The bottom line is that airlines make serious cash off of FF programs. The NY Times covered this earlier in the year (see http://travel.nytimes.com/2008/04/01...irlines&st=cse), and made light of the fact that AA generated something like $1 Billion in revenue for the sales of miles last year while UAL pulled in close $800 Million. When you consider that AA had somewhere between $20 and $25 billion in revenue last year, the FF program alone brings in between 4% and 5% of the total revenue for the company.

This revenue, as previously pointed out in this forum, is coming from the sale of miles (to credit cards, rental car companies, online retailers, really anyone who will buy them for marketing purposes). Airlines have full control over the exchange rate between miles and the goods/services they offer, thus they can ensure that they are always selling miles for more than the dollar value of how they are being redeemed, or in many cases, not redeemed. As the opportunity cost to airlines for reward seats has increased as load factors have increased, we have seen changes in FF programs to keep them in the black. The elimination of additional bonus miles, the topic that this thread started in, is just one of these changes - others include limiting reward seats, adding lower cost (to the airlines that is) reward choices, having miles expire, and so on.

Of course, the FF program as a means of encouraging loyalty is also very important (that is why these things started in the first place). It's harder to quantify the financial impact of the programs without having access to the airlines' data, but it is a fair assumption that they know what they are doing. For example, I am sure they can quantify the impact on revenue (and likewise profit) attributed to their programs - further, as already discussed, they can then continue to tweak the redemption side of the programs to manage thier costs. As long as they do a good job running the programs and control their costs as the business landscape evolves, they will continue to make money off of the programs.