Frequent flyer programs — cash cow for airlines

An article in the International Herald Tribune (and New York Times)
says that: "Many airlines around the world earn hundreds of millions of
dollars a year by selling miles to partners like credit card companies
and hotel chains. Those companies, in turn, give the miles to customers
as sign-up bonuses or rewards for hotel stays. That revenue is critical
for the airlines in an era of escalating fuel prices, but it has also
changed frequent-flyer programs into more complex businesses, where
flyers are just one of the constituencies carriers are trying to
please."

InsideFlyer’s Randy Peterson, quoted in the article,
says, "The real change over the years has been the evolution from being
a loyalty program for the airline’s best customers to today being
a currency program for anybody’s best customers."

Interesting bits from the article:

• 15-20 percent of miles are being redeemed for non-airline rewards
  (four years ago, that figure was less than 5 percent)
• Miles earned continues to outpace award-seat capacity
• The going price for a mile to outside issuers: 1-3 cents
• Outstanding miles from three major airlines as of EOY 2007: upwards of 1.5 trillion (613 billion at American Airlines’ AAdvantage, 510 billion at Delta’s SkyMiles, 488 billion at United’s MileagePlus)
  
• American’s AAdvantage net in 2007: 50 billion unredeemed miles (200 billion issued, and 150 billion redeemed)

For more frequent-flyer program statistics/facts, see our article.

http://www.iht.com/articles/2008/04/01/business/frequent.php

• What began 27 years ago as a way to win the loyalty of travelers has turned into a lucrative business for the airlines.
• The best snapshot of a loyalty program's performance comes from
  Aeroplan, a business that Air Canada spun off in 2005. It now operates
  as a publicly traded trust, and it reported earnings of $185 million
  last year on revenue of $926 million. The success of the Aeroplan
  spinoff has put pressure on other carriers to consider a similar
  strategy.
• Last year, Qantas, Delta, United, Northwest and American expressed
  interest in exploring that option, although with high oil prices and
  merger talks, the consensus is that no carrier in the United States is
  likely to spin off its frequent-flier program in the near future.
• "We're at a turning point," said Jeff Robertson, managing director for
  Delta's SkyMiles program. He said its members earned 27 percent more
  miles in 2007 than in 2004, yet the capacity allocated for award seats
  remained flat.
• While most carriers have customarily been tight-lipped about how much
  they earn from these programs, more details are starting to emerge.
  United reported revenue of $800 million last year from selling miles,
  while Qantas earned $218 million in the last half of 2007 from mileage
  sales to third parties.