Sokes wrote:RyanairGuru wrote:Not really an accounting truck. Frequent flyer programs make a LOT of money from selling "miles" to third parties, most notably credit card companies but to a lessor extent other partners such as car hire and hotel loyalty programs that see value associating with the airline loyalty program.
When you earn United miles with your American Express card or Hertz 5 Star Rewards that's because United sold those miles to Amex or Hertz.
Are American Express card users not flying Southwest?
As a credit card user I would consider it a waste of money.
So the frequent flyer program has money from American Express as asset, but the sold miles plus miles frequent fliers get from flying as liability.
Is American Express paying so much that not only their bought miles, but even miles from flying get paid with it?
How can such a program be valuable?
united's average mile was sold at 2 cents and redeemed for roughly 1 cent minus breakage (lots of miles go unused) these programs are so valuable an airlines credit line of last resort is often selling miles to the credit card partner (amex doing this was a large reason why delta was able to avoid being bought by usair in 2005). But essentially the chain work like this interchange on most cards like this in the us is 2.25-2.5 cents on the dollar when you use your credit card at a merchant, most of that is then essentially given to the millage program for the mile you collect, plus some of the annual fee for the bags and other benefits with the credit card company making spread on interchange some of the annual fee and the interest when people inevitably have a balance on the card.