How much do alliance airlines pay for FF awards?
 

I am curious about this. If I redeem a 140,000 first class award ticket on CX using AA miles, what does AA pay CX?

Ansett is a good guide for this, the liquidators in their report valued points at US$0.0015 (Ansett points are worth less than AA or UA miles by about 1/2), based on the COST of the points to Ansett. Note that this also includes the marginal cost of flying the pax on their own metal. I would guess that each mile is worth about .5 of one cent in interchange fees to the airlines (but note that they would also get a credit for paid flight miles that their members make on each other, which in most cases will contra the reward seats used), which would be in line with the costs they pay each other for "staff fares".

Very interesting topic, I was wondering several times about as well.
Are airlines internally only calculating the "variable" cost of transporting a pax?
How much would that realistically be? In the above example 140'000 miles still comes out to $ 700 - 1400 (at 1/2 or 1 cent per mile).

It appears that some airlines occasionally offer lower award levels on a partner carrier. (e.g. UA would offer a special on AC). Would that mean that UA has an over-balance of AC miles it wants to reduce?

Good question. Do miles/points appear in "normal" company accounts as a liability?

I was wondering about it because of the KLM matching miles promo. Many people are hoping to get > 1,000,000 points, more or less for nothing, out of the promo which in theory should show up somewhere as a liability. I know they can restrict award availabilty and somehow "manage" the impact of award redemption on revenue but it's all a bit mysterious.

I also wonder if KLM managed to "buy up" cheap award miles from NW/CO at the end of last year (post 9/11). Presumably lots of people will use their promo miles for tickets to the States?

- Dambus

Yes, they do, but at a greatly reduced value. The value represents the airline's best estimate at the marginal cost of transporting passengers should all the miles be redeemed for awards on their own airline, assuming no cannibilization of revenue tickets. As you might imagine, this is a very low number.

The value carried on the airline's liability books has nothing to do with:

- how much a passenger should value them
- what airline partners pay the airline to purchase miles (such as a credit card company)
- what an airline pays a partner when a customer redeems a partner award

OzFlyer, are you sure you don't mean $0.015 (one & one half cents)? What you typed is $0.0015, which means fifteen hundredths of a cent! Sounds WAY low to me!

I know it sounds low - everyone was shocked when the Administrators of Ansett mentioned the figure. From memory they valued 70 billion points @ AUD$140million! About .1 of ONE US cent each.