I can't figure out how partnerships between FF programs work. How is the deal structured so that each airline gets burdened fairly by redemptions? Do AA and Cathay Pacific, for example, agree to pay each other compensation for each cross-club ticket issued? And if that compensation is cash, doesn't that partially defeat the business goal of a FF program (gaining loyalty with non-cash future benefits)? Or is there simply a formula that sets aside a maximum numbers of seats on each qualifying flight for partner awards? Any method I come up with seems fraught with the potential to be lopsided.

I found myself thinking about this very question as I fell asleep last night, and remembered this post, which I had previously ignored, and when I checked it today I was hoping to find some answers.

So let me throw out some speculation with the hopes it will be chewed up and dissected by those who really know what they're talking about.

1) Loyalty programs have evolved into marketing programs. They are designed to get you to fly, stay, rent, etc., not to keep you loyal (no matter what they say their purpose is). That is why the credit cards, long distance, and cross industry partnerships have flourished.

2) I know that at least with Hilton HHonors, cash is exchanged for points and miles back and forth. That was documented and discussed in the Hilton forum a while back. I imagine you will find that thread and the document it links to of interest.

3) Inter-airline partnernerships are what I was trying to figure out last night. If I fly UA with DL miles, is DL paying UA? I imagine so. I suspect that intra-airline programs put the FF program in one cost center, and they negotiate a per mile reimbursement that goes from FF to operations cost center, or something like that. Inter-airline agreements would be modelled similarly, I imagine.


So, am I close? Somebody shed some light on this, even if it is to point a link to a good article on the subject (as I did in #2).

[This message has been edited by Rut Dog (edited 02-24-2003).]

I am certainly not an expert on this, so I am speculating to stimulate discussion.

I believe I did read that NW and Midwest Express are ending their relationship because it was lopsided for one party. My guess is that airlines like to "net" out these deals, meaning they expect close to the same number of their miles used on the other airline as the other airlines are used on them. I would assume there is some sort of cost attached to the airline who has more of their miles used on the partner, but I would suspect the difference in miles is often low.

Now on the other hand, non-airline partners buy miles in large quantities and get good deals, this is a major money maker for the airlines. I agree with the previous post that FF flyer programs have turned from loyalty programs to markieting programs, at least until you hit elite status.

Rut Dog,

Thank you for your link to the excellent post on Hilton Honors. Fascinating, I agree. One particularly relevant revelation (try saying that 3X): every franchisee pays a fee to the program for each stay. The confidentiality of that document goes a long way, I think, in explaining why there's so little hard public data regarding this subject.

~BK

I would think that the aspect of these programs as they relate to an airline, rental car, or hotel program affected by a bankruptcy filing would be part of the public record, unless sealed by the court for cause.

I had a conversation with someone about this, and he made a really good point, that the company decreasing their points balance is being relieved of a (potential) future obligation. This makes a LOT of sense to me.

So if I transfer FF miles to HH points, the airline is paying HH to take over the obligation.

And obviously, if I use airline A miles to fly on airline B flight, A pays B.

Slightly off topic, but perhaps interesting to some FTers on how miles are valued by the companies giving out the miles/points.

I used to work for a .COM that allows redemption of airlines miles for points in their membership program. We bought mileages in very large chunks from all major US airlines, I seem to recall multiple million miles per transaction, and we were paying about 1.5 cents per mile depending on the program. We then mint our own currency, and sell them to merchants (such as Macy's) at about 2 cents per mile, which the merchants can award to their customers.

Our currency could be redeemed one point for each airline mile, and we make our profit on the cost differential, currency spoilage, as well as professional service fees.

Believe it or not, there are expiration for these millions of miles that we bought. We also set expiration for the points in our currency sold to merchants. Therefore there are occasionally promotions for particular programs with miles close to expiration that we will just give away.

Another interesting fact is that the redemption for miles are always highest for American Airline AAdvantage miles. UAL runs a clear second, and the rest of the airlines combined probably were less than AA by itself.

Redeeming airline awards for 2 cents a mile is basically a break-even deal. Which translates to about 1 cent per point for Hilton HHonors.

Each airline's redemption communication process is different. It ranged from using FTP, email (secured and unsecured), mailing a floppy of redemption data, to sending out the files to be converted to Unix format and transferred to a magnetic tape before sending to the airline. This is probably part of the reason that why it takes varying amount of time to get your transferred points to show up. Also, this process happens on a recurring intervals, a few daily, some weekly, some monthly and some on less regular basis.

Each airline has different validation rules for account numbers. Most has check digits that we have to embed in our software that will kick out invalid account numbers. They usually also require matching names and accounts, and kick out non-matches back to us. The error communication process often uses similar technology as the outbound, tapes, floppy, email, ...etc. Often times, when a particular transaction errs out, it takes manual intevention to correct it. There are sometimes transactions that got ping-pong back and forth and took forever to resolve.

I will try to add to this post as I recall them.

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International airlines seat desirability map


[This message has been edited by Jet2K (edited 03-01-2003).]