SQuared From Canada, joined May 2005, 384 posts, RR: 0 Reply 2, posted (7 years 11 months 1 week 5 days 8 hours ago) and read 2580 times:
Frequent Flier Programs, if managed correctly, can become cash cows for airlines.
For example AC's partial spinoff of Aeroplan into an income trust, has met some unexpected demand. The underwriters are asking AC to sell a greater stake in Aeroplan, because demand for the shares are so high (This is partly a result of income trusts being so hot right now, but also a result of Aeroplan's impressive revenues and profits). Aeroplan's value is pegged at around $1.8 billion. If Aeroplan was a cost centre for AC, I sincerely doubt anyone would be running around demanding shares in it.
Midway2AirTran From United States of America, joined Jul 2003, 864 posts, RR: 2 Reply 4, posted (7 years 11 months 1 week 5 days 6 hours ago) and read 2507 times:
Quoting Alphascan (Thread starter): "While the value of a frequent flyer award ticket might be several hundred dollars or more in the eyes of a program member, it only costs the airline $10 to $20."
I personally think the opportunity costs to the airline in the study are underestimated, especially in the type of revenue environment currently in the US domestically. It sounds more like the same revenue for the airline just being defered into these programs that would have been there if there was no FF program. They have been powerful programs in many cases, but I think it will loose steam with more competition and LCC's on the rise.
I'm not the expert on how all these programs work, they can get very complicated! For one very small example, how does Delta benefit in this case below?..
In my time working at ticketing for AirTran, I notice that many fliers who used credit cards were using their SkyMiles card for AirTran travel. Many in this case joke saying that they earn most of their miles flying AirTran and redeem them on Delta using this method, even with double miles offered by DL.
Where is the significant benefit to DL? I know they get money from American Express(with exception to their financing agreement), but no real loyalty or sufficent revenue is created for DL. Or is this just a unique case for one airline, I'm sure there are similar situations out there though.
Cairo From , joined Dec 1969, posts, RR: Reply 9, posted (7 years 11 months 1 week 5 days 4 hours ago) and read 2388 times:
The question is not whether FF programs are profitable, they definitely are. The question is: do they build brand loyalty among the flying public?
All the majors offer more or less the same FF program, you can get anywhere through their alliances. No FF program offers anything special.
THIS IS KEY: if airline FF programs built loyalty, the legacies would be able to charge a premium based on the popularity and loyalty to their FF program. This doesn't happen. At all. WN determines pricing in all markets it serves, the rest just follow along. Where there is only legacy competition on a route, both legacies just charge exactly the same price. FF builds no loyalty on an overall basis, people choose first because of schedule and price, they then may stay loyal for a while to who first offered them the best schedule or price, if they live in other than the 23 top markets contolled as hubs.
If I fly 3 times 300 times a year, I'm going to try to stick to the same airline, even if they sometimes aren't the cheapest or best scheduled. But I'm going to start with the airline that gives me the schedule/price I want and then build loyalty from there. All legacies are going to more or less even out on this.
A real value of FF programs besides the income they earn from selling miles to 3rd parties (credit cards, mortgage brokers, hotels, etc...) is the information gathered about customers and their habits.
This is more valuable than the 'loyalty' earned by offering rewards that are no different than the rewards offered at the competition. Because of AAdvantage, AA is able to keep track of 60 million plus individual customer habits and tailor their pricing and schedule (the only real things that matter to most fliers today) accordingly.
Zvezda From Lithuania, joined Aug 2004, 10511 posts, RR: 65 Reply 11, posted (7 years 11 months 1 week 5 days 1 hour ago) and read 2311 times:
I must disagree with Cairo. While FF programs do not help an airline build market share (because all the other airlines have similar programs), they do build loyalty. As Cairo correctly points out, most passengers who fly between 3 and 300 times per year stick to one carrier. This is loyalty. The main benefit to the airlines is that it reduces competition. Less competition means higher profit margins. Fares are matched, but at higher levels than they would be without FF programs. That benefits all the airlines at the expense of passengers. The value of the marketing information is secondary.