The economics of frequent flyer awards, airline perspective

Gary Steiger of Free Frequent Flyer Miles passed along this article which details frequent flyer award useage (how many awards claimed, what percentage of travel that accounts for) at each carrier, drawn from their most recent 10-K filings.

The April issue of Inside Flyer (subscription required) has more to say about these 10-Ks, outlining what they reveal about the economics of frequent flyer miles.

    In simple terms, American thus estimates that a domestic roundtrip will cost them about $12.90. This is in fairly stark contrast to Delta and Northwest, which estimate their costs at $16.01 and $16.57, respectively. On average, it seems the cost of your free ticket is about $14.74. That’s a three-dollar drop from 2002.

    To illustrate just how profitable a frequent flyer program can be, then, let’s play with that $14.74 figure. If an airline sells miles to partners for 1.5 cents each, and a domestic ticket is 25,000 miles, the airline takes in $375. Subtract out the $14.74, and you’re looking at a tidy little profit of $360.26.

    Overall, award usage was down or remained steady with all carriers except Southwest. Rapid Rewards usage continued to climb steadily, from 1.7 million in 2001 to 2.2 million in 2002 to 2.5 million in 2003.

    Surprisingly, award usage on both American and US Airways dropped a full 100,000 in 2003. While the number of awards redeemed on United stayed constant at 2 million, the percentage of seats those awards took up jumped a full 1.2 percent, from 7.8 in 2002 to 9 in 2003.

    This makes sense given that the airline cut back its routes in the wake of bankruptcy. United also appears to be capping its award travel. Though the 10-K doesn’t specifically admit to it, it would explain why exactly 2 million awards were used for three years running.

    One unusual fact was that award travel on America West hovered around 2.1 percent of revenue passenger miles (essentially passengers boarded), while the other programs hovered around 7-9 percent. Keep in mind that this number does not necessarily represent the number of seats allocated for award travel, but rather the actual number of award travelers on board.

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, 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 »

More articles by Gary Leff »

Leave a Reply

Your email address will not be published. Required fields are marked *