Old Mar 26, 17, 8:40 am
Join Date: Feb 2006
Programs: UA, Starwood, Priority Club, Hertz, Starbucks Gold Card
Posts: 3,790
Originally Posted by spin88 View Post
The idea that there are lots of people paying high fares that just pick random airlines is contrary to everything the airlines have said for years... all of the big US carriers have said that a massive part of their revenue comes from a relatively small number of frequent travelers. https://www.flyertalk.com/forum/28051886-post73.html
It’s foolish to base assumptions on companies’ public statements, especially when they pertain to revenues. They are deliberately broad-brushed and unspecific. For now, even if we take the two articles that you have cited at face value, there is some sloppy logic in concluding that “all of the big US carriers have said that a massive part of their revenue comes from a relatively small number of frequent travelers.” In actuality, AA and DL are suggesting quite the opposite:

1. Kirby stated: 50% of AA’s revenues came from 87% of customers, who only flew AA once (presumably a year). From that, the only logical inference is that the other 50% revenues came from pax who flew AA 2+ times. Unless that defines “frequent flyer,” 2 trips do not make an “elite,” neither do 3 or 4 trips. One theoretically needs at least 5 transcon roundtrips to qualify for the first elite level (AA Gold). By that threshold, the pax is well above the 90th percentile, perhaps even the 95th percentile as DL described (next).

2. DL stated that 5% of its customers account for 26% of its revenues. The statement actually reveals nothing about the pax’s elite status. Nevertheless, assuming that DL meant 5% to be PM and DM (although more likely it’s all elites from FO upwards), this implies that 95% of customers, the “kettles” who rarely if ever receive CPU or don’t qualify for it, generate 74% of revenues—still the bulk or overwhelming majority.

* * *
Suppose a hypothetical airline that, like AA, generates 50% revenues from once-a-year pax (87%), and like DL, gets 26% revenues from the 5% elites. This means 8% pax are making multiple trips but not enough to reach elite status. They also generate 24% revenues, roughly the same as elites. Even if all 5% elites behave in lockstep over CPU (which they don't; they're just as diverse as the traveling public in general), the hypothetical airline would be foolish not to monetize F and go after that 8% high end non-elite segment. The CPU-obsessed among the elites can be given their “binary choice.” If they leave, the airline will only have more revenues to reap.

In any event, the two readings cited above actually refute the assumption that “elites” generate most of the airlines’ revenues. They don’t; they’re just cream on top. The true bread and butter are the “kettles.” WN thrived on them. DL learned to do the same. And UA would be merely catching up.
sinoflyer is offline  
Reply With Quote