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

Speaking of airlines

[Anonymous Coward]

@United overbook #flight3411 and decided to force random passengers off the plane. Here's how they did it:

https://twitter.com/JayseDavid/status/851223662976004096

Re:Speaking of airlines

[bugs2squash]

You're usually pretty safe from being bumped once you're actually on the plane though. Silly people, imagining that once they've paid for something they have any kind of rights.

Colour me unsuprised.

[mjwx]

Risking a downmod but...

Being familiar with the financial services industry, this is hardly a shock to me. Those addled to credit cards always balk when I ask "Who is paying for your bonuses/rewards/cashback" and then act with utter denial when I say "You are". They refuse to believe that banks (and other FS institutions) simply dont give things out for free, because there is no overt fee, they think no fee exists.

Well let me screw your tiny little minds.

Long ago, banks figured out fees turned customers off. So they took the fees off the card user and put them onto the merchants who accept the cards. Then some bright spark came up with the idea of adding in rewards to get you to use your credit card more. Because of this, merchants are at a competitive disadvantage if they dont accept credit cards and a financial disadvantage if they do, damned if you do and damned if you dont.

So here's how it works.
1. Bank encourages you to use your card.
2. Bank charges merchant to accept card (or the merchant doesn't get paid).
3. Merchant has to take it sans lube and raises prices to compensate.
4. Bank passes on a pittance of what they took from the merchant back to the user.
5. Card user thinks they're winning because they never saw steps 2 and 3.

Your average rewards programme sees up to 3% returned to the user, usually less than half a percent. Meanwhile they're taking 3-6% from the merchant, the more "reward" you get, the more you're paying for it via price increases. Visa and Mastercard take up to 3 or 4%, premium cards like AMEX and higher end Visa/Mastercards take 5 or 6%

Its a negative feedback loop, however some will defend it to the death because they dont see its coming out of their pockets. I almost have to admire the Machiavellian brilliance of getting people to defend being ripped off.

"Points" cards are the golden goose of this rip-off system as points dont have to have any real monetary value, redemption values can be arbitrarily changed and they can be expired.

Now here in the UK, the EU imposed a maximum limit that banks can charge merchants... so rewards programmes are hard to come by over here, however it means we're only paying 1-2% extra for credit card purchases.