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What Are Frequent Flier Programmes' Assets?  
User currently offlineBrasuca From Brazil, joined Mar 2004, 717 posts, RR: 10
Posted (8 years 2 months 1 week 1 day 11 hours ago) and read 2351 times:

Among the bunch of news regarding VARIG's financial restructuring, I've come across some stating their FFP are worth millions USD and there are third parties interested in buying their FFP alone.

The question is... How come a programme made to manage liabilities (miles) and so attached to the company value a cent?

Thanks


Varig, Varig, Varig
8 replies: All unread, jump to last
 
User currently offlineAeroWesty From United States of America, joined Oct 2004, 20751 posts, RR: 62
Reply 1, posted (8 years 2 months 1 week 1 day 9 hours ago) and read 2309 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.

A good article on it:

http://travel2.nytimes.com/2006/04/26/business/26leonhardt.html

"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.



International Homo of Mystery
User currently offlineKen777 From United States of America, joined Mar 2004, 8344 posts, RR: 9
Reply 2, posted (8 years 2 months 1 week 1 day 9 hours ago) and read 2300 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 . . .

User currently offlineDLPMMM From United States of America, joined Apr 2005, 3594 posts, RR: 10
Reply 3, posted (8 years 2 months 1 week 1 day 9 hours ago) and read 2293 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.


User currently offlineAeroWesty From United States of America, joined Oct 2004, 20751 posts, RR: 62
Reply 4, posted (8 years 2 months 1 week 1 day 9 hours ago) and read 2261 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.



International Homo of Mystery
User currently offlineMasseyBrown From United States of America, joined Dec 2002, 5512 posts, RR: 7
Reply 5, posted (8 years 2 months 1 week 1 day 4 hours ago) and read 2223 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.

If UA and AC can do it, why not Varig?



I love long German words like 'Freundschaftsbezeigungen'.
User currently offlineDc-9-10 From United States of America, joined Jul 1999, 585 posts, RR: 0
Reply 6, posted (8 years 2 months 1 week 1 day 1 hour ago) and read 2180 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.

Dc-9-10


User currently offlineBrasuca From Brazil, joined Mar 2004, 717 posts, RR: 10
Reply 7, posted (8 years 2 months 1 week 16 hours ago) and read 2116 times:

Thanks, guys. I didn't see FFPs from this point of view. There is much more than "rewarding" fidelity.
AeroWesty, the website you sent summarises it all. Thanks!!



Varig, Varig, Varig
User currently offlineMasseyBrown From United States of America, joined Dec 2002, 5512 posts, RR: 7
Reply 8, posted (8 years 2 months 1 week 10 hours ago) and read 2066 times:

Quoting MasseyBrown (Reply 5):
In 2005 AirCanada sold 12.5% of their "Aeroplan" program for about US$200, which makes UA's valuation fairly conservative.

Um ... should have read US$200 million. If it had been only $200, I'd have bid.



I love long German words like 'Freundschaftsbezeigungen'.
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