Airlines Make More Money Selling Miles Than Seats
Mar 31, 2017, 2:49 pm
#1
Original Poster
Join Date: Oct 2010
Location: San Diego, Ca
Programs: AA 2MM LT PLT; AS MVP Gold75k; HHonors Diamond; IHG PLT
Posts: 3,503
Airlines Make More Money Selling Miles Than Seats
https://www.bloomberg.com/news/artic...les-than-seats
Originally saw this in the Alaska Air forum, thought it would be useful to post here, relatively to the significant devaluation of the Aadvantage program, scarcity of Saaver premium awards.
Delta Air Lines Inc., the world’s second-largest carrier, said it expects that its American Express partnership will yield $4 billion in revenue per year by 2021, rising by more than $300 million annually until then.
At American, which has the largest program, Stifel estimates a mile’s sale price is about three times its cost at redemption. (Naturally, any miles that are canceled, expire, or are otherwise never redeemed flow to airline coffers at a 100 percent margin.) “Fundamentally, airlines are selling miles to credit card companies for much more than they will cost the airline when those miles are redeemed—and they are doing it hundreds of billions of times a year,” Stifel wrote in a February client note.
At what point will the average consumer wake up, realize their miles will no longer meet vacation plans, abandon their airline credit cards?
Is Parker paying close enough attention, able to reverse course before he kills the goose laying his golden eggs?
I expect banks would prefer customers to move from airline to house-branded credit cards, with awards in their own currency.
Originally saw this in the Alaska Air forum, thought it would be useful to post here, relatively to the significant devaluation of the Aadvantage program, scarcity of Saaver premium awards.
Delta Air Lines Inc., the world’s second-largest carrier, said it expects that its American Express partnership will yield $4 billion in revenue per year by 2021, rising by more than $300 million annually until then.
At American, which has the largest program, Stifel estimates a mile’s sale price is about three times its cost at redemption. (Naturally, any miles that are canceled, expire, or are otherwise never redeemed flow to airline coffers at a 100 percent margin.) “Fundamentally, airlines are selling miles to credit card companies for much more than they will cost the airline when those miles are redeemed—and they are doing it hundreds of billions of times a year,” Stifel wrote in a February client note.
At what point will the average consumer wake up, realize their miles will no longer meet vacation plans, abandon their airline credit cards?
Is Parker paying close enough attention, able to reverse course before he kills the goose laying his golden eggs?
I expect banks would prefer customers to move from airline to house-branded credit cards, with awards in their own currency.
Mar 31, 2017, 3:03 pm
#2
Join Date: Feb 2009
Location: USA
Programs: Chase Sapphire Reserve, WFBF
Posts: 1,573
At what point will the average consumer wake up, realize their miles will no longer meet vacation plans, abandon their airline credit cards?
Is Parker paying close enough attention, able to reverse course before he kills the goose laying his golden eggs?
I expect banks would prefer customers to move from airline to house-branded credit cards, with awards in their own currency.
Is Parker paying close enough attention, able to reverse course before he kills the goose laying his golden eggs?
I expect banks would prefer customers to move from airline to house-branded credit cards, with awards in their own currency.
Mar 31, 2017, 3:17 pm
#3
Join Date: Dec 2004
Posts: 5,632
Perhaps the estimated cost of redemption is very small because only seats expected to remain vacant are made available as awards?
A commonly quoted value of a mile to consumers is 2 cents, but even reducing it to 1 cent, but I doubt that Citi pays AA $600 for each time it issues a credit card with a 60K mile signup bonus.
Mar 31, 2017, 3:58 pm
#5
Join Date: Sep 2007
Location: stl
Programs: AA LT Plat/8.1mm now with 1350 miles left in my account and proud of it.. SPG LT Titanium.
Posts: 3,082
It may be a lucrative business but as people learn how ridiculous AA redemptions have become even the casual traveler will wake up. It's Chase Saphire Reserve for me and before that it was Citi Prestige until they watered that down so much.
Mar 31, 2017, 8:59 pm
#7
Join Date: Jun 2014
Location: IAH
Programs: UA GS, TK Gold
Posts: 304
This article, just like many other, is really missing the point IMHO.
There is a love triangle between airlines, banking industry and consumers. Airlines always win no matter what: they sell miles, constantly optimize capacity and control the redemption. Banks play the margin game between the cost of miles and swipes fees, AFs, interest etc. Consumers pay the price.
The whole thing is the very clever scheme by the airlines to sell the empty seats, aka perishable product, at deep discount without offending cash paying customers. LH will never discount Tue departure FRA-IAD empty F seat to under $500 straight up, but at the same time LH will gladly peddle the same seat for the same price under a thin veil of loyalty programs and CC bonuses.
The whole thing is a Romans Colosseum filled with airline and banking execs in the stands with their thumbs down, and point and miles collectors fighting down in the arena for that sweet redemption in CX F and such. May be 5 or 10% of the latter group come ahead at the expense of the rest.
And yes, I 'm a point and mile collector and churner.
There is a love triangle between airlines, banking industry and consumers. Airlines always win no matter what: they sell miles, constantly optimize capacity and control the redemption. Banks play the margin game between the cost of miles and swipes fees, AFs, interest etc. Consumers pay the price.
The whole thing is the very clever scheme by the airlines to sell the empty seats, aka perishable product, at deep discount without offending cash paying customers. LH will never discount Tue departure FRA-IAD empty F seat to under $500 straight up, but at the same time LH will gladly peddle the same seat for the same price under a thin veil of loyalty programs and CC bonuses.
The whole thing is a Romans Colosseum filled with airline and banking execs in the stands with their thumbs down, and point and miles collectors fighting down in the arena for that sweet redemption in CX F and such. May be 5 or 10% of the latter group come ahead at the expense of the rest.
And yes, I 'm a point and mile collector and churner.