BA Amex who's paying for the avios?
Jun 16, 2019, 11:24 pm
#17
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The involved parties (and thus, ones who will provide some level of contribution towards the product)
Amex merchant acquiring
Amex consumer
British Airways
Avios
To understand how the card benefits are funded we need to look at what each party stands to gain from being involved in the card.
Some output benefits from the card to the invested parties include...
- Branding
- Sell more airline tickets
- Increase loyalty
- Drive Avios currency buy-in
- Access to premium travellers
- Transactional data
- Governments
- Revenue protection
- MDR
- Revolvers/interest payers
- Annual fees
- Intl transaction fees
- Non-card banking products
+ More!
In my experience in working with airlines and FFPs, the biggest benefit of the card to the AIRLINE is not the sale of points/miles.
While consumers think that banks buying points is the key (and it is to some degree), it's often only one piece of the puzzle which brings the deal together making it viable for all parties.
If you want to learn more I write a lot about this stuff on my blog, but this should provide enough insight to get an idea of who pays for what.
Ultimately you can get a sense of funding by who benefits - and sometimes it's multiple beneficiaries that chip in.
Jun 17, 2019, 1:51 am
#18
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For a start you are assuming prices have any relevance to cost, which is tenuous. I then invite you to imagine a world in which a store changed its prices every time a single input cost changed, and what a ludicrous world that would be.
Jun 17, 2019, 2:46 am
#19
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In a commoditising market - air travel and credit cards are perfect examples of this - price tends very quickly to cost+ based on the minimum margin people are comfortable accepting. Hence at the sharp end, any cost reduction ends up feeding through.
Value based pricing is where you can persuade people to pay more depending on the value to them of what is being purchased. Luxury brands are in this category,; value can be fiscal or perceived. Thus BA can add three finger sandwiches and a drink to the same basic product and charge people three times more for it.
For thiise of us who shop in supermarkets and look for travel deals, cost+ dominates. Which is why a reduction of credit card costs is generally a good thing for consumers.
Value based pricing is where you can persuade people to pay more depending on the value to them of what is being purchased. Luxury brands are in this category,; value can be fiscal or perceived. Thus BA can add three finger sandwiches and a drink to the same basic product and charge people three times more for it.
For thiise of us who shop in supermarkets and look for travel deals, cost+ dominates. Which is why a reduction of credit card costs is generally a good thing for consumers.
Jun 17, 2019, 2:58 am
#20
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This confuses interchange fees and credit card processing fees. The former are capped at 0.3% for credit cards, the latter are between an additional 1.5% to 3% depending upon the provider.
Jun 17, 2019, 3:14 am
#21
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The travel industry got hit badly by the removal of cc fees / surcharges as by and large (not exclusively as some naughty companies around) the surcharges covered the costs of the charges in a very low margin industry, and there were ways to avoid (debit cards, BACS) whilst maintaining financial protection (ATOL, trust funds etc). There is no scope to 'cover' the fees charges so prices across the board have increased to cover the increased costs. There was very little scope to cover the AMEX/CC fees in most travel companies margins. In my field costs to the consumer have increased to meet the average cost incurred now by not being able to chargeback the fees (which as mentioned vary considerably).
Jun 17, 2019, 4:13 am
#23
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We have't seen prices drop, but we've seen much greater card acceptance particularly for smaller transactions. Previously many smaller merchants would insist on a minimum Ł10 spend in order to use a card, or charge an extra fee.
Jun 17, 2019, 6:44 am
#24
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In the US, sales of frequent flier miles by airlines to banks (for co branded credit cards) are a major source of airline revenue. Some airlines like AA estimate nearly HALF of annual revenue comes from frequent flier miles sales. Several interesting articles online regarding this topic.
Jun 17, 2019, 8:05 am
#25
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In the US, sales of frequent flier miles by airlines to banks (for co branded credit cards) are a major source of airline revenue. Some airlines like AA estimate nearly HALF of annual revenue comes from frequent flier miles sales. Several interesting articles online regarding this topic.
Jun 17, 2019, 11:02 am
#27
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Please read this article and the embedded source reference from bloomberg.
Jun 17, 2019, 12:54 pm
#28
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You misread the article. I cannot read the source in Bloomberg, because I don't have a subscription to it, but you've clearly fallen victim to a sensationalist headline. "Selling Miles Can Be Bigger Business for Airlines Than Selling Seats" is total bollocks, if you interpret that as they get more revenue from selling miles than from selling seats. When they say "earnings" they mean "profit", not revenue. Delta expects to earn $ 4 billion in revenue from their Amex partnership in 2021. Their 2018 revenues were $ 44.4 billion. So that's 10%.
Delta pre tax income was $ 5.1 billion. Depending on how you account for the cost of selling miles (or rather providing the services) you could arguably get to a profit near half of the total profit. But that would require some heroic assumptions on the costs.
Delta pre tax income was $ 5.1 billion. Depending on how you account for the cost of selling miles (or rather providing the services) you could arguably get to a profit near half of the total profit. But that would require some heroic assumptions on the costs.
Jun 18, 2019, 12:40 am
#29
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You misread the article. I cannot read the source in Bloomberg, because I don't have a subscription to it, but you've clearly fallen victim to a sensationalist headline. "Selling Miles Can Be Bigger Business for Airlines Than Selling Seats" is total bollocks, if you interpret that as they get more revenue from selling miles than from selling seats. When they say "earnings" they mean "profit", not revenue. Delta expects to earn $ 4 billion in revenue from their Amex partnership in 2021. Their 2018 revenues were $ 44.4 billion. So that's 10%.
Delta pre tax income was $ 5.1 billion. Depending on how you account for the cost of selling miles (or rather providing the services) you could arguably get to a profit near half of the total profit. But that would require some heroic assumptions on the costs.
Delta pre tax income was $ 5.1 billion. Depending on how you account for the cost of selling miles (or rather providing the services) you could arguably get to a profit near half of the total profit. But that would require some heroic assumptions on the costs.
Selling miles is actually creating more liability. It's not directly profitable per se, aside from a small marketing component.
Redemption is revenue recognition under IFRS 15, and that is where the profit is generated. The miles being redeemed may have been generated from the banks and while that process is critically important, it's not how profits are booked
Additionally, "Delta expects to earn $ 4 billion in revenue from their Amex partnership in 2021", does not mean $4B directly from the co-brand card. There are multiple revenue streams buried within co-brand card economics.
Last edited by d00t; Jun 18, 2019 at 12:50 am
Jun 18, 2019, 2:22 am
#30
Join Date: Jan 2000
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^^ Correct!
Selling miles is actually creating more liability. It's not directly profitable per se, aside from a small marketing component.
Redemption is revenue recognition under IFRS 15, and that is where the profit is generated. The miles being redeemed may have been generated from the banks and while that process is critically important, it's not how profits are booked
Additionally, "Delta expects to earn $ 4 billion in revenue from their Amex partnership in 2021", does not mean $4B directly from the co-brand card. There are multiple revenue streams buried within co-brand card economics.
Selling miles is actually creating more liability. It's not directly profitable per se, aside from a small marketing component.
Redemption is revenue recognition under IFRS 15, and that is where the profit is generated. The miles being redeemed may have been generated from the banks and while that process is critically important, it's not how profits are booked
Additionally, "Delta expects to earn $ 4 billion in revenue from their Amex partnership in 2021", does not mean $4B directly from the co-brand card. There are multiple revenue streams buried within co-brand card economics.
