Originally Posted by Sirecca
Not be picky, but....
They also said: "We believe that the relatively low percentage of passenger miles flown by SkyMiles members traveling on program awards and the restrictions applied to travel awards minimize the displacement of revenue passengers." That's the "in-part" part of my comment.
What they mean is that opportunity cost (i.e., potential ticket sales revenue left on the table) is negligible. That is, if half the plane were on award tickets or there was no limited inventory, then you know that many people would have bought a ticket for that trip if it weren't for the unlimited inventory. Given the average price of a ticket ($200 or $300 I guess), lost revenue would be much, much more than the 25 bucks in incremental cost.
So then, what is that cost (in $)? I sure couldn't find it. That is what's needed to calculate the cost/mile to DL.
Huh? (My head is starting to hurt at this point.) I've looked at this a few times and I can't figure out how it gets us closer to estimated DL's cost/mile for Skymiles.
For 2003, Delta set aside a liability of $229 million for 10.4 million award tickets. Assuming all of those are the 25,000 mile version, that's $22, or 0.09 cents per SkyMile. Higher mileage requirements for South American, et al, also carry higher incremental costs, so let's just round it off to 1/10th of a cent per SkyMile. That's easily 1/10 of what we value them, and could be as little as 1/20 or less if you apply them to otherwise expensive tickets.