Originally Posted by
pbarnette
Spoken like someone that has zero financial knowledge...
If you think that you gain $15k, on average, from your 1K members, despite having no discernible revenue premium, then you clearly don't care to understand the economics of the airline industry.
The reality is that you simply give away J seats to some portion of the Y seats that you would otherwise sell at market price, and receive no revenue premium.
At the numbers you propose for the "value" of loyalty (what, $250 for a TPAC leg), I would think that the airlines would make more money by simply selling to the highest bidder.
1. I'll ignore the ad hominem argument.
2. The problem with your analysis and with DL's model in general is that they try to maximize revenue per flight rather than system revenue over time. It's a great model except it assumes a) that travel is fixed and that customers will not reduce travel in response to high pricing and/or bad service, and b) that customers won't switch to competitors who have better programs.
3. There is a revenue premium at least for UA. Budget conscious 1Ks generally pay a couple hundred dollars extra for an upgradeable W fare in order to use their SWUs. They have also introduced a co-pay for international mileages UGs. On top of that 40% of 1Ks are Global Service members with a minimum $50k annual spend.
4. Selling to the highest bidder would make sense. The carriers just haven't figured out how to implement an auction system. (It wouldn't be that hard.)