How much money do airlines make from loyalty programs

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If you travel by plane at all, you’ve probably thought about getting a frequent flyer card so you can earn miles for free travel. Or, you may already have an assortment of frequent flyer cards riding around in your wallet. Today’s frequent flyer FF programs offer benefits above and beyond free air travel. And, you can earn miles without even traveling anywhere. The frequent flyer program is an incentive program operated by an airline to reward customers for their continued loyalty. As a traveler, you earn free miles for the miles that you fly on a particular airline. The concept behind frequent flyer programs is that the airlines want their passengers to become lifetime customers. It is much more costly for the airlines to get new customers than it is to retain the ones they already have. So how do they reward you? The more frequently you fly with them, the greater your awards. It all started in , when American Airlines introduced a program called AAdvantage.

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Their purpose was simple: to reward customers for using the airline and promote future customer loyalty. American started the program by using their customer database. They tracked the members’ number of flown miles and put together a reward system of «a mile earned for a mile traveled. It was an instant success. United Airlines almost immediately debuted their Mileage Plus program and upped the ante by offering an «enrollment bonus» of 5, miles! As expected, the other major domestic airlines soon followed suit. Next, the hotel industry entered the game.

Carriers are expanding rewards offers to generate steady revenue from banks as fuel costs rise

Alaska Airlines employees have long received bonuses for helping reach on-time arrival goals and improve passenger satisfaction scores. For good reason. Airline loyalty programs, which began nearly 40 years ago as a promotional gimmick, are becoming increasingly lucrative for carriers. Such programs can bring in as much money as all those fees that passengers complain about, including charges for checked bags and onboard food and drinks. Some analysts estimate that as much as half of all airline profits come from frequent flier programs. In the last few years, most airlines have dramatically overhauled their frequent flier programs. The latest is United Airlines, which as of Nov.

Here’s How Much Airlines Made Off Their Frequent Flyer Programs So Far This Year

From the traveler’s perspective, the glory days of frequent flyer programs have passed. While you used to earn miles according to the distance you flew, meaning that you could earn as much as one free roundtrip ticket for every three or four you paid, you now earn only according to what you spend. Award redemption also used to be a lot cheaper: A one-way economy class ticket to Southeast Asia on Delta Air Lines costs 40, miles today , but cost 32, miles just over a year ago. The list goes on. As bad as it’s gotten for travelers, they often don’t consider the other side of the equation—for better or for worse. Here’s some of that, including the cost to an airline for a frequent flyer program. On the surface, it might appear that airlines are getting the short end of the stick when it comes to frequent flyer programs.

There are no Independent Premium comments yet — be the first to add your thoughts. TripSavvy published an article earlier this year about using «manufactured spend» to maximize credit card-related earningsand that’s only the beginning of the action you can take—both in terms of earnings and weirdness. Maximize your travel. Tom Peck. Subscribe Already registered? John Rentoul. You can find our Airlinds Guidelines in full. Julian Mark Kheel. Cancel Loyalgy comment. Download the new Independent Premium app Sharing the full story, not just the headlines Download. Forty per cent equals Please enter a valid password. Some Flag comment Cancel.

As Ryanair starts charging customers to take a second piece loyaltt hand luggage, we look at the amount of revenue generated by kuch the add-ons.

By the time bags, seat reservation and something to eat are added on, the total cost — while still good-value — is far steeper than first advertised. And, while they might seem innocuous, they actually generate an incredible amount of money for airlines, making up a significant percentage of pre-tax profits.

That might not sound like a lot, but consider this — in H1, the first half of this financial year 1 April to 30 SeptemberRyanair flew Forty per cent equals Ryanair already makes a huge amount of its capital from ancillary revenue, even before the new hand luggage rules came into mkney. This number muhc likely to only go up. The airline was the 10th highest earner from this income source, revealed the report. Some You can find our Community Guidelines in full. Want to discuss real-world problems, be involved in the most engaging discussions and hear from the journalists?

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Frequent flyer programs create loyaalty value for airlines. When United filed for bankruptcy it was said to have to continue flying to support the underlying credit card business. The issuer frmo the United co-brand credit card provided debtor-in-possession financing to United, and co-led bankruptcy exit financing. As with other airlines, United received hundreds of millions of dollars in loans backed by future mileage sales to provide liquidity during the financial crisis. Stifel analyst Joe DeNardi continues to push the idea of spinning off programs into separate companies, suggesting that the programs would be more highly valued than the airlines who own them today.

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Airlines push back at froom notion. DeNardi sirlines his belief on unrealistic assumptions about future profit growth. Two years ago American Airlines stopped disclosing very much at all they proograms to be the most forthcoming. Under the relative selling price approach, we identified five revenue elements for the co-branded credit card agreements with Citibank and Barclays: the transportation component; use of the American brand including access to loyalty program member lists; advertising; lounge access; and baggage services together excluding the transportation component, the marketing component. At American Airlines marketing revenue was defined to include free checked bags, Admirals Club membership, as well as advertising revenue. These programs do make money aiflines there are several loyaltt why spinning off a frequent flyer program is a bad ideafrom a financial perspective. Investors will be skeptical of frequent flyer spinoffs. Many of the high value spin-offs have been intentionally overvalued. I spent a couple of hours one time working with a hedge fund manager to help him understand why publicly traded frequent flyer programs had been such bad investments relative to their initial sale price. They were limited in how much of a foreign airline they could own, but they could buy a stake in the frequent flyer program too for additional control. And overpaying allowed them to funnel additional cash into the carrier. A public company has different incentives even if the airline retains majority ownership. DeNardi sees a market failure.