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Do Frequent Flyer Programs Make Money for Airlines?

by on December 16, 2010 · 2 comments

in Delta, Travel Industry

Absolutely! The airlines are raking it in with their frequent flyer programs. I just read the Delta Investor Day presentation (great reading for any airline dorks) and on slide 15 it shows a chart with ancillary revenue sources: Cargo: $900 million, Commercial Aviation Services $1.5 billion, SkyMiles $1.6 Billion, Unbundled Ticketing aka fees $2.1 billion.

Yes- Delta raked in $1.5 BILLION dollars last years from the SkyMiles program. They do this by selling gajillions of miles to partners, like their bestie American Express, who hawks SkyMiles like they are going out of style (like with this 45k bonus offer).

So when people make doomsday comments like “The frequent flyer game is coming to an end- it’s too good to be true”, I just chuckle Are you kidding me? The airlines are laughing their way to the bank. However, I don’t feel bad, because I’ve learned how to maximize the value of my points and I’m laughing my way around the world in the first class cabin. Are you?

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  • Doug

    And that is just the beginning. FF programs’ original and most effective, albeit nonquantifiable, source of revenue is to divert high-paying customers away from the lowest-cost and or simplest routing to a particular airline. If you are a frequent flier, and your ticket is paid for by your employer, who cares what the price is? And if you can get an upgrade, some will be willing to risk delay and stop in Chicago, when another airline has a nonstop. I know people who have spent an extra 4+ hours simply so they could take advantage of a domestic first class upgrade.

    It all depends on the value of your time vs. comfort. In my case, I’m short and I don’t usually eat or drink liquor on airplanes anyway, so going out of my way for an upgrade is not worth the extra time.

  • Pete

    I have been a FF member since 1982 (AAdvantage) and belong to several airlines, although I emphasize two, AA and United. There is one best way to take advantge of these programs. Emphasize two and charge everything that will take a CC and then, and this is most important, pay your CC bills each month IN THEIR ENTIRETY. Why two? Because all airlines limit the number of seats they will accept FF miles for and not all airlines fly to all destinations. If you maintain a reasonably high level of miles on two major airlines you stand a much better chance of getting on when you want. Also, if you spread out your mileage over more than two you will probably be taking too long to build up adequate mileage on each to be flexible. Which two is a matter of personal preference but I would recommend picking two from AA, United, or Delta. They will offer you a great deal of flexibility. One last word of wisdom (I hope). Don’t fall for the Capital One hype of no black out dates and any airlines. I did and I found out that it was nearly impossible to get on any flight less than several months ahead of schedule. Yes, there are no black out dates but no availability either.