AeroWesty From United States of America, joined Oct 2004, 18852 posts, RR: 64 Reply 1, posted (6 years 9 months 3 days 3 hours ago) and read 1435 times:
It's the opportunity for cross-marketing loyalty that makes a frequent flyer program an asset. Combined with the ability to book a few hundred dollars in revenue through the sales of miles to other vendors that only costs the airline a small incremental amount to provide the resulting service for, and you have an asset.
"MILES have become one of the most successful business ideas not just of the last quarter-century but in the modern history of capitalism. They have been a diabolically brilliant way to separate people from their money while making them feel as if they were instead getting a gift. Sure, you just spent $800 fixing your car, but you charged it to a credit card that awards miles, putting you that much closer to a free vacation."
There's also a lot of info on the web and in the archives here on the value of FF programs, much of it very recent when articles came out for the 25th anniversary of the AAdvantage program this year.
Ken777 From United States of America, joined Mar 2004, 7458 posts, RR: 5 Reply 2, posted (6 years 9 months 3 days 3 hours ago) and read 1426 times:
The basic asset for a lot of airlines is that the programs build a level of customer loyalty that would not otherwise be there. Cross marketing slowly developed after the introduction of the FF programs and are nice to have, but keeping the customer's loyalty will always, I believe, be the foundation of the program. Now if the airlines would just put as much effort into improving the customers' experiences during the actual flights . . .
DLPMMM From United States of America, joined Apr 2005, 3529 posts, RR: 9 Reply 3, posted (6 years 9 months 3 days 3 hours ago) and read 1419 times:
Please realize that these FF programs sell their "miles" to credit card companies, hotel chains...... for x cents per mile. If you calculate the miles needed per flight times the cost per mile, you would see that the price per award seat is more than the average discounted Y fare, even approaching a full Y fare.
These programs are the only money makers that some airlines have had in recent years.
AeroWesty From United States of America, joined Oct 2004, 18852 posts, RR: 64 Reply 4, posted (6 years 9 months 3 days 3 hours ago) and read 1387 times:
Quoting DLPMMM (Reply 3): If you calculate the miles needed per flight times the cost per mile, you would see that the price per award seat is more than the average discounted Y fare, even approaching a full Y fare.
To put some numbers to it, I posted a link to a PDF a few months back that gave the following scenario for how Delta calculates it:
They sell miles at about a penny each to their big affiliates. That's $250 in revenue booked per free domestic coach award. On the liability side, they only account for a $40 hit for every 25,000 miles in accounts holding over 25,000 miles as an available balance, a net $210 gain.
Once a year they go through and wipe off the books all the accrued mileage if the account hasn't had activity for 3 years, in effect giving them revenue for a service they never had to provide.
MasseyBrown From United States of America, joined Dec 2002, 4725 posts, RR: 7 Reply 5, posted (6 years 9 months 2 days 22 hours ago) and read 1349 times:
United, coming out of bankruptcy, assigned a value of $521 million to their frequent flyer database, not to the miles. They feel their list of names alone is worth that much. That must mean they are going to sell those names to anybody looking for a client list.
In 2005 AirCanada sold 12.5% of their "Aeroplan" program for about US$200, which makes UA's valuation fairly conservative.
Dc-9-10 From United States of America, joined Jul 1999, 583 posts, RR: 0 Reply 6, posted (6 years 9 months 2 days 19 hours ago) and read 1306 times:
There is also significant value in the market research that frequent flyer accounts provide, both within the airline and other cross utilization areas. The information of who is flying where at what price, at what time, how many times they fly that route, etc. is very valuable information. Why do you think to do anything these days on the internet or get free stuff from companies, like my coke rewards and several news sources make you register and enter codes and all that jazz? The information that they get from you can be worth millions in and of themselves.