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.

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.

Re:Speaking of airlines

[jittles]

"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).

How the heck is it even possible to get involuntarily bumped? Either you have a boarding pass with a seat assignment or you don't. Once you do, you have a seat. So this means they had to have taken someone who didn't have a seat and given that person a seat while forcing somebody else who already had a seat to give up that seat. That's completely idiotic. Just reassign the person who didn't have a seat before. They didn't check in early enough to get a seat, which was their decision. Why should people who spent the extra effort to check in and get their seat assignment have to suffer so that people who couldn't be bothered can take their seats?

The only even semi-plausible situation that could explain this would be if the equipment changed to a smaller plane, but even then, they should have known about the reduction in seats prior to boarding.

Because of several reasons. First of all, federal law allows the airline to overbook. Secondly, the plane is property of the airline. Third, the airplane itself is on property that is typically covered by federal law. You're also incorrectly assuming that United assigns seats based upon check-in. You pick your seat assignment when you book the ticket, or the airline picks one for you. They followed Federal law. The passenger was told that he needed to deplane. He refused. Once he did that, he was in violation of local and federal laws (federal because it was at an airport). He's lucky that he was not thrown in jail for trespass. It does not matter that he paid for a seat. Once his permission to be aboard the flight was revoked, he was required by law to deplane. The law also requires the airline to compensate him. They would have cut him a check and, as the GP says, probably booked him on a competing airline for free and given him a mileage credit. I've flown hundreds of thousands of miles and have never seen someone act this way, or seen someone be involuntarily bumped. I have had a schedule change screw me over in a similar way as this particular passenger. In that case, I was not given cash, but I did receive a new flight on a different airline and mileage credit for a flight that I would not have normally received miles for (it was an award flight that I had purchased with miles). The airlines will take care of you, they're required to. And even if there were no other flights that day, the passenger could have driven to Louisville the same day if he absolutely required it. People have been making a big deal about him being a doctor and his patients needing him. Well, what if he didn't show up for work because of a weather delay? There is no difference. His patients would have had to see an on-call doctor either way. The man should not feel entitled to fly just because he thinks he is more important than every other passenger on the plane.

Re:Speaking of airlines

[jittles]

It does not matter that he paid for a seat.The man should not feel entitled to fly just because he thinks he is more important than every other passenger on the plane.

You should go and read this again. A medical doctor, flying to a patient for surgery, with a paid ticket, an assigned seat, sitting in that assigned seat after boarding that aircraft, is not entitled to fly? Congratulations, you just made my top 10 of /. dumbest posters.

Why don't you try reading the federal laws regarding air transportation? And why don't you read property laws? The airline is allowed to ask him to disembark from a plane for any reason at any time it is safe for him to deplane. He was asked to deplane. He refused and was therefore trespassing. Had he been flying Delta that exact same weekend there is a high probability he would not have been able to fly either. So what would his patient(s) have done? If you have a problem with the booking practices of airlines then you need to complain to your federal representatives.

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.

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.

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.

Re:Colour me unsuprised.

[swillden]

no, for an individual consumer, the best strategy is to, whenever possible, ask for a discount at least equivalent to the fees charged by the card to pay in cash, this way you recoup all the fees and not only the peanuts the bank throws back at you.

Yeah, walk up to the cashier in your local grocery store and ask for a cash discount. Good luck with that.

In places where you're talking to the owner, or at least a very empowered (and smart) manager or employee, you might be able to get them to knock 3-5% off for a cash payment, but it's rare. Everywhere else... get the best rewards card you can, and use it as much as possible.

I actually had the "cash discount" discussion last month when I bought a car (actually bought out my leased car). The dealership's policy is to accept plastic for purchases up $4K, so I offered to pay $4K with the card and the remaining thousand or so with cash. Once they said okay, I offered to pay cash if they knocked an additional $150 off the price, since that is about what they were going to pay in card fees. They refused. They also refused to knock $100 off. So, I paid with the card and got my 2% (a little under $80) discount that way. Unfortunately I noticed later that there was a promotion on my Discover card that I could have used to get 5% back, so I could have gotten $200 back (and they'd have undoubtedly been soaked for a bit more than that).

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.

the announcements make it very clear

[nimbius]

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. "