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How Do Mileage Credit Cards Give Revenue?  
User currently offlineORDTerminal1 From United States of America, joined May 2006, 129 posts, RR: 0
Posted (8 years 1 month 3 weeks 1 day 14 hours ago) and read 2569 times:

Question is pretty self explanatory. If somebody cashes in their credit card miles on an airline, how does the airline get revenue? Does the credit card company essentially pay the fare, and if so is it a standard fare, slightly augmented or reduced?


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8 replies: All unread, jump to last
 
User currently offlineANother From , joined Dec 1969, posts, RR:
Reply 1, posted (8 years 1 month 3 weeks 1 day 13 hours ago) and read 2542 times:

They buy the miles from the airline - at a flat cents per mile basis.

User currently offlineBirdwatching From Germany, joined Sep 2003, 3821 posts, RR: 51
Reply 2, posted (8 years 1 month 3 weeks 1 day 13 hours ago) and read 2531 times:

AAdvantage comes to mind. You can buy large quantities of miles from them for your own marketing campaigns (assuming you're a halfway large company).

It's sort of like buying miles for yourself in case you need a couple thousand more for a reward. Only on a much larger scale.

http://www.aadvantage.com/aadvantage.com/introduction.jsp

I'd love to know how much a mile costs wholesale.

Soren  santahat 



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User currently offlineN328KF From United States of America, joined May 2004, 6484 posts, RR: 3
Reply 3, posted (8 years 1 month 3 weeks 1 day 13 hours ago) and read 2500 times:

Quoting Birdwatching (Reply 2):
AAdvantage comes to mind. You can buy large quantities of miles from them for your own marketing campaigns (assuming you're a halfway large company).

It's sort of like buying miles for yourself in case you need a couple thousand more for a reward. Only on a much larger scale.

AAdvantage is more complex than just Citibank buying miles, though. It's definitely a symbiotic relationship, as AA does a lot of the marketing themselves.



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User currently offlineVenezuela747 From United States of America, joined Jan 2004, 1428 posts, RR: 5
Reply 4, posted (8 years 1 month 3 weeks 1 day 9 hours ago) and read 2411 times:

Also the Credit Card companies charge the person a few dollars more a months if it is a Mileage Credit Card....they use that money to buy the miles (not exactly but similar)


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User currently offlineAirbazar From United States of America, joined Sep 2003, 8322 posts, RR: 10
Reply 5, posted (8 years 1 month 3 weeks 1 day 8 hours ago) and read 2370 times:

Lets see. In the US you need 25,000 miles for an economy r/t ticket. At the standard rate of 1 mile per dollar spent, that comes up to the grand total of $25,000 for an economy r/t ticket that would probably not cost you more that $300-$500  dollarsign  dollarsign  dollarsign  Do you really have to ask where the revenue comes from?  cool 

User currently offlineAeroWesty From United States of America, joined Oct 2004, 20559 posts, RR: 62
Reply 6, posted (8 years 1 month 3 weeks 1 day 8 hours ago) and read 2352 times:

Quoting Birdwatching (Reply 2):
I'd love to know how much a mile costs wholesale.

According to this report:

http://www.ideaworkscompany.com/press/AnalysisLiabilityRewards2006.pdf

... it's about a penny per mile for bulk corporate accounts such as credit card issuers. So for every standard domestic award issued by an airline, they're receiving about $250 when it's sourced from an affinity plan.



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User currently offlineN844AA From United States of America, joined Jul 2003, 1352 posts, RR: 1
Reply 7, posted (8 years 1 month 3 weeks 1 day 8 hours ago) and read 2352 times:

Quoting Airbazar (Reply 5):
Lets see. In the US you need 25,000 miles for an economy r/t ticket. At the standard rate of 1 mile per dollar spent, that comes up to the grand total of $25,000 for an economy r/t ticket that would probably not cost you more that $300-$500 Do you really have to ask where the revenue comes from?

Point taken, of course, but a.) I'm going to use a credit card anyway; might as well get something for it; b.) if the ticket I'm going to buy is $300-500, I'm probably just going to pay cash for it and save the miles for walk-up tickets, or tickets to Europe or something; and c.) at least on AA, the miles I accrue with my card count toward one-million and two-million mile status, which confer lifetime gold and platinum elite status respectively. Now, my spending alone isn't going to get me anywhere close to the million-mile mark, but hey, every little bit helps Big grin



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User currently offlineDartland From United States of America, joined Apr 2005, 643 posts, RR: 2
Reply 8, posted (8 years 1 month 3 weeks 1 day 7 hours ago) and read 2293 times:
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Quoting ORDTerminal1 (Thread starter):
Question is pretty self explanatory. If somebody cashes in their credit card miles on an airline, how does the airline get revenue? Does the credit card company essentially pay the fare, and if so is it a standard fare, slightly augmented or reduced?

Aside from the relationship above where credit card companies buy miles from the airlines to give to you (at roughly 1cent per mile, although generally a little higher than that), other credit cards that have their own rewards programs may also buy tickets directly from the airlines for the customer. In those cases, they usually have a set pricing schedule with reduced fares.


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