Originally Posted by JS
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.
Since Delta ends up paying the segment tax of $3.10/segment and PFC of $3 (or more) per departure on awards (like most US airlines), I don't understand how $22 covers the cost of their award:
1. According to Delta the incremental cost of fuel and meals is $9 per domestic roundtrip.
2. The typical domestic roundtrip has 4 segments and will cost Delta 4 times $3.10 + $3 or $24.40.
And this doesn't include the cost of occasionally displacing a revenue passenger (which has been estimated as around $9-$15 per ticket based on capacity controls with a 3-5% chance of displacing a $300 paying passenger)
One possibility is that US airlines somehow get around paying the segment tax and PFC (Passenger Facility Charges) on award tickets, but since they charge these amounts on certain awards (eg "Fly Free" awards and some partner awards) I assume these taxes are actually paid by someone.