Over the weekend I quibbled with a financial analyst’s claim that airlines make more money selling miles than selling air transportation.
- There have certainly been times when this was true, when United was in bankruptcy years ago the mileage program was the only profitable part of the airline.
- In most recent times it hasn’t been quite true as low fuel prices have driven profits from actually flying.
Nonetheless, airlines have discovered a true holy grail. In nearly every business marketing is an expense. To major airlines marketing is a (huge) profit center.
Most competitive businesses work hard to offer a continually better product at lower cost while US legacy airlines with Basic Economy fares are striving to provide less at the same price in order to get customers to pay more.
Alaska Airlines, the airline with the nation’s second highest operating margin behind Allegiant, and one of the best on-time performances to boot, seems to understand the value of its frequent flyers.
Key points Alaska makes:
- Something that I missed in the announced future of Virgin America and strategic plans for Alaska Airlines moving forward is that (as reported by Airline Weekly) “30% of its Mileage Plan members hold an Alaska-branded credit card.” (Of course it’s possible that only 10% of Mileage Plan members have the card, but they have three each – hah.)
- MileagePlan members are 65% more likely to book direct than non-members and generate four times as much revenue for the airline. (Whereas American Airlines has been emphasizing the 85% of people flying once a year who generate half their revenue, to the exclusion of the 15% of more frequent flyers generating the other half, Alaska seems to be interested in the reverse.)