Airlines charge "partners" .02 cents per mile as a marketing tool to create customer loyalty. The largest generator of Frequent Flyer points is not from flying, it is from purchased points by credit card companies. They are paying NWA and all the other airlines for the miles that get deposited in member's accounts. This is where the income (external) comes from. NWA also sets aside money for WP award redemption expenses. In an IPO the public would buy a percentage of the spun off company. In AC's IPO under 20% was spun off and generated over 200 million.
RC
Originally Posted by ani90
Exclude my economic ignorance but how exactly do the carriers make this money and how do they actually ascertain that money made is from the loyalty programs?
Is this extra revenue additional to what they would make if the FF program did not exist or is that due to customers they attract from competitors because of the FF program. If there were no FF programs would the same number of people not fly and different factors will keep them loyal to the airline. Or is the presumption that because a NW plat brings them a particular revenue that the revenue would have been lost if not for the FF miles? Or do they make the money because of the 'scam' whereby the majority of miles issued are never redeeemed?
Must say I had imagined that the FF programs were a burden to airlines because of the cost of elite services, complimentary upgrades, non-profitable mileage runs by aspiring elites, and relatively cheap award travel but I obviously got it wrong; that's what I like about FT, you learn something new everyday.