It seems to me that a number of FF programs (you know who you are) are on a slippery slope and are playing a dangerous game of selling points/miles cheaply to generate cash flow.

As I posted over in the Lifemiles forum, by selling miles cheaply, you can get a lot of cash quickly and more cheaply than you could borrow it. Yes you do get a contingent liability on the balance sheet but however unlike other debts/liabilities, the program owner has the right to devalue (reduce) the liability overnight by increasing the amount of miles required to get an award. sounds like a no brainer except ......

you run the risk of upsetting those customers who are truly frequent flyers...........thoughts?

C'mon, the answer is obivous. But I'll indulge you.

Almost any business strategy will have an upside and a downside. The airlines obviously feel on balance the upside is greater.

Remember too that marketing partnerships benefit both parties. Selling miles creates customers. "Non-paying" customers to some extent, but it still reinforces their brand selection.

The biggest advantage probably is that the airlines can control capacity. They sell the miles at a fixed price, but can "buy" them back (through awards) in a way that costs them the least actual dollars-out-of-pocket.

Yes, they periodically devalue the award chart, but that's not solely related to selling miles. And if they have issues with the elite fliers, they can boost the elite bonuses or make availability better for them.

I'm happy they do this. If they didn't, I couldn't use all the tricks I learn from this board to run up my mileage balance. I'd rather earn 250K miles a year without flying and have a devalued award chart, than earn 0K miles on a better award chart.

Also, they do not price the miles/points based on how you (as an above-average-value redeemer, presumably) will redeem them. They price them based on how the truly average person (who's never read FlyerTalk and uses the miles/points without doing the math to see if it's a good value or not) uses them in the end.

(Keep in mind that a lot of "ordinary" people don't have a good handle on what it takes to redeem miles. So they may, for example, buy miles thinking they'll get a "saver" redemption for 4 people on Christmas travel to Hawaii with very specific dates, then they realize too late that it doesn't work that way, and then they'll use them up on something of poor value because they don't do a lot of traveling all the time and thus can't think of something of high value that they can actually book.)

Million are lost on Gift Cards, they are never used. Much the same with miles.

98% of American Workers never get rich, and yet work is always there.

Mist want a job they do not want to work.

We brag about miles, yet very few have the time and money to use them.

When an airline sells miles they don't just generate cash flow, they generate an instant profit. As you point out, they recognize a liability (deferred revenue) for the sale of miles, but the amount of the amount of that liability is less than the amount they sold the miles for. So, to use a crude example, an airline may sell you 50,000 miles for $750.00. When they make that transaction they collect $750, they recognize a deferred revenue for when the miles are eventually redeemed, say $250, and a current revenue, in our example $500. They will also incur some expense for that revenue, say $100 (e.g., credit card fees, overhead, a cut for Points.com in some cases, etc.). So, they'll receive $750 in cash flow, incur some immediate expenses associated with that ($100 in this example), recognize $500 of revenue immediately (of which $400 is income, i.e., profit), and then have $250 of deferred revenue.

This is one of the biggest fallacies I've seen repeated on FT so many times it can't be counted, that frequent flyers are an airlines 'best customers' and that those buying miles (either straight-up buying them or through credit card spend) are 'non-paying' customers or not 'real' customers for an airline.

An airline's most profitable customer is someone who accrues miles on the airline without ever flying that airline and who has not redeemed those miles ...

That.


How do airline credit cards market the miles you will earn though their card? "Spend xxx dollars and get yyy miles! That's enough for a free trip anywhere in the US we fly!" Most people will jump on that to save $250 airfare.

Likewise, the average person will buy miles to top off so the entire family can fly for free.


Now we, on the other hand scheme and maximize the miles. Recently US allowed the gifting of miles and they would match. I "gave" my wife 50K miles and she now has, eer, had 100K miles. I just redeemed them for a CLT-MUC-ZRH-HKG-TPE-LAX-CLT flight in J. My cost was the original 50K miles and $700ish, including the transfer and taxes for the actual flights.

The average person, DW included, would not even consider doing this. She would use the miles to fly to Denver in Y.

was thinking about this after I read the title and a thought came to my head.

so I think I read somewhere in the past that retailers would discount their gift cards a little while before earnings to try to make up for lower sales.

smart idea. is avianca doing this for that reason?

I kinda felt UA had a lot of offers to buy points the last 2 years. or the gift card to miles thing. both very bad deals. unlike the avianca one.

Airlines sell miles/points because it makes money. Period.

Thanks for all the thoughtful contributions! Certainly there are some perspectives on this that I hadn't contemplated. If you can pardon the pun, I guess the "bottom line" is they do it because it makes them money as
Grailstair points out,

I guess I need to explain that my question "why do airlines sell miles?" was essentially a rhetorical one to remind novices, embarking on this fun and rewarding pastime, to bear the profit motive in mind before parting with their hard earned cash.

I personally have never bought miles. I really do think they are very poor value. As you say, novices can often be enticed. I guess airlines like all businesses love gullibility.

A thread on why?

http://www.flyertalk.com/forum/delta...uys-miles.html

Story of my relationship w/ HA from 2012 until Nov 7th 2013, when I actually flew them for the first time ever (HNL-LAX).

I'm planning on buying 1K for $27 to top up 19K and make it 20K, because I need to redeem the 20K.

An IMO - that is a sensible reason and way to purchase miles. ^