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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.
@United overbook #flight3411 and decided to force random passengers off the plane. Here's how they did it:
https://twitter.com/JayseDavid/status/851223662976004096
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.
There are several industries where credit makes comparable or more revenue for companies than their "main" focus. Film at 11! Err.., or more like never.
Credit (usury) is evil. No? Wait until this "scheme" collapses, see what happens.
A title discrepancy here. While they do make more money giving incentives for using their branded credit card, literally buying miles is for suckers, which most frequent fliers know and they do not buy them.
Chewbacon
The Bible is like Wikipedia: written by a bunch of people and verifiable by questionable sources.
Here's the non-paywalled article from a week and a half ago https://www.bloomberg.com/news...
https://www.bloomberg.com/news/articles/2017-03-31/airlines-make-more-money-selling-miles-than-seats is a better link.
What's the point of all these "loyalty" programs? Mostly to evade taxes. Highly paid management personnel might go on dozens of business trips a year, accumulating multiple free flights that they then typically use for personal travel. But of course they pay no income tax on the miles earned, even though by any reasonable definition it is compensation. The rest of us ordinary folks are just tagging along for the ride, and the airlines are increasingly finding ways to lock us out and restrict rewards to the high-rollers.
Why would anyone be dumb enough to pay a premium for a card that gets miles?
Neither our personal credit card (US Bank Flexperks) nor our work card (HHonors Amex) costs ANY annual fee, and we get gobs of miles.
-Styopa
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.
Calling someone a "hater" only means you can not rationally rebut their argument.
...instead of credit cards!
https://www.youtube.com/watch?...
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.
flight attendants: "for those of you in economy class, please step forward and use the bone saw to remove your legs at the knee for storage in the overhead compartment. Pretzel dust and warm pepsi will be provided once in flight, along with the entertainment of a partially eaten magazine about our CEO's latest hunting trip in the alps. Those of you in our platinum, rhodium, saphire card club, or other rare and exotic metals often associated with conflict mining, please proceed to the front of the aircraft and take your seat stolen from the lobby of an upscale motel. You will be permitted to eat with a real fork, provided you've prostrated yourself accordingly to the TSA and said your daily supplication to the holy terror alert list. "
Good people go to bed earlier.
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.
Why would anyone be dumb enough to pay a premium for a card that gets miles?
I got two premium cards (one personal, one business) for Southwest Airlines that essentially got me a companion pass for $200.
That meant my wife could fly with me for free, anywhere, for the next two years...
I assure you I got WAY more than $200 of value from that perk. Not to mention I had, just for obtaining the cards, over 100k miles to use for toking flights as well.
It's not like you have to keep the cards and pay the annual fee. You can cancel after the first year.
"There is more worth loving than we have strength to love." - Brian Jay Stanley
There are plenty of options. Other point systems and even cash back. Some are 1-1.5% cash back. Depending on your situation and spending habits that's pretty much the equivalent range the points system provide... maybe up to 2% return on spending.
Many of these cards belong to business expenses such as hotel nights, dining points, and travel points. The benefits are gathered by business expenses and used for personal benefits. Outside that, unless you are a well planning spender the points systems are mainly a gimmick. Same with cash back but less so.
Most cards have no maintenance fees if paid off monthly. But all charge a lot if you carry a loan/balance.
If you just pay careful attention to benefits, you can get a ton of value from these milage cards.
Yes you have to pay an annual fee. But you can usually quite a lot of bonuses that can mean a huge savings on travel.
The thing to do is to have some specific purpose in mind before you get one of these awards cards, so you have something you know you will use the benefits for that gains you a lot more than any fees you are paying.
You can always cancel the cards before the annual fee comes up...
"There is more worth loving than we have strength to love." - Brian Jay Stanley
I have been using a "rewards" card for a few years now. I pay $89 a year for the privilege. I use this card for just about everything, from groceries to monthly bills. I pay my balance in-full every month, so with the 3-week grace period, I'm only paying a couple dollars interest each month. The bank makes money off of it. I get much more than the $89 + a few bucks interest out of it. I usually rack up about $800 in rewards every year, plus I am insulated from fraudulent purchases (twice last year, "my card" was used in the Cayman Islands to buy gas). So, they're paying me about $650 a year (in rewards, which I can use against my balance) to use their card, AND I get fraud protection. If they're making some money too, I'm fine with that.
I've twice signed up for airline credit cards when traveling with my family because they offer to waive the baggage fee (at least for the first bag per ticket). Even if I hadn't canceled the card before having to pay the annual fee after one year, I still would have come out ahead.
Though the last time we flew, I went to Walmart and bought some carry-on bags that were cheaper than the checked baggage fee. Still, when flying with a family with connecting flights, checking baggage is nice.
Citi does 1% on purchase then 1% on payment, so if you don't carry a balance, it's effectively 2% back, as cash (well as payment, but close enough).
Wow, sent an e-mail as suggested when clicking on "use classic" banner, and got a fast response that addressed my msg
Thanks AC.
It's not really about the kind of people that pay for the credit cards either: A CC company can make plenty of money if you pay everything in full: they only really lose if you don't pay.
In most cases, the one that pays for the miles is the merchant, in interchange rate fees. In practice, a bank can end up charging almost 2% for those, if the card is really good for the consumer. People that get rewards use their card more. You get your 1% in cash back/miles, and the rest is what the bank really makes. Cards are worse in Europe because those fees are limited, and thus the bank would lose money if they handed you the same perks American cards give. As a merchant, you build your fees into the pricing structure.
So who really loses? In practice, the person that pays cash without the rewards and doesn't get a discount.
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
Just to be clear, in the US credit cards are generally "free" (i.e., with no annual fee) too, though airline cards tend to be one major exception. Airline cards almost always have an annual fee. Other cards with fees in the US generally serve two markets: (1) people with VERY poor or no credit, and (2) wealthier people who want cards with very specific "luxury" perks. Some cards also offer higher rates of cash back or whatever perks for an annual fee -- though often these higher rates tend to be capped in such a way that they're only worth it in certain circumstances.
So, to answer the GP's question -- at least in the U.S., it's often quite easy to find card options with no fees, unless your credit is really screwed up for some reason. (And yes, if you're older and don't yet have a credit card, and if you don't have another record of steady payments on a loan or something, that counts as having "screwed up credit" because the vast majority of people establish credit histories by the time they are in their mid-20s or so.)
Which asshat modded that Troll?