Revenue-Based Frequent Flyer Programs are Bad for the Airlines (and Consumers)

In my post about Delta’s slow lurch towards a ‘revenue-based’ frequent flyer program, commenter Ian asks

Gary, your post has raised a question I would love for you to answer, especially considering JetBlue and Virgin America recently introducing frequent flyer/loyalty programs which are revenue-based.

If you were running a airline would you advocate a revene-based program? Are revenue-based programs the future of all legacy airlines?

It seems this might earn an airline more money. As a frequent flyer who mostly benefits on the margin I do not like revenue-based programs but don’t know if I can argue with the business case

It turns out that this is actually easy. Revenue-based programs are a Very. Bad. Idea for an airline that already has a large, more traditional frequent flyer program.

Understand that JetBlue has the revenue-based program it does because it doesn’t really want a frequent flyer program, but it knows it has to have one. It’s been dragged out of necessity into building an elite program, because the traditional elite programs drive revenue. But the JetBlue model isn’t an attractive business case for Delta or for United or American.

First, it’s worth separating out mileage accrual and redemption from elite programs, these are two different things and need to be thought of separately.

On the earn and burn side of things, understand that the traditional frequent flyer programs are highly profitable under their current business model. They sell large amounts of miles, for more money than it costs to redeem those miles. Each of the major programs are worth billions.

The programs make serious money, they’re a huge profit center.

You’d think that would be reason enough to bias strongly against making wholesale changes to the underlying business model. And yet Jeff Robertson, who runs the Delta program, thinks his golden goose is a rotten egg.

“The frequent flyer model of over-awarding is not sustainable and must be changed. It’s either going to be redemption or accrual or both.”

If billions of dollars aren’t enough of a reason not to undercut the current model, then understand what the programs are trying to accomplish in terms of driving business to the airline. It’s a mistake to match points accrual with money spent because what you want to incentivize is behavior at the margin — to get purchases you wouldn’t otherwise get, not just add up the total dollar amount of purchases made by a customer regardless of the existence of the frequent flyer program.

An airline’s least expensive fares are often their most profitable. In fact they are almost pure profit. When the airline offers inexpensive flights it is because they expect seats to go out otherwise empty, they’re going to operate a plane anyway and any incremental revenue is straight profit they wouldn’t have gotten otherwise. That’s what you want to incentivize.

The full fare passenger may not be swayed by the frequent flyer program but by schedule or by corporate contracts. Rewarding that case is a cost without additional revenue. And the full fare passenger taking last seat inventory might displace another passenger who also would have flown full fare, so not economic profit. Fight for that passenger for sure, but don’t think for a second that low fare passengers mean low profit.

On the redemption side the fundamental reason why these programs are so successful is that they leverage being able to offer inventory that would otherwise spoil, buying those seats at a deep discount, and offering them to customers for points who wouldn’t otherwise spend money.

The saver award is key, and airlines have been reluctant to break the ‘25,000 domestic coach saver level’ even as those seats may get harder to find. Even that though isn’t a reason to revamp the program, because flights as full as they are today is an historical anomaly. And it would be a better investment to improve IT infrastructure and customer service training to do a better job at finding the seats that are available on the routes that current systems don’t think to check than to gut a profitable program.

On the elite status side of things, first remember the airline should be interested in revenue at the margin which is much more important than gross revenue. You don’t want to incentivize somebody that’s going to pick your airline anyway because of a corporate contract. You want to influence behavior with your benefits.

Further, elite status isn’t just about revenue and commodifying the relationship is a mistake. Customers form an emotional bond with their airline, spend so much time in the carrier’s metal tubes, and the elite program makes them feel valued well beyond the benefits themselves. Making it all about the Benjamins demystifies and undermines that relationship, and just makes it a transaction which will ultimately undermine the power of the program. An airline doesn’t want to just be a rebate or punch card, where once you’ve finished the card and redeemed there’s no reason to remain loyal.

No, revenue-based programs — the replacement of earning points and spending points based on zones or distance with earning and spending points based on the cost of a ticket — are not a good business model for the airlines to follow.

And they would be terrible for consumers, too, since they’re end of getting outsized value from points, which is ultimately what drives the success of what really are the most innovative and game-changing innovation in marketing history.

Premium cabin tickets become almost impossible to obtain, because their cash price is often so many times that of a coach ticket. (Remember that Southwest and JetBlue have only one class of service and limited international service.)

It’s hard to imagine the apocalypse to loyalty that would flow from this. While programs may wring their hands about rewarding the wrong people, or about high redemption costs that they need to manage, in the end these mileage programs are profitable and successful, and the revenue-based ones are not. Why in the world would a multi-billion dollar company risk its entire business model when it’s currently spinning off large sums of cash?

The consultants and analysts who sell this love it, and think it’s the next big thing, but it’s truly cutting off their own income streams.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community Milepoint.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. It is a fact that the number of miles awarded are rising and rising and rising. I think these growing gazillion balances have to be carried as liabilities in the balance sheet? I understand what you just stated but can you balance these arguments with the liability issue? My gut instinct is that when you add this growing liability issue…the end of the current model will become evident and it is a matter of time. I have no doubt that Delta is preparing for the big switch in the (very?) near future.

    The era of the mileage runs is over:-)

  2. Exactly the kind of insightful and in-depth post we all come here to read. But here’s where it doesn’t make sense to me. If these programs are so clearly profitable:

    1. Why does it seem like every single (US, at least) airline with one is trying to rein it in?

    2. Why have none of the other airlines started one. You say that Southwest and JetBlue don’t want these programs. If they’re so profitable, why not?

  3. They clearly believe there’s more money to be made with a revenue-based program. So Gary, what analysis do you think leads them to believe this?

    I think it’s apparent that the people chasing status and the people that buy more expensive tickets are almost mutually exclusive sets. I know if they all switch eventually, I will not only abandon all loyalty, I will fly much less.

  4. Southwest went over to a revenue based model in Rapid Rewards II. My use of the airline then dropped like a stone after having used them extensively for over 20 years. My image of the airline and value of the brand dropped. Bean counters who worship their god called “Metrics” typically just don’t understand intangibles – whether customer perceptions or business ethics.

  5. @alohadave. Agree completely. We stopped flying SWA and cancelled both of our credit cards. Their program is worthless to us, and we used to fly them frequently.

  6. Hi Gary –
    While it might be true that an airline is better off selling a discounted seat that otherwise would have been empty, that isn’t true if they end up paying another airline a lot of money to carry a passenger who earned cheap miles on that discounted seat. Take a $250 transcon flight at 3 CPM: the airline awards a flyer 8300 miles (easily possible for an elite flying e.g. JFK/SEA rt) and books $200 of gross profit on the flight (the extra weight costs more fuel; the pax is an elite and drinks a few beers; etc). If those miles are used to redeem in first to Asia on a partner airline that charges them 2.5cpm, they’ve just lost money on that flight. In other words, it makes sense for them to consider the true cost of the miles they award with the flight, especially if it turns out that full fare pax redeem mileage at lower CPMs than low fare pax.

    I don’t think the airlines should go crazy trying to make mileage running impossible, because many more people will be trying to break the system than they can afford to pay to defend it; but they are in business to make money. If they decide to reward full fare pax at the expense of mileage runners, the market will decide how successful that strategy is.

  7. Southwest did not miss you at all…a look at their numbers will confirm that.

    You are all just a bunch of over entitled free loaders, the jig is up….deal with it

    I am kidding obviously….well, not really!

  8. I suppose that I shouldn’t be surprised to see you recently don the same blinders that Randy Petersen has worn for some time now. You’re focused only on the accrual side of the equation without looking at the redemption side. Just because printing miles generates billions of dollars doesn’t mean that servicing those accounts and handling the redemption is free to the companies. Even with controlled inventory for travel awards and the less lucrative fixed-value retail awards the companies are treading on thin margins with the programs. High revenue but not necessarily huge profit.

    Are revenue-based programs bad for passengers? Sure, if you don’t actually contribute high amounts of revenue to the airline. But it should be no surprise that the airlines are going to reward the customers who are actually profitable to them. That’s good for the company and good for nearly all the customers. The exception is customers accustomed to exploiting the loopholes in the programs for personal gain. Confusing what’s good for you and “customers” is foolhardy.

  9. Folks, airlines do NOT pay 2.5 CPM when redeeming miles on partner airlines. Strangely none of us (on FT) knows what they really pay but my guess is that the amount is very low. I sometimes suspect partner airlines do not pay anything and are free to book whatever they please as long as they contribute to the pool of seats enough.

    Don’t forget these seats would be empty otherwise (or they would not be released in the first place).

    I think Gary is on the money if Delta goes revenue based their business will suffer. It will take a while for people to discover but UA will have field day with their excellent FFP.

  10. @Seth

    Gary’s larger point is that revenue-based programs leave money on the table for the airline. If a passenger is going to fly your airline anyway, how much do you spend to keep his business? (Answer: Nothing. He was already going to fly your airline.)

    I get all of my miles strictly from CC spend. When I have the one-off flight I have to buy, I fly AA or UA, where I have a huge stash of miles. I won’t even consider DL unless they have a better schedule or fare. (I’m not saying I’ll fly them for certain under those circumstances, they’re just out of the running if they’re not.)

  11. It’s hard to agree with the base argument because it’s driven by an assumption that the loyalty programs are profitable and hold standalone value despite the airline. There is no evidence of that any more.

    Sure, programs have made money in the past, but that’s changing. Take the example of Aeroplan, famously spun off as a separate company. Since that spinoff, to make the numbers work, Aeroplan has introduced widely panned changes. Loyalty to that program has evaporated.

    Programs around the world are less generous than in the US, and the inevitable trend is in that direction. As soon as US-based legacy programs break out of their FF mileage bubble, it will come here too.

    The current FF mileage bubble only works because of banks and the outsize mileage purchases they are making (and distributing via doling out 40K or 50K signup bonuses). They’ve acquired those miles cheaply as part of saving some airlines’ businesses (by prepaying for large buckets of miles, or providing bankruptcy operations/exit financing). Yes there are other channels for earning or acquiring miles, but at higher cost and normally in far smaller quantities.

    Once the banks realize that their FF credit card customers – churners or not – are not contributing to profitability, or the banks’ cost structures rise because they have exhausted their reserve of cheaply-acquired miles, that piece of the FF game will end. Earning will become more expensive than it is today.

    On the redemption side, there is a real cost to paying for seats. It’s not free or cheap by any measure, and in the case of last-seat availability it’s actually a very expensive accounting cost. The ‘deep value’ opportunities that business/first redemptions and last-seat availability will go away. Expect to see two changes: first, business and first class redemptions will no longer be offered at 50-125% premiums over coach, but will move to 150+% premiums, and second, last-seat redemptions will inflate as well, so that there is no economic arbitrage to buying miles and redeeming them for last-seat availability.

    Airlines may not switch to a pure revenue-based model, but it’s inevitable they will fix their FF cost structure which will involve changes to both earning (revenue-based) and redemptions (no more arbitrage). And that’s sound business for them.

  12. I agree with Robertson that the model must change. But I also agree with Gary that they’ll lose out on money. As long as the airlines can sell their miles to partners and make big money off them they’ll continue to do it. Once the partners discover that it’s less than profitable then they’ll stop buying and the airlines will have to change their policies. It seems that Delta doesn’t want to wait until it’s too late to change; when they’re stuck with large numbers of customers with large amounts of miles ready to redeem.

  13. So the problem with revenue based programs is that they are not loyalty programs, they are just a rebate. The loyalty leverage that the airline has over the customer disappears. Anyone spending less than $10K a years has almost no incentive (other than low cost) to keep flying your airline. It’s going to be interesting to see what happens if Delta goes this route.

  14. This is going to be interesting to watch over the next couple of years.

    I certainly hope the FFPs are ultimately interested in attracting marginal revenue, as that really is an important premise in the justification of traditional programs.

    I’d love to see the participants of this discussion — Gary, Seth, those commenting as well — back up some of their claims though. It really all does hinge on whether traditional FFPs are profitable, and the extent to which they are.

    A quick review of the most recent Groupe Aeroplan (which manages more than just the Aeroplan program) investor presentation I could find (http://www.slideshare.net/groupeaeroplan/groupe-aeroplan-investor-day), from 2011, shows a successful, growing company that generates both dividends and free cash flow. Their AEBITDA for Q1 2011 was $72.6m on $528m in revenue.

    The slide deck also mentions that their breakage rate (mile expiry) has remained constant over time, but doesn’t specify the rate. Does anyone know? I’d expect this to line up fairly closely across programs.

    It also shows that their strategy includes policy changes expected to increase breakage as well as additional low-value reward options.

    If I was running an FFP, I expect I’d not only know exactly how much breakage to expect, but also the percentage of fixed-value (or roughly fixed) or low-value redemptions to expect, and I’d also be trying to increase those percentages before changing the top end.

    To accurately prognosticate, I think one would require access to at least summary financials from an FFP that isn’t as mature or as widely diversified as Groupe Aeroplan. I’d absolutely love for someone to track down some appropriately redacted numbers.

  15. Who’s going to pay cash or exorbitant points for those Business and especially First class seats? Those fixed value programs work fine for one-class short-haul flights.

  16. It seems like the love affair between AMEX and Delta is over and Delta is looking to go on its own while AMEX is no longer offering such large gifts to consumers.

  17. The smart method for engendering loyalty to frequent flyer programs is to have policies that continue to cause repeat business. If a program starts telling passengers, we do not value your business becuase you buy “cheap tickets,” then why should the customer stay loyal? If it is a race to the bottom, then you simply pick the cheapest or most convenient airline to fly and disregard any loyalty to the program.

    IMHO, frequent flyer programs should continue allocating status based upon miles flown and the EQM bonus for higher yield fares. For earning high yield and high revenue customers, AA has Concierge Key and United has Global Services which are smart and rewarding programs. For those concerned that people are earning UA 1K or AA ExPlat from $3000 in transcons, I think this is much more difficult now than in the past due to more expensive tickets. Furthermore, it is also a time consuming and more cumbersome method of earning elite status, and those whom do so are likely a small minority.

  18. Gary said: “traditional frequent flyer programs are highly profitable under their current business model. They sell large amounts of miles, for more money than it costs to redeem those miles.”

    Jeff Robertson of DL said: “The frequent flyer model of over-awarding is not sustainable and must be changed.”

    I say: Ponzi schemes are highly profitable until demand collapses. FF program devaluation works just like financing government by inflating the money supply. Inflation succeeds as long as the public does not properly anticipate it. The government therefore needs to inflate faster than the public expects it to. This results in higher and higher inflation rates. At some point the public’s expectation of hyperinflation will no longer lag but instead will outrun the government’s ability to print new denominations of money. Then the game is over.

    Traditional FF programs need to devalue faster and faster in order to continue to attract customers. That is exactly what has been happening for years. I predict that 100k mile credit card offers will become common. Eventually we will see a 250k mile credit card offer.

    When redemption levels increase more than once per year, saving miles for an award for more than a year will be pointless (get it?). Then the game will end. Customers will correctly conclude that the game is hopelessly rigged against them, and the airlines’ income from selling miles to card-issuing banks will collapse.

    Revenue-based programs are not Ponzi schemes. They are fully sustainable, amounting to nothing more risky for the airline or exciting for the customer than a percentage rebate. Customers will gladly trade the old FF model for the new once the fun is over, just as they would dump a beautiful meth-addicted girlfriend for a plain-looking dependable girl when it’s time to settle down.

    I am certain that Southwest is very happy with the results of its revenue-based program. That program provides extraordinary incentives to the customer to buy unrestricted fares. I don’t like the program because I buy cheap fares, but I have no doubt that it works well for Southwest.

    So Gary, this is one time I disagree with you. Jeff Robertson is correct: Revenue-based earning and/or redemption is in the future for all airlines.

    As for elite travel perks such as upgrades or better coach seating, that is not a Ponzi scheme. It can continue in its present form indefinitely.

  19. Why is a miles based frequent flyer award program a “Ponzi scheme”. I really don’t see it this way – I would say that they allow airlines to leverage their excess capacity into another revenue stream.

    I hope revenue based is not the future. Delta’s problem is that they are stuck in this inflationary cycle. They got themselves into the hole. They get hammered that there is no availability at the saver level. There is not the same problem with United/AA/Hawaiian and many other programs. United hasn’t inflated their award tables in a while, in fact I suspect its below the official inflation rate.

  20. People advocating revenue (or gr profit)-based FF programs tend to ignore two points:

    1. The semi-fixed nature of an airline’s cost base (i.e. it costs roughly the same to fly a 100-seat airplane holding 10 pax as it does one holding 100 pax, since the largest component of the cost is that of actually operating the plane itself.

    2. The goal of FF programs is not (or at least should not be) to incentivize individual customer profitability, since my profitability is not something I can control (I buy the lowest fare bucket offered to me based on my schedule needs; if it’s an S fare, its an S fare, if it’s Y, its Y). What I *can* control is where I spend my money. The goal of FF programs is to influence that share of my wallet for a product that is otherwise a commodity.

  21. Nick said: Why is a miles based frequent flyer award program a “Ponzi scheme”?

    Good question. It doesn’t have to be, any more than governments need to finance their operation by creating paper money. It’s just that in both cases the managers succumb to the temptation to spend “free” money now in exchange for causing a disaster much later. In theory, traditional FF programs can be managed sustainably, without excessive sales of miles and without devaluation. In practice, all major program have oversold miles to card-issuing banks, pocketing “free” money and setting the devaluation process in motion. All the incentives for management operate in favor of this decision. That’s why the traditional programs are all Ponzi schemes.

    As with any Ponzi scheme, you won’t suffer too much from the collapse if you burn (withdraw) as you earn (deposit). The long-term savers are the big losers. In a Ponzi scheme, the time over which you need to earn and burn becomes shorter and shorter until either the redemption window closes suddenly or you get tired of the game and quit playing.

  22. I just started re-flying Delta this year (abandoning AA), and fwiw, if they go to a revenue based model then I’m done with them.

    That said, Skymiles already looks more like a hotel program than a frequent flier program. Think about SPG, where many of us earn many more points from CC spend than from hotel stays. And many of us have gold status from CC spend rather than from hotel stays. So if Skymiles, which already sells status through Amex spend, wants to be a points (as opposed to miles) program, then the model can work. One more similarity – Delta miles don’t expire.

    The pitfall is two-fold – first as an airline, as Gary says, they will lose the incremental revenue from anyone without status faced with a choice of airlines. I don’t buy the full argument that the $250 fare is all profit, but it’s certainly an important part of their revenue.

    Second as a frequent flier program, if they do begin to think and act like a points program and they also inflate redemption costs, the skypeso is even less valuable, drives even less loyalty, and they will absolutely sell fewer miles to third party vendors like amex as consumers find other programs (even capital one) to be a better value.

    In a nutshell, they will have lost site of the forest for the trees, and by divorcing the profitable miles program from the less-profitable “miles for flying” equation they will compromise the value proposition of the whole program.

  23. @ Gary, I generally agree with your argument. However, I think it would be useful to separate mileage accrual from mileage redemption in your discussion.

    Having a revenue-based program can lead to 2 variants:
    1) revenue-based accrual & redemption (Southwest & for the most part Virgin America & Jetblue)
    2) revenue-based accrual only (a hybrid and something that Delta could do)

    Having revenue-based accrual & redemption prgoram the way Southwest, Virgin America & Jetblue lead to a pure rebate of 10%, 10% & 6% respectively. This takes away the over-sized value of an aspirational award that you and many others like about traditional programs.

    Having a revenue-based accrual only (hybrid) program however does not take away aspirational awards. It just re-allocates miles and rewards to customers who pay respectively more for their seat.

    In addition, there are multiple ways of looking at profitability. You could just as easily say that the airplane is going to fly regardless they have a set schedule in place and maybe even more so because of all of the cheaper bookings that were made weeks and months in advance by leisure travelers/bargain hunters. At that point, you could say that the typical business traveler booking high revenue tickets inside 14 or 7 days are generating pure profit.

  24. Bean counter 1:

    Lookie Lookie! We’ve increased our revenue per flying Passenger by 10%!

    Bean counter 2:

    Yeah, it’s a shame we’ve had to cancel 30% of our flights due to lack of demand…

  25. Love your most posts Gary, specially ones that are not credit card promos. However, if airlines do go to revenue model, there sure will be less number of (!Ahem) blog shops. Amen to that
    I am guilty as charged of buying lowest fares and redeeming for J seats

    I have to say, since you have confessed that you like to multiply the value of miles by redeeming for aspirational awards, that would mean mostly Game Over for you as well. I feel this post has bit conflict of interest for you

  26. @RestlessLocationSyndrome That’s basically how hotel points work for the most part now. The thing is customers are not stupid; there is a playing field, it seems some of the LCC’s have recently realized this and adjusted their programs. Still not enough to attract the serious frequent flyer in my opinion though.

    I think the counterargument holds true as well – buying the loyalty of high margin customers costs less with a miles based frequent flyer program than a revenue one. Delta also run’s the risk of losing the high margin customers they want to keep.

    A couple of other things change when you go to a revenue based FF program – at least as far as legacy carriers are concerned. Customers are not so happy to connect in some godforsaken hub to collect the extra miles, so you loose some through traffic. Mileage running or segment padding looses its appeal as well. And it’s not only low margin customers who mileage run. I’m sure more than one executive has taken a tour of the global facilities to round off the old mileage account.

  27. @nsx

    Do you know what a ponzi scheme really is? It’s a system that *requires* new entrants to keep everything going. If the new money stops, then the system collapses.

    Frequent flyer programs aren’t ponzi schemes. If people stopped earning miles or banks stopping buying them, the programs would still go on.

    No ponzi scheme.

  28. @Dan, True, but if that happened the head of the program would be fired for sure. I’m arguing that the incentives for the managers virtually require the program’s manager to operate it Ponzi style.

  29. @nsx, so that means what, exactly? Promising better and better returns to draw in new money? Your argument about the manager getting fired doesn’t hold water, as the *system* still exists.

    Issues surrounding money supply and the value of it aren’t Ponzi schemes. You are right about the inflationary issues — as we have more and more miles chasing fewer and fewer seats, the price keeps going up and up. As the price per seat sky rockets, then we have people realizing that playing this game is a losing proposition, then we have fewer new entrants, and ultimately the program collapses.

  30. If DL goes to a revenue based program, you will see their PRASM stall just like UAs has. And in the process, DL will be the second airline legacy in one year to bestow instant revenue upon AA and give them mor life, while simultaneously helping UA out of the hole they dug for themselves.

  31. Seth. I shouldn’t be surprised you endorse the DL model. After all, your beloved UA has already been going down this path with TODs, and all the other customer unfriendly policies they have enacted in th recent past.

    Unfortunately, because of the perks you receive from UA such as your unearned GS status, it is hard for me to take your opinion at face value if it addresses issues that align with UA philosophy or policy. And before you state that I am uninformed on the issue of your GS status, I note that you never responded to my request (on your blog) for you to set the record straight with respect to it.

  32. @Dan, I mean that managers of FF programs sell all the miles the banks will buy rather than capping sales at the maximum amount that can be created per year without requiring devaluation on the redemption side. If there was ever an airline program which limited its sales of miles to avoid devaluation, I haven’t heard of it. I believe that every manager of an airline program sought to maximize current revenue with little or no regard to the future value of the miles to the customer.

    Hyatt may have been an exception to the rule of promiscuous sale of miles: They may have avoided creating a co-branded credit card for over a decade in order to preserve the value of their points.

  33. Revenue based programs can still distinguish themselves in various ways. For example, Southwest points bookings are de facto fully refundable for everyone (not just top level elites) – a big competitive advantage if your travel plans are subject to change

  34. In post number 1 I posed a question how does the ever growing gazillion of unearned miles affect the profitability of these programs? I am no aviation accounting expert here, can anyone knowledgeable pitch in here? I think these miles have to be carried as liabilities. Therefore, the higher they are the higher the liabilities that a company carries…correct? It appears the revenue from selling all these miles far outstrips the downside of having to carry the unearned miles as liability…therefore…they just get fatter and fatter Ponzi like? Am I thinking about this correctly? Too simplistic? Please enlighten me…anyone? Anyone?

  35. You are right that the airlines now have to carry miles as a liability at a more reasonable value, but the selling price to banks exceeds the liability per mile. Therefore airlines still have an incentive to live beyond their means by selling more miles than the airline can afford to redeem. It’s the excess sale of miles that creates the pressure to devalue.

  36. One factor that differentiates North America from the rest of the world is the general lack of credit card surcharges when making purchases. I believe they’re actually illegal here (although that may be changing soon in Canada).

    As a result, we have a higher proportion of credit card transactions, each of which generates profit for the issuing bank which exceeds their cost for the miles/points/cash back/etc. given to the user. This is why the incentives and competition is so fierce. In Australia/Europe/etc. there are often surcharges when paying with credit cards to discourage their use and recoup the merchant fees.

    In a sense, anyone paying with cash/debit/cheque is subsidizing those of us who use credit cards.

  37. What I like about Southwest’s model is that redemption is always fair and I don’t get screwed in paying 40k or 50k points for domestic flights like on Delta and AA. I know that for those that make better use of the points for international upgrades receive more value and would not use their points that way. But for those that mostly fly domestic coach on their points, I can flight most Southwest routes for 15,000 to 20,000 points round trip. For example, I wanted to use AA miles to fly to Miami and it was 50k points each because they charged double for the direct flights, and on Southwest it was 12k points, both direct routes and Southwest had better times. I was actually trying to use AA. So I think that if Delta went to a points system I would personally get much more value of the points. I know I am probably in the minority, but just wanted to provide that point of view.

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