US airlines reveal profitability of frequent flyer programmes

Airline executives have hinted in recent years that frequent flyer programmes, particularly in the US, are profitable. It took a global pandemic to reveal just how profitable. A quartet of US carriers — American Airlines, United, Spirit and most recently Delta — have put up their customer loyalty schemes as collateral for large quantities of new debt needed to see them through the crisis. Others may soon do the same. Documents sent to creditors contain a trove of information on the size, margins and valuations of the programmes, from American’s AAdvantage to United’s MileagePlus and Delta’s SkyMiles, with hundreds of millions of members between them. “The profitability and the size of these loyalty programmes, it’s the only reason American Airlines isn’t in bankruptcy right now,” said Stifel analyst Joseph DeNardi. “It’s the only reason United isn’t bankrupt, or on the verge.” Airline frequent flyer programmes began in the 1980s as a marketing tool to inspire brand loyalty among travellers, and have evolved into a lucrative source of cash. Airlines sell miles to banks, who then use them as credit card rewards, attracting the affluent consumers they want as cardholders. In essence, airlines have two businesses: the first flies people between destinations, and the second peddles those people to banks for a fee. Valuations recently put on the loyalty schemes have exceeded the market capitalisations for the airlines themselves — implying that investors value the business of flying passengers at less than zero. Story has more details.<br/>