Go Back  FlyerTalk Forums > Miles&Points > MilesBuzz
Reload this Page >

50% margins on FF programs?

50% margins on FF programs?

Old Apr 26, 18, 2:15 pm
  #1  
FlyerTalk Evangelist
Original Poster
 
Join Date: Oct 2004
Location: Bay Area
Programs: DL SM, UA MP.
Posts: 10,557
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/
wco81 is offline  
Old Apr 26, 18, 2:56 pm
  #2  
A FlyerTalk Posting Legend
 
Join Date: Apr 2001
Location: NYC
Posts: 69,136
Originally Posted by wco81 View Post
But the throwaway point is that FF programs have better than 50% margins...
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.
Yoshi212 likes this.
sbm12 is offline  
Old Jul 22, 18, 1:28 pm
  #3  
 
Join Date: Aug 2015
Posts: 25
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
Skar4000 is offline  
Old Jul 22, 18, 2:44 pm
  #4  
 
Join Date: Dec 2009
Programs: SPG Plat
Posts: 437
You can’t really know what their commercial FF margins are since the margins they quote likely include a lot of miles “sold” to the flights department. There’s some tax stuff too probably. Especially outside the US where most miles are earned by flying.

It’s like how Apple Ireland is super profitable but rest of Europe isn’t since Apple Ireland “sells” Apple France IP license at a price of Apple’s choice - oh and it happens Ireland has lower tax rates..
silverforumsurf is offline  
Old Jul 23, 18, 12:12 am
  #5  
FlyerTalk Evangelist
 
Join Date: May 2002
Location: Pittsburgh
Programs: MR/SPG LT PLT, AA LT PLT, HH GLD, UA SLV, Avis PreferredPlus
Posts: 25,051
Originally Posted by sbm12 View Post
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.
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.
CPRich is offline  
Old Jul 23, 18, 12:28 am
  #6  
 
Join Date: Feb 2002
Posts: 1,436
Originally Posted by CPRich View Post
But what is the actual cost of carrying an incremental passenger?
depends on the LF and that is "very high" currently
audio-nut is offline  
Old Jul 23, 18, 12:47 am
  #7  
FlyerTalk Evangelist
 
Join Date: Mar 2008
Location: Netherlands
Programs: Gold: A3, KL Silver: AZ, BA
Posts: 23,972
Originally Posted by Skar4000 View Post
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
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
irishguy28 is offline  
Old Jul 23, 18, 4:35 pm
  #8  
FlyerTalk Evangelist
 
Join Date: Jan 2005
Location: home = LAX
Posts: 24,029
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.
bigbuy likes this.
sdsearch is offline  
Old Jul 30, 18, 9:38 pm
  #9  
FlyerTalk Evangelist
 
Join Date: Nov 2000
Location: Atlanta, GA, USA
Programs: Frontier 50K elite, EY silver, DL estranged 1MMer, Spirit VIP, AA/UA (and CO,NW) once gold now dirt.
Posts: 26,905
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.
RustyC is offline  
Old Sep 16, 18, 1:41 pm
  #10  
 
Join Date: Dec 2014
Posts: 46
Does the 50% margins include the benefit from forfeited/unused miles?
walkertalk322 is offline  

Thread Tools
Search this Thread