Hi
I know that this is actually the wrong place to post for this question but i couldn't figure out any better place...

I'm writting a paper about the impact of frequent flyer programs on airlines regarding the economical, commercial and marketing aspects. I'm looking for any good articles/papers on the net or any practical books.

Can anybody gimme some tips?
Thank you
Flavio

You've come to the right place - approaching FT members. I'm relatively new to this site and haven't contributed much. But I have learned SOOO MUCH just reading everyone's contributions - and everyone's so helpful and nice.

Good luck on your paper.

Welcome to FT, Flavio!

As one who has been in a FF program since they started, I can say for certain that after 24 years if they were not a net economic benefit to the airlines they would have closed them down without even thinking about it.

They have fine tuned the program, as far as maximizing ways to make money by "selling" miles and at the same time diminishing their value by upping the miles for certain awards and minimizing availability.

Now if they could only run the actual airline as adroitly and profitably as their FF programs.....

There should be substantial literature in the marketing world re: frequent flyer programs. I believe there is at least one case on AAdvantage written by HBS, I know for a fact there is one on Hilton HHonors, and I seem to recall reading articles from journals about the impact of customer loyalty, especially focusing on ff programs.

If you don't have more info by tomorrow I will try to dig some stuff up for you.

I don't agree that this is necessarily the case. The structure of some FF schemes has conditioned those airlines' markets into behaviour that is financially ruinous for the airlines.

For example, if you can depend on unlimited free upgrades into premium classes, why would you spend the money buying a premium class ticket? Is it any surprise that some airlines fill their premium cabins all the time, but sell very few premium class fares?

Of course, the airlines concerned may now find that they can't easily backtrack on that part of their FF scheme for fear of losing even more business to competitors who are still giving away their premium class product for free. But I wouldn't say that this could properly be described as a FF scheme operating as a net economic benefit to the airline, nor of there being fine-tuning to the airline's advantage.

Well, there you have it. Five posts into this thread and the inevitable "FF programs are the cause of the airline industry's financial troubles" theory appears. With all due respect to Globaliser, the notion that FF programs have anything to do with the industry's financial issues is ridiculous. The airlines have never been shy about dropping/cutting benefits and doing almost anything, including removing olives from drinks, in order to reduce their costs. As noted by inlanikai, if FF programs were net losers, you can bet that at least one airline in the past 24 years would have eliminated their program entirely.

FF programs are profitable for airlines. They sell numerous miles to partners, many of which are never redeemed. The airlines control capacity on award travel so they are not giving seats away for free. In most cases, the award seats are seats which would never be filled by paying passengers anyway. And the cost of flying one incremental passenger is about $25, far less than what the airline receives from mileage sales. Further, the programs maintain customer loyalty in an era where price, and almost nothing else, is king. Air Canada sold its FF program (AeroPlan) to a firm outside the airline business, so there is at least one business who felt a FF program is a profitable endeavor. Searching Flyertalk should provide other threads that discuss this topic.

Flavio:
Welcome. You might start by clicking around here:
http://www.insideflyer.com/aboutus/p...tats/index.php

This is an index of the many facts and stats of the industry that everyone uses.

As well i would highly recommend that you consider subscribing to insideflyer.com and click through many of the back issues of various topics. It's sure to give you plenty to think and write about and you also might click on over to:
http://www.colloquy.com which i also contribute to. It's really designed for the loyalty business itself. There are several white papers you can read about the industry, but keep in mind that some of these have client bias in them and just do some additional homework to measure and compare what you deduce.

Hope this helps.

P.S. Updating MileKing's comment. Actually Aeroplan has not been sold to an outside firm.... yet. A prior attempt at investing in the program fell apart and though it's future is likely to be that as a public spinoff, the day has not actually come yet.

(Deleted - On second thoughts, it's better that I don't enter into arguments on this issue in a forum where many members have a vested interest in believing that all FF schemes are a positive boon to all the airlines running them, as opposed to something that some of them don't dare to be without.)

FF programs are the best profit centers going for the airlines. Imagine if the government allowed you to build a mint and print your own currency, sell your currency for actual profits (dollars), and then decide on your own whether or not to honor your own currency. I'll take that gig!!

The key is marketing: convince the pool of buyers that your currency will be honored slightly more often or for slightly more value than the "mint" down the street. That's what keeps your currency attractive to individuals and its value propped up among institutional traders (for example, the major banks that buy and sell billions of miles per year).

The upside to all of this (for us) is that most of the airline profit in the mileage game is thanks to people who buy miles all the time (whether by flying or through partners) but don't really pay attention to how the game works. They let their currency expire or simply never really use it well. That means there's room for people (like us) who have an interest in these things to maximize our return on investment in this artificial "currency market".

To sum it up: both the airlines and the savvy traveler are subsidized by the tens of millions of people who traffic in FF miles but never use them wisely or at all.

Randy, thanks for the correction. I did not realize that the Aeroplan deal never went through.

Way back, some restaurant decided to give free bread to customers who ordered a meal. (Maybe it didn't really happen that way, but it could have.) Since its prices were about the same as everyone else's, people went there for that reason. The profits on the added traffic more than offset the small cost of the bread.

Other restaurant owners watched this happen. Pretty soon they all gave free bread. It became a competitive non-issue, though some restaurants got good reviews in InsideEater for their fine bread. It was an added expense for all restaurants. Prices were raised to cover the cost of the "free" bread, so restaurants didn't lose. The only losers were those who didn't eat bread, but had to pay for it anyhow since the few restaurants that didn't offer it tended to have inconvenient hours, a limited menu, or some other drawback.

Same thing here.

Indeed, I think the real thing to look at is all the selling of miles and promotional tie-ins as a profit center. Maybe that wasn't the original intent - and there are real concerns about the widening imbalance between unredeemed miles and available seats - but that's the kind of thing we have today, at least in the U.S.

For a good argument on how powerful the idea is/was, look at the Asian and some European carriers that don't do FF programs particularly well, but find they still have to offer something. Korean, Japan Airlines and Malaysia Airlines have always seemed like laggards there to me, especially loath to award miles across alliances on their domestic routes. You also don't often get double miles for elites except in the U.S. All the promotional tie-ins, non-flight miles and elite perks are definitely cases where America has led the world and is still far in front.

Forgot to mention that some ethnic restaurants continued to do well despite not offering bread, but they had to have something else going for them to make up for it.

I am curious - have you ever been elite on a FF program that provided unlimited free upgrades? If you have been elite on one of these you will also have known that fare class is an important ranking factor and only the truly stupid would "depend" on free upgrades.

I can only think of USA-based, primarily domestic flights that offer unlimited free upgrades - and the pricing dynamics of Economy fares plays a much larger role in this than "conditioning the markets to ruinous behavior for the airlines".

If you actually believed your thesis, explain why all N.A airlines don't have unlimited free domestic upgrades - after all the market would reject any airline that does not offer this - Econ 101?

No, I'm sorry but I'm really not going to get into this. There has not been a single post in this thread addressing the issue of the effect which FF schemes and benefits have on purchasing decisions and behaviour. I may be right or I may be wrong, but this is not a forum in which any sensible debate is going to take place.