Originally Posted by zlc
The FFP program may be very profitable for the airlines, but where are those profit come from? Certainly not from the travellers. It's from those banks/shops who buy miles and give them out.
Don't make the mistake of assuming that the middlemen aren't making profits too. When banks, florists, hotels, rental car agencies, and other partners resell miles to you, their markup is built in as well.
Look at the cost of a dozen roses without miles. Look at the cost
with miles. You're paying double if not triple the total cost - just to get those miles. Now, that still might make sense for people like us who pay close attention to how we use miles. I recently bought about 5000 miles (using the UA 30 miles/$ code) along with various Valentine's Day flowers - grossly overpaying what I would have paid in cash to a streetcorner florist - because I already know I have a strong, near-term use of those miles.
Same with credit cards. There are 1.5% rebate cards out there. Every time I
don't use one of these cards, I'm buying points. But again, I think I can get a lot more than 1.5 cents out of a Starpoint, because I know that, in general, I redeem them quickly for hotel stays at a decent rate.
Maybe for marketing, but I bet if any bank offers a $200 signing bonus with a 1.5% cash rebate, even with an annual fee, will be able to sign up new customers like crazy.
Yeah, I'd probably sign up, but they'd have to tease up that rebate rate a bit to get me to stop using my SPG Amex.
On the grand economy, the administering of the FF program is wasted resource that does not generate value for the society, which makes everything more expansive than it should.
It doesn't have to generate value for the society. It merely has to generate profit for the house, attract enough players to fuel the system, and reward enough of the experienced players to inspire the next generation to join the game. It's no different than a poker table.