The reported estimated $2bn price of QFF in recent media circles had me asking - how does a FFP work from a business perspective? For example: when a *A member earns points for flying RTW on *A airlines, how are the FF points credited/distributed between carriers? How is a $2bn price tag given to a department that would typically be seen as a cost centre?
The type of mechanics used behind the scenes sounds interesting, anyone a expert in this area?

Welcome to Flyer Talk haydensydney

This isn't really *A specific so I expect this thread will be moved.

While the points that have already accrued are a liability (obligation on the frequent flyer program, FFP, to provide future benefits), many FFPs are seen as profit centres by airlines - ie the income they bring in outweighs the costs they incur. This could be by selling points to partners (eg to affiliated credit cards) and/or by incremental effect that the FFP has on loyalty - people stick with the airline and pay more than they would otherwise to get the benefits, at least that is the theory.

This profit has a value which in most cases is hidden as part of the airlines market capitalisation. However, Air Canada realised some of that value by spinning off their FFP Aeroplan. Qantas is looking to do likewise although the events of the past year (failed takeover bid and falling markets) have delayed action.

The recent Qantas half year results presentation included some information on this, in easy to understand language. Link to my blog entry about it.

Thanks Kiwiflyer, some good information.
I might hunt around on wikipedia or trawl through the net to see what I can dig up. Oh, re: category of post - I was really unsure where to put it.... Ta

I had an interesting conversation with Larry Kellner at the first CO DO about points. We were leaning on the back wall during the raffle (I think they gave away miles in 50K and 100K lots) and I asked him about the value of a mile. The really fascinating thing he told me was that CO actually tracks the miles to flights and credits awards against similar revenue trips.

For example, if I'm using 100,000 OnePass miles for tickets to Hawaii, the system will go back and find flights where I earned miles that are similar in cost basis to the Hawaii ticket. The miles are then charged to the cost of that flight. This is how they keep the cost of miles in the CO system balanced. (We didn't go into the miles for sale issue.)

I must have said something like "how can you possible keep track of that" which is when he told me about the magic computer he has where he can enter your OP number and see your entire history...

FWIW
DLM

i seem to recall a number of threads discussing both academic papers and corporate presentations, as well as annual reports like Kiwi Flyer mentioned.

like this >
http://flyertalk.com/forum/showthread.php?t=601815
but thats a fairly small thread, and i definitely remember some big ones.

interesting thread & welcome to FT, haydensydney.

I think from a business perspective, this is a fascinating example of pure marketing at its best. Portal marketing and relationship building are now the core of the entire system and it's evident in the fact that we have alliances with airlines themselves, as well as several hundred non-flight partners going beyond just hotel & car (or merely 'travel-related') entities. Why, I think I once saw that you could get airline miles for giving blood! the business of miles has reached everything indeed, so ^ for market exposure!

It is obvious to me that nearly every 'points' program I can think of in the US today, at least, is based on the same general concept as the FFP as we know it right now. Hefty dababases run by today's more complex computers have made this more accessible and user friendly for business. Everything can be tracked so that CO magic mentioned above is exactly that to the untrained eye. As well, everything depends on another part or partner to exist and sold as a trail to follow (or a journey in itself) for the eager consumer searching for the trick to follow it! If the consumer is led to believe he/she can 'win' then he/she will play a lot more. Simple. In this sense, everything is based on a rebate scheme mentality, whereas the consumer perceives the ultimate savings when initially-and eagerly willing to pay more for the product. One receives the miles as the 'rebate' in the case of the FFP.

Now, some could argue that most economy airline tickets are often lower than they could be in terms of overall cost to the consumer, but some business or first class tickets are much higher than many consumers think they ought to be and so this may balance that out. As well, some here have noted that whenever flight prices have gone down, mileage requirements have gone up and/or redemption options have altered (in some cases, diminished) to balance it out. I cannot be sure of either of these but I do know that the airlines obviously still want people to still pay money for their tickets over the use of mileage awards.

Well, I hope that had some validity to it...
I am going to try to think more from this perspective, because many in FT know me here as the 'consumer advocate wanna be,' so maybe this thread will be a much needed burst of opposite thinking just for the sake of it. I hope I'll last.

MM

IMHO, the essence of the FFPs is bribery--and it works!

The programs are pretty much designed to influence heavy business travelers (who usually are not paying for the tickets) to choose one carrier over the others by giving them valuable stuff such as free tickets that they do not have to pay for.

FFP programs are anti-competition and anti-consumer. Don't compete on price or quality, instead, lock-in customers with miles. FFP are one reason US airlines have gotten so very lousy.

Why do I get to fly F to India for free (more or less) when my grandmother (hypothetically) has to pay big bucks to go coach?

Hey,
Heres a good article that provides a good narative on the frequent flyer business.
http://business.smh.com.au/frequent-...0320-20rd.html

One answer came to me from a friend when I asked why she paid $100 more for a ticket, something domestic, I can't remember where it was to, but it was less than 1000 miles each way.

We live close to MSP, IIRC NW was around $360 and UA was around $460.

She said it was because she had 16,000 miles in her account and this would get her that much closer to 25k for a free domestic ticket.

I explained to her that at that rate (about $100 extra per 2k miles) her "free" coach ticket would cost her $1,250 extra if she kept thinking that way.

I think she felt sick for a week after that, and she is not a dumb person. But, it goes to show that loyalty marketing can work and that the average person does not know what miles are worth on most levels, especially any marginal value the miles may have that you are personally paying for.

I made her sick again when I told her how to get 4k UA miles for signing up for Netflix for a whopping $8.99.

My wife got the 2k UA miles for $4.99 and this put her never used UA account to 25k. She will fly and if I go with her, we need to burn miles to do that trip. She will have UA on her mind after the flight and they can retain her as a customer if all goes well. Things like that still work but as some of us know, air travel today can be riddled with more problems than positive experiences. The only solid thing, therefore, is the mileage stuff.

From this perspective, both UA and Netflix make money in portal and relationship marketing. That is how most companies are doing it today and it's working magic.

If frequent flyer points are a liability on account books, are the point holders creditors when the airline goes bankrupt like Aloha just did?

The Shaper Image stores declared recently and as a result, all the gift cards people bought became instantly worthless until and unless they restructure.

Sharper Image is redeeming giftcards subject to restrictions...

http://sharperimage.com/us/en/cust_h...ificates.jhtml