Airlines Make More Money Selling Miles Than Seats (expressnews.com)

An anonymous reader shares a report: Does your wallet contain an airline-branded credit card? If so, your daily Starbucks visits, iTunes selections and dining habits serve a critical role in keeping the U.S. airline industry fat and happy. For carriers such as American Airlines, riding Citigroup Inc. plastic, or Delta, on American Express Co., these programs are a cash cow, a golden goose -- or any other fiscal livestock you care to conjure. Each mile fetches an airline anywhere from 1.5 cents to 2.5 cents, and the big banks amass those miles by the billions (alternative source), doling them out to cardholders each month. For the banks, people who pay annual fees for those cards in order to accumulate miles are the closest thing to a sure bet. These consumers typically have higher-than-average incomes and spend more on their cards, generating merchant fees for the banks. They also tend to maintain high credit scores, which means they pay their bills on time and banks experience fewer defaults. The airline-miles business, formally known as loyalty programs, has become a high-margin enterprise that's grown in size and value amid airline consolidation, with carriers keen to expand credit card rolls and see loyalty members spend more.

Comments

I only use 'cash back' credit cards

[sodul]

With cash back I get a very concrete view of what I'm getting back with real dollars and there is no blackout period or any of that BS. I only take the plane when I really need to though, with the trip back to europe every other year to visit family, and do road trips for most vacations.

Re:I only use 'cash back' credit cards

[Anubis IV]

Likewise. People always point out that the miles are a cheaper way to fly than paying with money, but that presupposes you'll fly in the first place. If that's true for you, then great, that's money (maybe) saved. If not, then why not enjoy the fact that a trip not taken is cheaper than either using miles or using cash?

When we got married, my wife was big on points rewards cards that offered watches, tech toys, and other such things. She pointed to a few things she bought with her points over the course of several years. When I asked how many of those things she would have bought in cash, had they handed her the cash instead, she said she wouldn't have bought any of them. When I showed her the prices should would have paid had she bought those things herself, she realized she wasn't actually getting a great deal at all (e.g. she thought the Apple TV 3rd gen was $100+ at retail, when it was actually $69 at the time). When I pointed to the cash rewards I had gotten from my card over that same period of time, she immediately switched cards.

Cash is fungible. I can apply it however I want, I can change my mind about how I want to use it, and I can accrue interest on it too. Points? Not so much. Miles? Not so much. When using those systems I'm tied to those rewards, and my currency in those systems is out of my control and subject to capricious rules designed to ensure that I get as little benefit as possible.

Re:A question (from someone witout a credit card)

[raburton]

Cheaper? That seems to imply you're paying for them in the first place. In the UK credit cards are generally free. Sure there are a few offered for a fee, in return for something you probably don't want (like travel insurance that doesn't cover winter sports, or all the world, and costs more than a regular policy to upgrade it, or some other pointless benefits), but they aren't popular. In fact credit cards with cashback are pretty common here. I get 1% of everything back on my card. I don't know how that compares in value terms to airmiles, but they wouldn't be as popular here. I think people here fly less with big carriers that use airmiles. Most of the time when I fly it's not too far and I take a budget airline for £20-30 a flight.
Paying for banking services never really caught on in the UK. There have been an increase in paid current accounts in the UK in recent years, but they have had to offer perks that genuinely offset the fee to get people to take them, as cashback again. I do have a paid current account, I pay £5 a month and get I get back (for example, last month) £37 in much higher than normal rate of interest and cashback on my direct debits, as cash straight back into the account every month. It's a no-brainer, as you America's would say. But paying to collect points is not popular here.

Re:Colour me unsuprised.

[bluefoxlucid]

The cardholder doesn't pay; everyone pays. The cardholder with the highest-merchant-fee card is not paying that merchant fee; it's averaged across all transactions, including cash (0% fee) transactions. That means cash holders pay the largest mark-up and get nothing; while high-merchant-fee rewards cards with no cardholder fees pay the same mark-up (read: no additional cost over just paying cash) and get the maximum return (read: what's purchased by those merchant fees is paid for mostly by all other consumers).

Everyone pays into the system. The guy with the best rewards comes out ahead; the guy with cash comes out behind; and the guy closest to the average-fee rewards card essentially gets a wash.

Read the flyertalk.com thread

[Anonymous Coward]

If you want to know real inside angles on that even, read the flyertalk.com thread.

That thread is almost certainly being monitored by United Airlines. Back when I was flying on United a whole lot, they started an internet ad campaign that featured stylized persons that were supposed to be waving to a bunch of planes flying off. I posted that it looked like a bunch of Nazis giving the "Heil Hitler" salute to the Luftwaffe on its way to bomb London (and it did look just like that...), and within thirty minutes that internet ad campaign disappeared.

Re:Speaking of airlines

[swillden]

You're usually pretty safe from being bumped once you're actually on the plane though.

"Pretty safe", yes, but you've never been completely safe. That said, the FAA has some well-defined requirements about how they have to treat people who've been involuntarily bumped, which includes a hefty cash payment (equal, I believe, to the full round-trip fare) plus a seat on the next available flight (on any airline, in any class at or above the class you paid for). I've flown over a million miles, and I've been involuntarily bumped exactly once. I got a $600 check and a first class seat on another flight, on another airline, 30 minutes later. The seat they bought me was on a direct flight, so I actually got home before I would have if I hadn't been bumped. Oh, and they still gave me mileage credit for the flight they bumped me off of. All in all, I was quite happy with the arrangement.

Silly people, imagining that once they've paid for something they have any kind of rights.

You do have rights, but they don't include the right to refuse to exit the plane when the airline tells you to. Whatever the reason, whether it's a good one or not, if the flight attendants or captain tell you to get off, you get off or the police will be dragging you off. If they kicked you off involuntarily, and not as a result of anything you did, you do have a right to compensation and transportation.