I'm sure this has been discussed before but it still stumps me.

I use my Starwood AMEX and get a point per mile. I imagine that means that AMEX purchases those points for somewhere under a penny a point.

Then you call Starwood and redeem them for airline miles. So Starwood has to pay for those miles, off-setting it with the fact that they received income when they sold them.

Then you call the airline to acquire an award with one of their alliance partners, so they have to purchase a ticket for you.

So I moved 140,000 Starwood points to US Air last summer when they had a 50% transfer bonus over and above the normal 25% bonus. Got me a total of 262,500 miles. Used them for two First Class tickets, NY to Europe, on Swiss - seats that sell retail for about $13,000.

What do you think Starwood paid US Air for my miles? $1,000-1,200?

What do you think US Air paid Swiss for those seats? The same?

I'm very grateful but in some ways, it seems too good to be true!

My guess is that Amex paid SPG about 1400-1500 for 140K spg.

SPG paid US .75 x 175,000 or $1375.

US paid $2000 or maybe less for the 2 F tickets.

I'm guessing that AMex pays in the 1% area as that is a common cashback number and SPG probably is one of the more expensive points. I'm guessing that when you convert SPG to airline the don't make much but don't lose much either. I'm thinking that US lost money on this but that generally they do make money overall as some miles never get redeemed or redeemed for cheaper awards.

Remember that Swiss can use capacity control and therefore are only going to give award seats when they are 99% sure that the seat will not be sold. I think they get a fraction of retail price. Also note that F seats are only twice the mileage of Y seats so I am betting that the cost to US is only about twice as high. Considering that airlines are generally more willing to sell the cheapest coach seat more often than an award seat you can bet they get less for the coach award then the cheapest coach fare.

If I had to guess, I'd say a partner gets 50-70% of the lowest coach fare and an F seat is double that number.

Way, way less. International F/J fares are inflated, because airlines know most of the paid seats go to people who are not price-sensitive: business travelers spending the money of anonymous stockholders or wealthy individuals to whom either $1,000 or $10,000 is petty cash. Many of the seats in any premium cabin, though, are occupied by people who redeem miles for tickets or upgrades. Others go at very deep discounts to companies with corporate travel arrangements with the airline, deals such as the AmEx Platinum* two-for-one offer, and so on. The airline revenue from either cabin isn't even close to what you'd get by multiplying the fare by the number of butts in seats.

I suspect the transfer price for a seat among partners is close to our perceived value of the miles needed for the award.
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*Only real AmEx Platinum. Not to be confused with platinum-colored AmEx affinity cards such as those branded for Delta, Hilton, etc.

I think both analyses are right. Swiss in their A 333 has 8 FC seats and they make two available per flight from NYC to Zurich. I followed this for weeks and knew the exact day it would become available and actually snagged the tickets at 2 AM - yes, I'm as crazy as the rest of you.

But the economics of the whole FF thing is amazing to me. Yes, some airlines make more money selling miles than they do flying airplanes so they have no choice but to make some seats available, but I always feel like I "stepped in it" when I manage to get those FC seats for miles.

It's a system where everybody wins. Each party makes a profit along the way, from Amex-SPG-US-LX.

My educated guesses:

Amex pays SPG ~1.4 cents per SPG point

SPG pays most airlines ~1.1 cents per mile,
(more than most CC companies pay their afflilated airlines. The CC companies get the lowest rates - only they have that kind of buying power)

Alliance carriers pay each other ~.7 cents per mile
(amount is likely based on a function of distance flown x class of service, not number of miles redeemed)

In the end, it is LX that provided stevens397's seat for rather little compensation.

This is a good deal for LX ONLY IF:
1) stevens397 would not have bought tickets on LX instead of using miles had miles not been an option.
2) The F cabin would not have sold out as paid tickets for far more compensation than LX gets for award tickets.

LX could be certain they were only putting award pax in unsold seats by making them standby rather than confirmed, but the passengers would revolt!

Where does that number come from? I'd never imagine it to be even close to that.

I'd guess that it is in the low one cent range. Why do you think it would be less than that? I'd guess the airline miles are around one cent and that SPG is probably a bit more. Otherwise SPG would probably lose a bunch to those who transfer points.

Most cashback cards are 1% so I am betting that in a competitive market those issuing miles are also spending in the 1% area.

Not sure I agree. As I said earlier, the airlines see miles as a cash-cow and the only way the system works is if they make some seats available - otherwise none of us would play the game or we would migrate to those airlines that allow us to redeem those points. But as I said, we you do score, it feels real, real good!

Have to keep in mind that the award seats are subject to capacity control.

On top of that, airline seats and hotel rooms are more perishable than produce in grocery store.

If you are not the type who would actually shell out $13K for an F seat, then dont count the value of your miles such, though admittedly it does make one feel very very good.

CC companies pay their affiliated airlines about 1 cent per mile. Number is based on a combination of analyzing investor airline statements along with FF miles data published by Randy/Inside Flyer.

CC companies buy the most miles - far more than SPG does from any given airline. So CC banks logically pay the lowest rate of any miles buyer.

Amex over the last 10 years has done comparatively little to promote the SPG Amex card. If Amex paid SPG the same per mile they pay Delta, they would likely run a similar number of promos/incentive offers. Based on this and the fact that SPG provides a 1.25 transfer ratio, it is reasonable to assume Amex pays more for SPG points than Delta.

Not sure what number your imagination came up with but my numbers are at least close, based on reason and data.

Can you provide a source for this? Based on the few instances I've seen hints of these values (e.g. balance sheets, using BMI cash plus miles rates, etc), I believe wholesale is closer to .5 cpm.

Based on what the deal Citi struck up with AMR last year on a very large advance payment portion of the miles stretching into 2005 or 2006, the lengthy thread in AA forum at that time speculated the cost was below 1 cpm, but more like at 0.6 to 0.7 cpm. (The deal is structured a way that is not easy to pin down but the guesstimates seem to finally come up to the consensus of the above numbers.)

Is it this thread?

http://www.flyertalk.com/forum/ameri...-aa-miles.html

Or, a different thread? (I ask because in your most recent post to the linked thread, you refer to another discussion.)