info in a timely manner, holding flights/passengers, and refunds/cancellations.

The in-flight ads are mostly avoidable if I put on headphones and/or just close my eyes and take a nap. As long as the plane is in the air, on schedule, and moving in the right direction, I am getting the core product I paid for.


> Actively harassing people trapped in a crowded room with no way to exit is pretty serious

I fly Delta. I have never been harassed about their cards. I pay a premium to fly Delta on most routes. But it's partly to avoid this sort of crap. When I was in college and early adulthood, on the other hand, I'd gladly take some marketing in exchange for another twenty bucks in my pocket.

Banning that subsidy seems like a poor use of legislative power.


> If you did what the airline does with the ads, you'd be kicked off the plane and arrested.

Well of course you would, you don't own the plane.


It's definitely irritating, but on what legal grounds should this be declared illegal?


Harrassing people who are trapped in the plane and can't escape or opt out.


Yu certainly manage to paint American airlines as dystopian hellholes. My limited experience with airtravel is that they explain safety procedures and regular bring you something to eat and drink, and otherwise leave to alone to sleep, read or watch some in-flight movie on a tiny screen.


Nobody's "trapped" on a plane. They're there voluntarily.


You can opt out by not flying on that airline.


Do they make sufficiently clear before you book what you're opting in to?


Bring headphones. That way your life isn't at the mercy of scanning a bunch of fine print documentation for what might or might not be there before you take actions.


I don't understand the question. Just make it illegal. That's the legal grounds.

Are you asking for a court precedent or something? IANAL. I assure you that if there was a federal popular vote question for "should airlines be able to advertise to you on the airplane where you can't turn them off after you paids 100s of dollars for a ticket?" there would be a unanimous NO.


If there was a federal popular vote, the airlines would spend millions and millions on ads, op-ed pieces, and social media engagement farms to try to get people to vote in their favor. Given the current climate, I think they'd have a pretty good chance of being successful.


> I don't understand the question. Just make it illegal. That's the legal grounds.

Are there other types of private speech you would like to make illegal?


I would like to make it illegal to clutter up HN threads with off topic comments.


Apologies if I did not leave the dots close enough that it seemed off-topic. In the US (which regulates all the air carriers mentioned by name in the article), the First Amendment presents a high hurdle to government prohibition of speech. In a subthread on the legal standing for a proposed ban on advertising/solicitation in flight, that hurdle seems significant and certainly relevant to me.


Yes, let's just do the whole advertising industry. If you pay for a service, it is illegal to solicit advertisements to your customers.


> Yes, let's just do the whole advertising industry. If you pay for a service, it is illegal to solicit advertisements to your customers.

Or perhaps require opt-in be offered (like the discount Kindle with ads on screen while sleeping).


The ticket buying public has over the decades indicated that the only thing they really care about is ticket price and little else.

I am sure they would be very grateful to you for making advertising illegal on flights and therefore their tickets more expensive.


> over the decades indicated that the only thing they really care about is ticket price

No, this is an incorrect inference. A better explanation is that people have little money to spend, so in this situation they prefer to get something rather than no travel. Your explanation would be valid only if everyone had enough money to buy expensive tickets and always preferred to buy the cheap ones instead.

It is also funny that for affluent consumers they reach the conclusion that such consumers "prefer" comfort, when in fact they're not different from anyone else in this matter, they just have more money to pay for it.


I disagree and the reason why is because before flight aggregators there were more airlines and many of them offered a better "coach" experience like 2-across leather seating, better food, etc. And their prices were not much more expensive than the more cramped, economy airlines. Like $15-$30 per seat more expensive in many instances.

They did pretty good business because many fights were booked through travel agents who would be able to explain that a flight that costs a bit more was worth it.

When flight aggregators arrived on the scene, people (casual fliers in particular) would almost without exception book the cheapest flight that was reasonably within their time preferences and without extra stops, if possible. Because there was no one to talk you into the better value of other airlines it became a race to the bottom. The edge these airlines had in selling comfort became obsolete and they mainly sold out to larger carriers during the airline consolidation of the early 2000's.


But here the explanation is in economies of scale, not just consumer behavior. Lower cost flights are also cheaper to run, so airlines make more profit on scale, which drove out other operators. As a result, from the point of view of consumers these cheap flights give more flexible options in terms of schedule. This is not different from other industries, where cheaper products became the norm because the companies making them were so much more profitable on scale.


Air travel isn't an experience for most people. It's a necessary evil to get you from A to B. Most people may as well board a plane and go into some kind of hibernation for however long the flight is, hence why the only thing that matters to them is cost. Save money on the flight so you can spend it at your destination or on something you actually care for.


The argument of the original headline is made all the time and it rarely is a good one.

"Airlines look like they make money from flights, but really they make it from frequent flyer programs".

The same market is made about car dealerships with maintenance, Tesla about selling regulatory credits, gas stations with junk food, et cetera.

But I believe that a more accurate description is that the side behaviour is enabling the companies in question to lower prices in an attempt to steal market share. Without the side businesses, prices would rise, it doesn't necessarily mean that the businesses would be non-viable without the side businesses. Of course if you don't have it but your competitor does, that may cause problems.

Doesn't invalidate this article though, it's more about COVID-19 adaption than side businesses.


I seem to recall a booking agency made roughly on average 10 dollars a seat for their most profitable airlines.

Airline standards are the direct consequences of vote with your wallet. No matter what some claim, 99.999% of people will buy the cheapest ticket possible.


No matter what some claim, 99.999% of people will buy the cheapest ticket possible.

This is definitely not the case, otherwise airlines like Delta, United, and American wouldn't be in business.

Business travel is the money making industry for airlines, with leisure travel being lagniappe revenue. Business travelers book tickets based on convenience of schedule over everything else. Loyalty programs direct that purchase to a specific airline. That is a proven fact and factually dismisses your claim that "99.999% purchase" based on cost.


How much of total revenue and/or passenger miles does business travel make up? I mean, I believe it's more than 0.001%, but how much.


Clearly business travel is its own thing, and not related to the rest of us unwashed masses


It is. The sales executive flying off to his 75th sales call of the year on a fully refundable ticket paid for by his employer is worth literally multiples of you, your wife, and your 3 kids flying off to disney world.


and here’s the thought experiment: if there were no cattle class, how would the airline provide the profitable business class flights?

I simply don’t believe one can simplify down the profits as crudely as you have put it.


It’s the other way around, the business class seats subsidize the cheap economy seats.

https://www.youtube.com/watch?v=BzB5xtGGsTc


Isn't the vast vast majority of flying done for business?

People will go on vacation once or maybe twice a year, but fly on business a dozen or more times.


I am skeptical when a business says "we really make money on A, but B is just a hobby".

Often you will hear "we really make money on B and A is just a hobby" a few years later or maybe a few hours later to a different audience.

If a company is serving you as a hobby then it is not listening to you through price signals, you are going to get bad service, and the company will be out of touch for the market and heading for bankruptcy in the long term unless it is counting on a bail-out.


Look, let me just put it this way. Have you ever paid more than $1000 for a single domestic airline ticket for leisure travel?

Because as a former IBM SE, I've done it HUNDREDS of times for business travel. Literally hundreds of times. Last second tickets, fully refundable tickets, you name it.

The ticket pricing market is designed to extract maximum revenue from business travelers (convenience) and keep them coming back (loyalty programs).

Don't be obtuse and argumentative. This is the way it is and it is a fact. Stop trying to find answers that don't exist.


That argument might make some sense if the airline business was consistently profitable. But it isn't

https://www.routledge.com/Why-Cant-We-Make-Money-in-Aviation...

In the last decade airlines merged a lot and have gotten some monopoly profits in the US but that looks like it is all over.

More fundamentally airlines look like a broken business that makes excuses after the fact and is allowed to get away with by enablers.


99.999% is a bit high. Maybe it is 95% or something.

I find it hard to believe, however, because the usual pattern when I want to fly out of my small airport is as follows.

I might find United is $298.44 and so is Delta. American airlines is $301.55. Maybe there is a $375 flight listed with an extra stop on one of the airlines. The next price up is a $700 flight which has nothing obviously special about it, in fact it might be worse with more stops, more delays, and worse timing. (Maybe the expensive flight lets me reschedule or has some other benefit but that's not clear when I am buying the ticket)

The market is not giving me any meaningful choice at all through the price mechanism in that two airlines seem to be colluding to give me the exact same price, and the difference between the third is so small that $3.11 is not worth thinking about if you find anything about the American flight preferable to the other two.

In theory I could pay $1200 for a first class flight but the first leg of the flight has no first class cabin, and that's a huge jump. Before 2008 there was no "Premium Economy" or other efforts to let people vote with their dollars in a meaningful way. Still it's limited. When I save everybody time and frustration by checking a bag instead of contributing to "rollerbag hell", why I am paying more when I should be getting a discount?

Looking at airline pricing shows the rules of microeconomics are being thoroughly violated and I'm not going to believe the claim that "customers won't pay more for a better experience" until somebody hits the STOP button on both the flights and the airline bank accounts and accountants go over every single line and they can tell a story that makes sense.

What I see is that customers aren't being offered meaningful choices about their flights, or if they are, only in certain geographies.

I was a 737 hater long before the MAX came along so now it's appealing to drive to Syracuse to take Jetblue which is a no Boeing airline. In terms of $'s to the airline it isn't dramatically different than what I'd pay to fly out of Ithaca, but I an now paying with transport costs and maybe an extra night's hotel stay.

At ITH the service from the major airlines is undifferentiated (do you want to fly a CRJ-200 or E-145?) other than the hub you go to. Delta's Detroit hub is ideal for the west coast, American's hub is ideal for points south. Somehow they charge the exact same for flights that must cost differently for the airlines so there must be price fixing involved.


checked bags do cost more - they need to pay people to load the planes. Rollerbags slow the line down a bit, but otherwise there isn't much difference, and the people they pay who are slowed down need to be paid anyway even where there isn't a plane at the gate (except end of shift of course).

For me American and United are always the same price, but Delta wants me to fly to their Atlanta hub for some reason, while American and United hubs are approximately the same overall flight distance.


The GDS makes about 10 dollars per seat. A portion of that (2-5 dollars depending on the negotiation) goes back to the agency

The real kick is "full content agreements" - the airline has to promise not to undercut the final fee charged by GDS/Agency. This ensured nice profits for the GDS ecosystem, but airlines are starting to fight back by pulling out of them (and hence increasing prices for indirect bookings)


I'm having a hard time believing that trend will spread to major airlines, I mean the entire point of the GDS is that it gives everyone a "level" playing field in terms of knowing how to price seats.

I mean its the same situation as every man-in-the-middle platform right? You have players who hate paying the middle guy, and try to spin off, but everyone else gets too much value to break off


It has spread to major airlines, in fact they're the ones pushing for it: LHG, IAG, AFKL are all fighting hard. Their dream is that with stuff like NDC it will become magically possible to have a marketplace without middlemen, we all know that's impossible. But they'll use it as a lever to lower commissions until we hit a new equilibrium


Why is it impossible to have a marketplace without a middleman? Retailers can show prices on their website, hotels can show prices on theirs, same with airlines?


The airline shows a price. The middlemen are on the different system that has a higher price - a price higher by enough to account for their profit.

Sometimes the middlemen are worth paying. They might be better at searching all your alternatives and so they can find a route that you didn't find at all in your search. They might know something that you didn't think of (yes the non-stop is $100 cheaper, but wouldn't you prefer two 8 hour flights and two hours to walk around an airport over 16 hours in your economy seat?) They might guarantee your cruise doesn't leave without you if your flight is late. Only sometimes though.


How many people go to a specific hotel website, rather than booking.com or whatever?

It’s the same issue for airlines, you don’t want to have to open 10 tabs every time you want to search for an itinerary, so there will always be middlemen. The airlines just want to make sure the middlemen don’t have as much power :)


Maybe, but they also don't sell a differentiated product.

Give me the option to pay the real cost of a comfortable seat, and I'll pay it.

No, I don't believe it costs 5x as much.

Every single airline sells the same product, more or less. The same 2-3 class system, at the same price differentials, with the same seat width and pitches.


> Airline standards are the direct consequences of vote with your wallet. No matter what some claim, 99.999% of people will buy the cheapest ticket possible.

For the airline industry, yes. This isn't true in all industries.


If that were true we wouldn't have 30-50% of a lot of long haul planes reserved for business class


Business travelers are living in a different world than the rest of us


Unless the ticket is being reimbursed by somebody else. Hello business travel.


During the recession in 2009, American Airlines needed liquidity and Citibank (who issued their cobrand credit card) came in.

Part of the $2.9B package was Citibank buying $1B worth of air miles to give to their cardmembers.

https://dealbook.nytimes.com/2009/09/17/american-airlines-ge...

That created a liability on American's books, but because they controlled the redemption policy and capacity (and had an expiration date on miles once issued to customers) that they had some control on how the liability got called in.


I think one thing with loyalty programs that makes corporations care less about employees taking advantage of them (instead of going for the cheapest flight), is that it encourages employees to manage their logistics efficiently.

Without loyalty programs, people book things at the last minute, with minimal effort spent looking at the flights (at least that's my attitude and what I've observed in cases when I've had to travel to a location has no airlines with good loyalty programs flying there). This ends up costing the company money due to poor booking. Finding good flights and other travel arrangements is an additional job duty, and usually other job duties take precedence.

But if there's a possibility of a traveler benefitting from the booking, they'll do so more promptly, be willing to spend time outside of work looking at flights, and try to find reasonably priced flights to avoid this perk being taken away from them.

This is my observation from travelling within a small company, it probably does not hold for larger companies.


I've been watching my points stack up while all our business travel is shelved, thinking to myself "my next SYD->LAX leg is gonna be antimatter-class", but then I realised everybody's points are stacking up and they're not going to be worth the bits they're counted in when travel becomes a thing again :(


> travel becomes a thing again

Business travel will never become a thing again except for the cases where it is absolutely necessary (and those travelers are still traveling now).

Business travel is where the majority of profits come from for airlines.

Now that layoffs can start happening expect airlines to shrink and air travel to return to what it was in the 60s: an expensive, luxury travel option.


Sorry, but that’s about as stupid as ferry companies only being profitable due to the duty-free shops.

I understand it’s as simple as that, but it seems incredible wasteful to operate a transport company only to be able to make money on credit cards or cheap alcohol.

And is that why US airlines appear to be better of finacially than the European airlines?


I generally don't care if the current airlines survive. If their business model can't handle an emergency then we should let them fail. They can enter bankruptcy and someone or someones will come in, swoop up the assets, and start new airlines. It is not written in the stars that American Airlines, United, Delta, and Southwest get to be THE premier airlines for the United States.

Let them find their own way. Maybe next time the airlines won't use 96% of their cash flow on share buybacks.

I would also entertain the idea of loaning the airlines money at student loan interest rates. We can even defer payments until the pandemic is over, accruing interesting in the interim of course.

Or liquidate shares and sell them to the public treasury if they need the cash so badly.

Anything, legitimately anything, other than a bailout.


There isn’t a single business model out there that can survive a 90+% reduction in customers. That categorization is absurd. It would be like saying if Google can’t survive a sudden reduction of 90% of people using the internet it should fail.

You can say what you want about bailouts but saying a “business model is bad” because of a once in a lifetime disaster is ridiculous.


Plenty of businesses keep many months of runway in cash for emergencies. Airlines spent 96% of their free cash flow, over the span of a decade, buying back their shares.

Since you mentioned Google, they have over $100 billion in cash and could easily survive an interruption of this magnitude. Google could go to $0 in revenue and survive for many years. Having cash for an emergency is what a well managed and responsible business should do.

Airlines don’t have any money because they were poorly run and greedy. Let poorly run and greedy businesses fail.


This. While the amount of runway can be debated, the sheer number of American powerhouse businesses that saw a single month of dipped revenue and started screaming for possible bankruptcy showed A LOT.

The way we do business today is casually over leveraged and sold as normal.

We are not building stable, 100-yr organizations that support people and their livelihoods. We’re building huge ATM machines that siphon massive amounts of future opportunity from a 1000 people and exchanges it for massive short term gain for 1-100 people.


Twice in a lifetime, if you were born before September 2001.


This is way worse than 9/11 for the airlines. Probably an order of magnitude worse.


It's not like some new owners coming in is going to find some magical humane business model that makes air travel actually good again.

Airline behavior is a reflection of our revealed preferences and the reasons airlines are the way we are is because we all talk a good game about what we want flying to be but then become the ultimate capitalist bastards when we are asked to weigh our cash against our theoretically appealing goals.

All a restructuring would do is bring airlines even closer to our revealed preferences, think if Amazon ran the airline industry. That means goodbye pilots unions, hello to rigid and punishing performance metrics. Goodbye any free perks, everything becomes a nickel and dime horror show. Goodbye any semblance of a collegiate relationship between regulators and carriers, there will be an out and out attempt to regulatorily capture the regulators.


There's a lot of interesting dynamics at play, though perhaps the most interesting is that of the airlines and their co-brand credit card partners.

The credit card partners will purchase huge blocks of frequent flier miles, up front for chase, to hand out to their customers to incentive purchases. These block deals are enormous, billions of dollars at a time.

As co-dependent as they are (and as prone to bankruptcy as US legacy airlines are) the card issuers have historically provided debtor-in-posession financing for the airlines [1].

[1] https://www.globalcapital.com/article/k6bkccj1mshy/delta-rec...


Frequent flyer programs make a lot of money for airlines but so does flying. Credit cards are also a huge money maker for airlines.

The article is looking at valuation, not actual revenue.

It's kind of like the idea that certain routes lose money but airlines keep those routes around because they add value to the network. Scott Kirby of United has stated that he wants to bring JFK-LAX/SFO back because of the value it added for customers who didn't want to go to EWR even though the JFK routes supposedly lost money.

Also, it's not like we've seen a successful spinoff of a loyalty program. Look at Air Canada or Virgin Atlantic.


Wait .. their survival depends on a program they love to devalue and spit in customers' faces with? (Long explaination but look up sky pesos, devaluation charts, PQDs, CC hawking, etc)

If anything they've done all that they can to try to make status harder to hit/maintain and used it to grab more profit. Now that they're not getting profit they're trying to cry to FFs.


Lot's of discussions in here are dancing around the main point but no one's making it because it's either already very much implied or sounds kind of naive, but allow me

Subsidizing your frequent customers at the expense of your infrequent ones is anti-competitive and anti-consumer and obviously not strictly a scam but somewhat scam-adjacent.

It all seems like very race-to-the-bottom type stuff. I'm not much of a ban-happy guy but honestly I'd be open to the idea if it were not so unfeasible.

Related https://news.ycombinator.com/item?id=24654363



Before Covid, I would fly roundtrip from California to Boston 4 or 5 times a year. I almost always flew JetBlue, not because of a program but because it was the cheapest and I like their planes. After an entire year of doing this I had earned under $100 in credit.

Meanwhile, the cost differential between flying at 9am or 6am or a different airline is usually $100. I've never been convinced after that the pain of dealing with the tracking and the login account is even worth it.


To be fair you’re not a frequent flyer or even really valuable to the airlines. They’re not making money on you - they’re making it on the business people flying BOS -> LAX round trip in first class 30-40 times a year.


That is fair! I guess there must be some stickiness although I kinda get the feeling that some of that stickiness was from when it was more complicated to find times and book?

What is the discount for those flyers still - one free round trip for every ten flights? That 10% is still pretty small difference compared to how much you/the company would save switching airlines or skimping $15 a day on per diem.


I have never spent a loyalty point in my life. Am I a sucker, or am I a smart consumer who has thrown off the shackles that the marketing department has tried to put on me?


If you travel a lot already (say, for work), loyalty programs can provide worthwhile perks. I had a 10-day vacation in Japan a couple of years ago, complete with first-class flights and luxury hotel stays and only paid ~$500 out of pocket (and $300 of that was for a Japan Rail pass). The rest was paid for out of a combination of airlines mies (three different FF programs) and hotel points (2 chains).

If you don't travel a lot, it's probably not worth it, but if you're already going through the motions, why wouldn't you?


If you're not a frequent flyer you're probably not missing out on much, insofar as points collected via flying. However, if you're not taking advantage of credit card sign up offers that give you travel rewards (aka. churning), you are missing out on hundreds of dollars of free travel per year.


I wouldn't be so quick to suggest people should be churning credit cards. There are some great values there if you are detail oriented and keep on top of things. However, it is hard to come up with an objective value for points and a simple mistake or two can wipe out any gains you would have made. There is a reason banks continue to offer high sign up bonuses.


I think it depends on how each person values their time, and how much they like/hate keeping up with that kind of stuff.

I can confidently say that I'd come out ahead by working (billing to a client) the time I would otherwise spend wrangling all my rewards programs, but not everybody has the option to just work another hour whenever they want.

Also I'm much better at my job than I am at wrangling rewards points so I generally get more satisfaction from it.


I see them as price segmentation on free time. If you have enough free time to keep track of the whole loyalty points system and game frequent flyer points, you can save a few bucks. If you'd rather not bother, you'll spend a little bit more. Personally, I'm fine with spending a few more bucks for trips I actually want to make in exchange for ignoring all of these schemes.

I also think that these systems, in addition to most retail sales etc, are created to appeal to a segment of the population that only really buys when they feel like they got some kind of special deal.


Same here. Never collected one either. Complete nonsense these programs, I like the ability to vote with my wallet and a loyalty program would be friction on the way to do doing that.


How is it a friction? You don’t need to do anything extra to accrue the points. Then, when you search for a flight or hotel, you select the option to see if you can get it for free with points. If not, you proceed to the cheapest option that works for you.

They already have all of your identifying information, so you’re not even giving up any privacy.

If anything, by not playing the game, you’re subsidizing those who do (since the time cost of playing the game is so low - clicking a button on a website). Same situation with paying with cash back credit cards in the US, at least for online purchases.


It would be friction for me to decide to move to a competitor.


I have miles with all 3 major US airlines. (I think some have expired), there is no real friction. I slightly prefer United when costs are the same - but only because my company prefers United when costs are the same and thus my points add up faster then when I do need to pay for a ticked myself.


What is the friction? If competitor is cheaper, you click on competitor’s buttons.


Or better quality or any of a hundred different reasons. But those loyalty points work like glue: they get people to ignore those other reasons because they want their points.

It is called a loyalty system for a reason.


You should still get a rewards card even if you don't want miles. There are several credit cards that offer 2% cash back with no annual fee.


Your life isn’t everyone else’s life. Just because you don’t see value doesn’t mean others don’t. I’ve saved thousands using credit card miles, flight and hotel miles and other earned miles for business class flights.


I'd rather spend the time I would have spent on loyalty programs on something more fun and/or lucrative.


Loyalty programs aren't exclusive.


If you're hoping to book a flight round-trip with those points, you'll probably never get what you want with all of their restrictions. The best use of miles I have ever spent was upgrades where I pay the base price of the ticket out of pocket, and then use points to upgrade to better seat.


I have a Delta Amex. I use it to buy everything. I haven't paid for a plane flight in 10 years, and I take my family on vacation every year.


It's all about percentages. I used to do the FF mileage cards, but my Costco cash back winds up a (much) better deal for us. If our spending changes I will reevaluate strategy again.


Well if you've accrued but not spent, we can say that you helped to save the airline industry :)


You’re a sucker. Credit card fees get paid by you no matter if you earn 5 miles per USD or you decide not to. They add up quickly to a nice business class flight (redemption on Econ isn’t worth it).


Cash back credit cards are far better for 99% of people than airline miles.


Seems like banning credit card reward/loyalty programs would be a net societal good - they encourage overspending and make people feel like they are 'earning' by using credit. Further, the net result of them is to enable more carbon-emitting travel.

Unfortunately the credit lobby is too powerful in this country, so seems politically untenable.


> and make people feel like they are 'earning' by using credit

But you are earning by using credit.

When I buy on credit I literally earn cash back. I also get additional consumer protections.

No scare quotes needed!


> they encourage overspending

Do we have evidence rewards increase total spending? I thought it was more about issuers fighting for wallet share. Not increasing spend.


I have personal anecdotal evidence. One friend will make increasingly frivolous purchases as they approach rewards thresholds. They ended up with 5-figure credit card debt and a net loss of funds because they considered rewards at time of purchase, but not the interest on the credit for not paying full statement balance.

I'd be curious to see a more formal academic analysis of this, however.


I don't get how this works with commercially successful low cost airlines.


Just link the goddamn article

https://marker.medium.com/2509bd3f25d0


He that depends Upon frequent flyer programs swims with fins of lead, And hews down oaks with rushes.

William Shakespeare, Coriolanus


The loyalty system brought in 66% of AA's EBIT in 2017, and 51% of United's ... that's a lot of money


Where can I find this? I want to look up other airlines


Not sure it’s public, sorry :(


“making money” from your business has nothing to do with the valuation of your company...


Seems like the better link is the original article: https://marker.medium.com/why-the-survival-of-the-airlines-d...


Thanks for finding the original source.

@dang could we switch the title and link?


Email to hn@ycombinator.com is more effective. I've done so.


We switched it from https://twitter.com/david_perell/status/1311414711817302018. Thanks!

Submitters: please follow the site guidelines, which include this:

Please submit the original source. If a post reports on something found on another site, submit the latter.

https://news.ycombinator.com/newsguidelines.html


You should be able to edit it within the first 30-60 minutes.


Only the title, not the link


Huh, I thought I'd done that in the past. Maybe it was a different site.




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