Originally Posted by
AB Dada
Some folks have done the math on airline travel profitability for AA and it's pretty putrid. There is little cash to be made moving people across the country.
But -- it does provide for some interesting lobbying loopholes that all licensed and monitored industries provide.
If I was a bank, I'd rather be one that is heavily regulated like an airline than one that is way way way less heavily regulated like a credit card company.
Indeed, airlines have a long history of going bankrupt, both in the US and abroad. In many countries their only real airline is government owned and a huge loss for them. It's for this reason that I personally
don'tthink that AA is systematically undervaluing flyers, though I haven't seen AA's internal numbers, so I'm happy to admit I could be wrong.
Of course, it's an economic truth (by construction, of course) that perfectly competitive industries have no
economic profits (i.e. any profits above those required to compensate for the cost of capital and the risk premium. This is
not the same as business profits, which is what typically gets reported). And air travel is actually quite competitive; both within the US (where you've got the US3, B6, AS, WN and a bunch of other LCCs/ULCCs) and abroad. Unfortunately for airlines, there's nothing naturally keeping you on the same airline, so they have to compete on fares, which means they'll lower fares to the lowest point they can afford (under normal conditions), which means poor profits.
Airline leaders are starting to figure this out though, which is why they're focusing more on areas where they have monopolies and therefore more pricing power (and thus the ability to actually generate profits), such as AA expanding in DFW, and DL focusing on their core hubs. It's also why loyalty programs are critical to the full service airlines; in many cases the loyalty programs are the only "moat" allowing the legacy carriers some pricing power above and beyond their competitors, especially outside of fortress hubs.
Originally Posted by
steveholt
If you could easily get 300K LP next year just by booking your business hotel trips, why do you think it'll be harder for anyone else if it's 300K?
For me at least, I have to book my business hotels through Concur, so I can't use RM or BAAH. For now, I can get EXP on AA solely by my flying (and probably get a fair amount above the 200K, in a normal year). But if I couldn't, or I felt that EXP was too diluted relative to UA, I would consider switching to UA, which (for now at least) doesn't have to worry about hotel stays or CC spenders diluting their elite ranks.
If hotel stayers and CC warriors are more profitable to AA than flyers like me though, then AA would happily lose me to UA in exchange for getting someone like TRAVEL4SCUBA.