How do airlines make money out of frequent flyer programs

A public company has different incentives even if the airline retains majority ownership. Please enter a valid email address Please check mailing preferences. The airline said workers could get a 0. As a traveler, you earn free miles for the miles that you fly on a particular airline. Such programs can bring in as much money as all those fees that passengers complain about, including charges for checked bags and onboard food and drinks. Terms Apply.

A frequent-flyer program FFP is a loyalty program offered by an airline. Many airlines have frequent-flyer programs designed to encourage airline customers enrolled in the program to accumulate points also called miles, kilometers, or segments which may then be redeemed for air travel or other rewards. Points earned under FFPs may be based on the class of fare, distance flown on that airline or its partners, or the amount paid. There are other ways to earn points. For example, in recent years, more points have been earned by using co-branded credit and debit cards than by air travel. Another way to earn points is spending money at associated retail outlets, car hire companies, hotels, or other associated businesses.

Carriers are expanding rewards offers to generate steady revenue from banks as fuel costs rise

Frequent flyer miles are awesome. Typically, you accumulate a set amount of miles based on how much you spend on a ticket or how much you spend on your credit card. You can then use these miles to buy more tickets. Basically, airline miles are like any other rewards program. You get points for buying stuff, and eventually those points accumulate and you get something for free.

Here’s How Much Airlines Made Off Their Frequent Flyer Programs So Far This Year

A frequent-flyer program FFP is a loyalty program offered by an airline. Many airlines have frequent-flyer programs designed to airlies airline customers enrolled in the program to accumulate points also called miles, kilometers, or segments which may then be redeemed for air travel or other rewards. Points earned under FFPs may be based on the class of fare, distance flown on that airline or its partners, or the airlined paid.

There are other ways to earn points. For example, in recent years, more points clyer been frrequent by using co-branded freqient and debit cards than by air travel. Another way to earn points is spending money at associated retail outlets, car hire companies, hotels, or other associated businesses. Points can be redeemed for air travel, other goods or services, or for increased benefits, such as travel class upgrades, airport lounge access, fast track access, or priority airlinfs.

Frequent-flyer programs can be seen as a mak type of virtual currencyone with unidirectional flow of money to purchase points, but no exchange back into money. Although United Airlines had tracked customers far back as the s, the very first modern frequent-flyer program was created in by Western Direct Marketing for United. It gave plaques and promotional materials to members. InTexas Moneu Airlines created the first frequent-flyer program that used mileage tracking to give ‘rewards’ to its passengers, while in Western Airlines created its Travel Bank, which ultimately became part of Delta Air Lines ‘ program upon their merger in Since then, frequent-flyer programs have grown enormously.

As of Januarya moneu of 14 trillion frequent-flyer points had been accumulated by people worldwide, which corresponds to a total value of billion US dollars. Most larger airlines around the world have frequent flyer programs; each has a program nameand policies and restrictions regarding joining, accumulating, and redeeming points.

The primary method of obtaining points in a frequent-flyer program until recent years how do airlines make money out of frequent flyer programs to fly with the associated airline. Many discount airlines, rather than awarding points per mile, award points for flight segments in lieu of distance or the amount paid. For example, a number of airlines in Europe offer a fixed number of points for domestic or intra-European flights regardless of the distance but varied according to class of travel.

While these bonus points don’t count toward ascension to or retention of elite status, they count toward the member’s total balance for normal redemption purposes. Some programs award a full points or a similar minimum credit guarantee for non-stop flights spanning less than miles. An airline’s program can either award this guarantee to all members regardless of elite status, [9] or they can reserve this privilege only for their elite members.

Many credit card companies partner with airlines to offer a co-branded credit card or the ability to transfer points in their loyalty program to an airline’s program.

Large sign-up bonuses and other incentives are common. Accruing points via credit cards bonuses and spending allows infrequent travelers to benefit from the frequent flyer program. With a non-affiliated travel rewards credit card a cardmember can buy a frequennt ticket considered «revenue» class, which can earn the passenger points with the airline flown.

Frequent-flyer programs may offer points through other means, such as purchasing food or merchandise sold by an affiliated company. Occasionally, airlines may offer double elite-qualifying mile EQM promotions, which speeds up a member’s status ascension or retention ohw reducing flight mileage requirements. Some carriers also require frequent flyers frdquent spend a set amount of money on tickets before they are eligible for elite status.

This is in flywr to the miles-flown requirements that are already in place. Delta switched to revenue-based elite status requirements in JanuaryUnited in Marchwith American Airlines the last of the three US legacy carriers to switch on August 1, After accumulating a certain number of points, members then use these points to obtain airline tickets.

However, points only pay for the base fare, with the member still responsible for the payment of mandatory taxes and fees. Although a controversial topic and a source of frustration among frequent flyers, [19] award flights are still the primary commodity purchased by members using points.

While alliances and partnerships have facilitated the redemption process for some programs, award seat availability is still subject to blackout dates and seasonal fluctuations, as airlines utilize statistics, yield managementand capacity-control formulas to determine dlyer number of seats to allocate for award booking.

This lack of availability has since been alleviated by non-airline rewards programs, such as certain credit cards see above and other corporate programs Expedia Rewards, Starwood Preferred Guest by allowing a member to use points to search for and purchase revenue tickets as if using cash. Depending on proggams airline’s program, members can also redeem points toward cabin upgrades, hotel stays, car rentals, and purchase of various retail items.

On American Airlines ‘ AAdvantage program for example, it is possible to pay for a complete vacation package solely with points. Travelers frequently debate on how much accumulated points are monet, something which is maie variable based on how they are redeemed. An estimate is approximately cents per points based on discount rather than full fare economy class travel costs.

The author of an economics PhD thesis published in at Monash Universityin MelbourneAustraliaexamined the cash-equivalent value purchasing power of loyalty points, the impact of FFPs on consumer behavior and surplus, and the taxation issues surrounding FFPs. This range however excluded the value of status benefits to the status member.

The loyalty point gained by a FFP member per flight equated to an in-kind discount on an average airfare of 3. A detailed survey undertaken in among a representative sample of over members of that specific FFP showed that a large proportion of leisure and business travelers admitted a willingness to pay a higher fare — a FFP premium — to fly with the sponsoring airline because of their FFP membership.

The airlines themselves value points in their financial statements at less than one one-thousandth airlimes a cent per points. That loyalty points undoubtedly have an estimable monetary value is also reflected in the fact that some programs allow for the donation of frequent-flyer points to certain charities. Business travelers typically accrue the valuable points in their own names, rather than the names of the ffrequent that paid for the travel.

This has raised concerns that the company is providing a tax -free benefit point-based awards to employees, [23] or that employees have misappropriated value that belongs to the company, or even that the rewards acts as a kind of bribe to encourage travelers to choose one particular airline or travel unnecessarily.

Most companies consider the miles earned by their employees to be a valuable personal perk that in part compensates for the daily fresuent of frequent business travel, though some governmental organizations have attempted to prevent their employees from accumulating miles on official travel. Although it has long been recognized that Ouut rewards prgrams on employer-funded business flights should be proframs to either income or fringe-benefit taxation, this is currently not taking place in the vast majority of countries — a notable exception however being Germany.

It can however be argued that since the cash-equivalent value of loyalty currency can be reasonably estimated with public data, this value is appropriate as a tax base. Hurdles preventing the taxation of FFP rewards are generally less related to the technical issue of valuation, but have more to do with legal constraints e. In the US, the General Services Administration has regulated, «frequent traveler benefits earned [by federal employees] in connection with official maake, [which] may be used lut for official travel, see 41 C.

Frequent-flyer programs have been receiving scrutiny because of the prevalence and rapid growth of air travel, in terms of both the frequency that individuals fly and the tendency toward longer distance travel. There have also been calls for airlinse end to frequent-flyer programs. Precedent exists for ending frequent-flyer programs. InNorway established a ban on domestic frequent-flyer programs in order to promote competition among its airlines, [34] and lifted the ban in when the competitive situation changed.

Meyer, the Modernization Minister asked the competition authority to consider extending the Norwegian ban on frequent flyer miles to include all of Scandinavia. A «mileage run» is an airline trip designed and taken maoe to gain maximum frequent-flyer miles, points, or elite status usually at lowest cost. Depending on the program, that traveler will reach off goal sooner if the miles they accrue are elite qualifying miles. A status challenge [42] [43] can be an often unpublicized offer to accrue a certain monsy of flying within a certain very short timeframe usually 90 daysto earn elite status.

The higher status may or may not be given immediately if it can be seen that qualifying travel particularly travel that is non-refundable has already been booked before the challenge was offered, otherwise higher status will be conferred once the challenge is officially completed.

In some instances, a fee for a challenge may also be charged. Some airlines will match status [48] [49] [50] with that of a competitor upon application, usually to airlines outside of any alliance that pprograms airline used to match status with belongs to.

This enables travellers to switch their travel more easily from one carrier to another e. It does so by maintaining equivalent elite benefits with the new airline, without the need for time to pass arilines the traveller earns the benefits; this also has the side effect of retaining elite benefits airkines the previous airline, in order that one does not have to be given up for the other to allow for a more gradual transition. From Wikipedia, the free encyclopedia. Not to be confused with the sleep maek technique Frequent flyer program Guantanamo.

Main article: List of frequent flyer programs. Further information: Fare basis code. Main article: Environmental impact of aviation. Frankfurt am Main: European Central Bank.

Retrieved 5 March The Travel Insider. Retrieved September 21, Retrieved Loyalty Management in the Airline Industry. GRIN Verlag. The Economist. The Points Guy. Parallel frequent flier program partnerships: impact on frequency.

The Travel Detective. Random House. Retrieved 12 August Dateline UC Davis. Archived from the original on American Airlines. Delta Airlines. Retrieved September 5, The Prohrams Post. Thrifty Points. USA Today. Compendium of International Civil Aviation.

Potts March 23, Office of Government Ethics. Archived from the original on 14 August Retrieved 13 August US Department of Transportation.

Archived from the original on 28 April The Department of Transportation monry not have rules di to the terms of airline frequent flyer program contracts. Southwestern Marketing Association p.

Frequent Flier Miles EXPLAINED!

Please view our advertising policy page for more information. Many of the credit card offers that appear on the website are from credit card companies from which ThePointsGuy. It is not the responsibility of any advertiser to ensure that questions are answered. If «Saver»-level awards are available, this would be enough for a one-way frequeht to Japan in business class on United—or any of its partners, including Skytrax five-star airline All Nippon Airways. These programs do make money but there are several reasons why spinning off a frequent flyer program is a bad ideafrom a financial perspective. However, considering their costs as an airline partner, most hotel chains initiated their own frequent-stay programs. Fascinating insights. Julian Mark Kheel.