There are many possible answers to that.

First of all, at Southwest (which is the airline that prompted this thread), they fly point-to-point-to-point (not hub-and-spoke like most other airlines), and they might fly a route simply because they need to get from point B to point C, and selling tickets is better than flying an empty positioning flight.

Second, once again at Southwest, they've chosen to fly on one plane type. They can't size to a smaller plane if the market is smaller. But they may not want to give up a market just because it's not perfect for their one and only plane size.

Now, something that can apply to many airlines: Some routes to small airports are subsidized by local forces.

Now, something that can apply only to multi-class airlines (and thus not Southwest): If the route fills up first class with paying passengers, who they hell cares if half of the back is empty?

Now, something that can apply to all airlines: If the route fills up half the plane with people who (because of booking late or any other reason) pay the much higher fully refundable (business) fares, that can more profitable than a plane that's 100% full but all at discount prices.

Now, something that can apply to certain bigger plane types especially: Some routes are paid for by cargo (this is why American flew big planes to small Caribbean destinations for years, for example).

And on, and on, and on. Ie, if you're not the in airline business, you may not be aware of how complex the profitability of a given route can be, and it's far from being as simple as whether every seat is sold out or not.

They want to keep a relationship with the banks?[/QUOTE]

I just don't see it, personally. That relationship was incredibly important when there were so many airlines that a true Chapter 7 bankruptcy liquidation was possible. After 9/11, the government was really going to let United go completely under. The credit card companies were a lifeline and the cash the airlines earned from selling miles was critical to survival.

Now the airlines are too big too fail if the US government wants to keep most international routes out of the hands of foreign carriers, which it has always wanted to do. If something terrible happens, the government will subsidize the big three, probably even the big four airlines. It can't go to the Big Two for competitive fare reasons. An oligopoly is bad, but a virtual monopoly is worse. The banking lifeline will not be needed. And with the better capitalization and lack of excess capacity that exists now, it is less likely that a traumatic event will put the airlines in distress.

The cash that airlines get from selling miles is relatively small compared to selling seats for cash. And just because they devalue, that revenue will still go on for a long time. The general public is not as knowledgeable about these programs as FTers. Lots of people will still sign up for mileage reward cards, so the credit card companies will still be buying miles from the airlines. It will take an extremely long time for devaluation to cause most customers to ignore mileage-related credit card sign-up bonuses and ignore the miles from spending.

Yes. Airlines receive a whole lot of revenue from banks from affiliate credit cards. The airlines believe, correctly or not, that this revenue is profitable. If customers switch to non-affinity cash back cards like Barclaycard Arrival Plus or Capital One Venture, that revenue will end.

Customers will switch to cash back when miles and points become clearly worth less than 2% (or even 1%) cash back. Due to inertia, that switch will lag by several years. Once the switch starts in earnest the airlines will have a very difficult time reversing it. FlyerTalk is a leading indicator of when that switch will begin. I look for it to start this year. I believe Southwest has already passed the point of devaluation needed to kick off the big switch. I'm going to make that move myself later this year.

I have a technique that I had previously been using my Chase Southwest card on because I have a need for four Southwest flights a year on two routes in which if has the best schedule for me. I have now switched to using my Barclay Arrival card because the 2.2 percent will allow me to buy those four Southwest flights using my Barclay points and still have some credits left to offset transportation costs. I am really screwing Southwest, aren't I. Now I am giving them cash revenue that exceeds what they would have earned from selling miles to Chase.

The only reason for an airline to not devalue in the current environment is for one airline to not devalue at all, and to use that as a marketing technique to get more paying passengers who believe they will be able to use their miles if they earn those miles. If an airline said the distance between cities has not changed, why should it take more miles to fly between them, now? That airline could even use the old Southwest advertising technique of having its airplane wear a white hat while the other airlines wear a black hat. It could be a simple marketing campaign. No devaluations and at least two business-class award seats on every flight (including international) and at least ten award seats in coach on every flight.

But none of them are taking this approach. They are all devaluing, so it must make economic sense for them. I suspect if I were a consultant to an airline with no accumulate personal miles, I would come to this same conclusion.

If the FF program is little more than a way to sell distant future seats at a big discount, then devaluing continually makes perfect sense. I believe that Southwest's program fits this description more closely than any traditional FF program.

I'm not sure the airlines would like that description. It is a little too intriguing to the attorney who would file a class action lawsuit that the devaluation was so extreme that it violated a promise to provide that future travel at a rate reasonably consistent with the award travel rate existing at the time the customer obtained the miles/points

Please point to the major U.S. frequent flyer plan that makes such a promise. It doesn't exist, IMHO. Typical language for nearly 20 years has made it very clear that:

- points/miles are the property of the carrier, not the individual

- terms can be changed unilaterally by the carrier

- plans can be terminated on fairly short (six months) notice

The OP has a point even if there may be less certainty to the valuations as presented. (Sales at $0.01 per mile? I recall something on the order of half that for DL and AA but won't go digging through annual reports to confirm.)

Carriers have lots of data about breakage and with tens of millions of participants in major plans, the plans are demographically diversified - not a big fraction of those tens of millions will redeem so obsessively as the deep FlyerTalk crowd. Carriers really won't want to cede control: they want a safety valve (changing earning rates, changing redemption rates, changing fees, imposing time restrictions) to make sure $1000 worth of points never displaces a real $5000 international business ticket.

I've pushed the family into cash-back cards for better value. (Selfishly, too. It's easier for me to handle their ticket buying that way, instead of digging, digging for Saver redemptions on legacy carriers.)

I was being mildly sarcastic, but I do believe that if they took the devaluations too far, some court somewhere might rule for the passengers in a class action suit. The marketing and advertising certainly promises free trips and US Airways pilots and flight attendants openly hawk the credit card sign up bonuses during the flight (saying things like "that is enough miles for a free trip"). If they cancelled the programs and made the miles truly worthless, while the airline itself was profitable, lots of class action attorneys would pop up, figuring they would get a settlement without going to court on the precise program terms and conditions. A devaluation is the same - just an injury to the mile holders who acquired the miles while the redemption rate was X - instead of a death to the program. The airlines have to determine how badly they can injure without having adverse consequences (either legal or business consequences) to themselves.

If they canceled the programs, there'd be Congressional hearings about it. It'd be a circus. They have the *right* to do it, but it's a nuclear option they'd never use.

If they did either of the following - (a) changed the underlying 25,000 mile domestic award that has been advertised directly and in conjunction with bank partners for many years or (b) instituted mandatory airline fees (e.g., YQ) on every award - then I think we'd have massive class action lawsuits and maybe even Congressional hearings as well.

Fortunately for a legacy-style program, they can simply use capacity controls to protect the flights that will sell out. They keep the 25k award on the table...and you are usually flying Sat-Tue-Wed to get it. They can also devalue international and partner awards because they know the masses aren't paying close attention. They can keep the theoretical redemption at a very high value, keeping the value of the miles high in the minds of the credit card user, but closely control how much of that value they actually allow passengers to redeem.

The problem truly lies in the Southwest-style system. I carry higher balances of AA, US, A3, UA, etc. because I'm holding for the "right" award. I don't sit on miles forever due to devaluation fears, but I do hold until I get my "ideal" J or F award...and because of capacity controls I know the airlines are using data to *likely* give me a seat they won't otherwise sell.

With Southwest, I'm redeeming points the instant my balance reaches the value of a one-way MCI-MDW segment. It's immediately displacing revenue, even if I'm redeeming on a flight that will later sell out. It's this "flat" nature of WN - both earning and redeeming - that distinguish it from a hotel program that is flat (dollars-driven) on the earning side. On the redemption side, I'm still holding hotel points for the ideal use...and they still retain some levers to control me from redeeming the most in-demand room.

System-wide load factors are in the low 80% range. There are still a substantial number of unsold seats to accommodate last minute walk-up sales, awards, employees, and irregular operations. Not as much as there used to be, but still a reasonably fluid system.

I think it is premature to assume that the industry will not add capacity, especially if there are sustained low fuel costs.

Is RR 2.0 "doomed?" My impression is GK considers it extremely successful. Do devaluations necessarily foretell a death knell?

Even if we suppose RR 2.0 is doomed, imagine that from introduction it had been a simple 10 points per dollar across all fare classes, for both earnings and redemptions. Also imagine there had been no 50K signup bonuses making CP so easily in the grasp of so many people. Would we be seeing such early devaluations? A program like would have been even more boring than RR 2.0, and probably far less successful by GK's reckoning, but would it have been unquestionably "doomed?"

It is said that bad facts make bad [case] law. I'm not yet convinced the answer to the query posed in the thread title is "Yes."

Thanks for this refreshingly thought-provoking thread.

Airline frequent flier programs for the average traveler are only hanging by a thread because the bloggers continually pump card churning. If the banks scaled back their bonus miles/points and/or the bloggers were not rewarded for hawking credit card applications, frequent flier programs would be only for those who pay full fare for premium travel.

Well some airlines are run better than others. All I can say is it's been a long time since I've seen more than a handful of empty seats on a plane.

Total load domestic factor for 2014 was 84.58%. The peak was July with a non seasonally adjusted load factor of 87.78%.

As you point out there are a number of reasons airlines might want to keep those seats available so they can profit from walk-up sales and deal with irrops effectively. I don't know exactly what point flights are "full" for the purposes of saying awards are necessarily forgoing revenue but observing airline behaviour with restricting availability and devalueing programmes I suspect we're reaching it.

Keep in mind that prior to 2001 total load factors were around 70% and off-peak loads dipped to around 60-65% regularly. That was the environment the FF programmes we enjoy today were crafted in.

I think that boring is a very good and thought-provoking term.

For a lot of people in the Midwest, the best days of the Southwest program was when a person could fly eight $40 - $50 short-haul roundtrips (and/or do some credit card spending) and get a free flight to Vegas or Orlando. Now that the program is just a rebate system based on money spent and distance travelled, it is really boring. There is no perceived "something for nothing" aspect that once existed.

For the so-called majors, what makes this stuff interesting to most FTers is the possibility of premium cabin international travel that simply would never be purchased with cash if mileage redemption were not available. If the programs change so that there is an assured 1 cent to 2 cents value of miles based off of published fares, that truly will be the end. I cannot even imagine something less interesting. Few aspire to save $400 by redeeming 40,000 miles that were increasingly difficult to earn in the first place, and few have 500,000 miles to blow on an international business class fare that retails at $5,000.

Unfortunately, I can see that happening if excess capacity declines further and sufficient demand exists for the airlines to sell those premium business class fares for cash. We can already see the devaluation of miles by the lack of premium class international award space, and by the increase in mileage needed to redeem what is available.

The problem with a great deal for one party is that someone else is on the other side of the trade, and that someone else has the ability to change the terms and conditions.

I didn't read every word of every post but I have a few thoughts:

1) Yes, airlines execs look at accounting. I don't know about airlines for sure, but after 35 years in insurance I KNOW insurance execs look at accounting.
2) Nobody on FT knows how airlines really look at things. It would be logical that the same companies that do "revenue management" to squeeze every dollar out of a revenue seat would do the same thing out of seats sold for points, but we don't know. We also don't know how many points go to FTers who extract every nickel of their value and how many go to low-frequency users who will use them inefficiently or let them expire unused.
3) Notwithstanding the T&C, state regulators will get in the act if the carriers go too far. I'm not positive about this, but here's my memory. FF programs started in the late 70's or early 80's. Award charts were much more generous then. In 1988, Eastern Airlines, strapped for cash, did a promo "Fly once in the first quarter, get triple miles all years." Everybody else matched that. So LOTS of miles were given out in 1988. By the early 90's airlines were starting to devalue, but the state Attorneys General pretty much got together and negotiated with them on how much they could devalue. I remember specifically that most of my miles were on United and I had a bucket of "old" miles that could be redeemed at the "old" (more generous) rates through a certain date, sometime in the late 90's.

Remember too that these are still marketing tools. What will a carrier do, increase all award requirements by a factor of 10 but then increase all future earnings by 10, so that you now get (say) 300,000 points for signing up for a credit card rather than 30? For all the whining about devaluations, the points are still certainly worth something, especially to FTers who optimize their value. Through various means and methods I have about 2.5 million miles saved, and while I'd be quite happy if I could get two first-class tickets to Australia for 120,000 points (which was the 1980's price on United, although honestly I think "first" then might have been what we call domestic "first" now), I can still use my points. They're hardly worthless.