50% margins on FF programs?
 

Travel blogger says American Airlines was asked about sacrificing some margins for revenue growth at its earnings press conference, because the analyst noticed they charged high price for miles.

But the throwaway point is that FF programs have better than 50% margins and that may just be an invitation for banks to try to come and disrupt their business.

https://viewfromthewing.boardingarea...-win-business/

Not really, though. The volume of points sold at "list" price is spectacularly low compared to those sold to partners or distributed to passengers at lower rates. They have a high MSRP so they can constantly be on sale as a "great deal" without actually killing the margins.

The loyalty programs are definitely profitable to the airlines, but I don't think claiming a 50% margin across the board hold up.

yea with 50% margin theres a lot of "safety" built in to fight off competition. But I've seen airlines where the frequent flyer program is the ONLY profitable part of the business.

A few years ago, Qantas's statements showed that clearly domestic and international flights were losing money, but loyalty was so profitable that the business as a whole remained profitable. Makes you wonder if airline firms are just running flights as a loss-leader for loyalty programs

But what is the actual cost of carrying an incremental passenger? It wouldn't surprise me if even points sold at discount to partners have a 50% margin or higher, depending on how you do the accounting.

I don't see how a bank could disrupt the business - they don't have already-flying planes where they can board an additional passenger at nearly no cost.

depends on the LF and that is "very high" currently

I don't think Qantas' domestic division has ever (or at least, recently) recorded a loss; but indeed, Qantas Frequent Flyer has been their best-performing division.

https://www.smh.com.au/business/comp...28-109h8q.html

Keep in mind that at most airlines, a lot of miles expire without being redeemed. That's especially the case with many overseas airlines which have a "hard" expiration (ie, you can't take any action to extend it). I don't know what fraction of miles are thus never used, but it could be a big fraction. Most people who earn miles are not on FT, so you can't assume that they all pay attention to FF programs to anywhere near the same degree that the typical FTer might. I have lots of friends and family who let airline miles and/or hotel points expire. Any one such person may not have a lot of miles, but it adds up if there are zillions of such people.

The revenue-based model with the legacies really devalues loyalty from infrequent flyers (typically vacationers) who fly on low fares and hope someday to get a freebie. That had been a very successful business driver for so many years, and one that Delta used in fighting ValuJet and others back in the 90s. But now that we're down to just 3 legacies (and WN) the competition isn't what it was and the big airlines have been more interested in revenue gain. They'll find a much more depleted base to try to lean on after the next black swan event, and the biz travelers who are still loyal (probably from being hub-captive in a lot of cases) probably think they fly enough as it is.

Meanwhile, the minting of miles for credit cards or via other partners continues, so the ratios with unredeemed miles vs seats available could still be bad. Delta is trying to get people used to higher miles required and no award charts, and others aren't much better.

All of it just gives a huge opening to outfits like the Chinese cheapies, the ME3, Wow and others of that ilk, and WN or F9 or NK domestically.

Would also agree with sdsearch that having lots of miles that ultimately never get used is a big part of the assumptions. Though they have to be mum about that.

Does the 50% margins include the benefit from forfeited/unused miles?