Frequent flyers will know how much miles are imperative to a great flying experience.
They’re a clever tool to keep us coming back for more, but also make flying a lot a much more comfortable past time. However, have you ever wondered how much miles actually serve the airlines? Since the introduction of frequent flyer programmes…they’ve actually become so profitable that the airlines in most cases end up making more money on selling miles than they actually do on selling airfares!
Bloomberg found that airlines get between 1.5 cent and 2.5 cents for each mile they sell to the banks, with the cost to themselves being as little as a third of that….meaning in some cases airlines can make as big a margin as 60-70% on miles!
Since airlines face a lot of unknowns for their profits and losses, such as fuel prices, labour costs and consumers moving to competitors, having frequent flyer programmes provides a pretty steady revenue stream that helps keep the airline industry afloat. This protection has become imperative to airlines in recent years, and they’re making a killing on the amount the sell miles to banks vs how much it actually costs them to offer this service to passengers.
Although, saying this, the banks are also winning from frequent flyer programmes. American express noted that Delta SkyMiles made approx 7% of their business last year, and around 20% of its outstanding credit card loans.
All in all it seems the introduction of frequent flyer programmes and benefits from miles is one of the most beneficial things to airline industries, passengers and banks! Something in harmony for once ;). So hooray you frequent flyers for keeping airlines in business!
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