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The survival of the airlines depends on frequent flyer programs
- tgb 6y agoSeems like the better link is the original article: https://marker.medium.com/why-the-survival-of-the-airlines-depends-on-frequent-flyer-programs-2509bd3f25d0 https://marker.medium.com/why-the-survival-of-the-airlines-d...
- animationwill 6y agoThanks for finding the original source. @dang could we switch the title and link?
- Jtsummers 6y agoYou should be able to edit it within the first 30-60 minutes.
- animationwill 6y agoOnly the title, not the link
- Jtsummers 6y agoHuh, I thought I'd done that in the past. Maybe it was a different site.
- dredmorbius 6y agoEmail to hn@ycombinator.com is more effective. I've done so.
- dang 6y agoWe switched it from https://twitter.com/david_perell/status/1311414711817302018 https://twitter.com/david_perell/status/1311414711817302018. Thanks! Submitters: please follow the site guidelines, which include this: Please submit the original source. If a post reports on something found on another site, submit the latter. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
- barnaclejive 6y agohttps://marker.medium.com/why-the-survival-of-the-airlines-depends-on-frequent-flyer-programs-2509bd3f25d0 https://marker.medium.com/why-the-survival-of-the-airlines-d...
- NikolaeVarius 6y agoI seem to recall a booking agency made roughly on average 10 dollars a seat for their most profitable airlines. Airline standards are the direct consequences of vote with your wallet. No matter what some claim, 99.999% of people will buy the cheapest ticket possible.
- vikramkr 6y agoUnless the ticket is being reimbursed by somebody else. Hello business travel.
- namdnay 6y agoThe GDS makes about 10 dollars per seat. A portion of that (2-5 dollars depending on the negotiation) goes back to the agency The real kick is "full content agreements" - the airline has to promise not to undercut the final fee charged by GDS/Agency. This ensured nice profits for the GDS ecosystem, but airlines are starting to fight back by pulling out of them (and hence increasing prices for indirect bookings)
- NikolaeVarius 6y agoI'm having a hard time believing that trend will spread to major airlines, I mean the entire point of the GDS is that it gives everyone a "level" playing field in terms of knowing how to price seats. I mean its the same situation as every man-in-the-middle platform right? You have players who hate paying the middle guy, and try to spin off, but everyone else gets too much value to break off
- namdnay 6y agoIt has spread to major airlines, in fact they're the ones pushing for it: LHG, IAG, AFKL are all fighting hard. Their dream is that with stuff like NDC it will become magically possible to have a marketplace without middlemen, we all know that's impossible. But they'll use it as a lever to lower commissions until we hit a new equilibrium
- 6y ago
- animationwill 6y agoThe interesting thing is that Delta (and others) have been devaluing their loyalty points for years, to the point that a few years ago frequent flyers started referring to Delta points as "SkyPesos" instead of "SkyMiles"
- srtjstjsj 6y agoThat seems a bit xenophobic. Why not SkyPennies or SkyMeters?
- gruez 6y agoHow is it xenophobic? The point being conveyed is that the points are worthless. Pesos (from various countries) tend to be significantly less valuable than USD. You can probably do the same with Rubles, but I'm guessing that Americans are more familiar with pesos.
- deepsun 6y agoYes, the dollar sign literally means peso (aka "pieces of silver") -- "PS" where "P" lost its curved part, and only vertical bar left, written on top of "S".
- sk5t 6y agoPeso does seem to be a decent option. Folks might no longer be familiar with the Italian lira, and "Sky Zimbabwean Dollar" or "Sky Drachmae" don't quite roll off the tongue.
- brk 6y agoIf you've flown American Airlines in the last few years you already know this. They hawk their credit cards so heavily on the flights that I almost feel bad for the flight attendants. Back when I was flying regularly (3-5x/week) it was almost funny how every flight I was on was "selected" for a "very special offer" available for a "limited time".
- bluntfang 6y ago>They hawk their credit cards so heavily on the flights that I almost feel bad for the flight attendants. This really should be illegal along with advertisements on every screen on the aircraft that you can't turn off. edit: either i got a downvote or the hackernews bot decided my discussions aren't up to snuff. more gaslighting from the mods.
- brk 6y agoI do not disagree with you in general, though in a list of "Things airlines do that should be illegal", I'm not even sure this would be in the top 20.
- srtjstjsj 6y agoWhat's your list? Actively harassing people trapped in a crowded room with no way to exit is pretty serious. If you did what the airline does with the ads, you'd be kicked off the plane and arrested.
- brk 6y agoIn general, I would start with addressing things they are allowed to get away with in terms of (re)scheduling flights, not updating passengers with relevant info in a timely manner, holding flights/passengers, and refunds/cancellations. The in-flight ads are mostly avoidable if I put on headphones and/or just close my eyes and take a nap. As long as the plane is in the air, on schedule, and moving in the right direction, I am getting the core product I paid for.
- 6y ago
- doublesCs 6y agoJust link the goddamn article https://marker.medium.com/2509bd3f25d0 https://marker.medium.com/2509bd3f25d0
- PaulHoule 6y agoThat article is talking about valuation rather than revenue or profits. You can have a big valuation without profits https://www.marketwatch.com/story/palantir-headed-for-22-billion-valuation-in-wall-street-debut-report-2020-09-24 https://www.marketwatch.com/story/palantir-headed-for-22-bil... "Frequent flyer" programs started as an under-the-table way to bribe corporate flyers to take one airline over another: that is, you tell your employer you want to fly Delta, your employer books you on Delta, you get a kickback. If some people who pay for their own flights feel some loyalty that's one thing, but the programs have mutated into financial skullduggery, some version of "borrowing from Peter to pay Paul" https://www.forbes.com/sites/advisor/2020/07/15/how-airlines-make-billions-from-monetizing-frequent-flyer-programs/#5ec028a614e9 https://www.forbes.com/sites/advisor/2020/07/15/how-airlines...
- namdnay 6y agoThere's more to it than that: Loyalty systems do bring in a lot of profit for most airlines. SWA for example made 42% of it's 2017 EBIT on Loyalty. There is a certain scam in the fact that miles are a "kickback" for employees, but also keep in mind that third parties will pay vast amounts of money to participate in the miles ecosystem: Every co-branded credit card that is printed is 10-15 USD straight from the bank to the airline, without anybody having booked a flight yet..
- arcticbull 6y agoIt's not $10-15 for any premium co-brand card. Back a few years ago the rough book value of a mile was 6/10th of a cent per point. Credit card sign-up bonuses are easily in the 25-100,000 point range, so every premium co-brand card pays $150-600 to the airline. Further, breakage is high in the airline loyalty space, something around 20-30% if I recall correctly.
- 112012123 6y agoThe airlines have successfully squeezed banks a good deal more than that! At this point all the US-domestic carriers are charging their bank partners over 1 US cent per point. Source: Have negotiated these deals with airlines
- namdnay 6y agoThe loyalty system brought in 66% of AA's EBIT in 2017, and 51% of United's ... that's a lot of money
- animationwill 6y agoWhere can I find this? I want to look up other airlines
- namdnay 6y agoNot sure it’s public, sorry :(
- arcticbull 6y agoThere's a lot of interesting dynamics at play, though perhaps the most interesting is that of the airlines and their co-brand credit card partners. The credit card partners will purchase huge blocks of frequent flier miles, up front for chase, to hand out to their customers to incentive purchases. These block deals are enormous, billions of dollars at a time. As co-dependent as they are (and as prone to bankruptcy as US legacy airlines are) the card issuers have historically provided debtor-in-posession financing for the airlines [1]. [1] https://www.globalcapital.com/article/k6bkccj1mshy/delta-receives-dip-financing https://www.globalcapital.com/article/k6bkccj1mshy/delta-rec...
- jeffrallen 6y agoI have never spent a loyalty point in my life. Am I a sucker, or am I a smart consumer who has thrown off the shackles that the marketing department has tried to put on me?
- gruez 6y agoIf you're not a frequent flyer you're probably not missing out on much, insofar as points collected via flying. However, if you're not taking advantage of credit card sign up offers that give you travel rewards (aka. churning), you are missing out on hundreds of dollars of free travel per year.
- joncrane 6y agoI think it depends on how each person values their time, and how much they like/hate keeping up with that kind of stuff. I can confidently say that I'd come out ahead by working (billing to a client) the time I would otherwise spend wrangling all my rewards programs, but not everybody has the option to just work another hour whenever they want. Also I'm much better at my job than I am at wrangling rewards points so I generally get more satisfaction from it.
- fredophile 6y agoI wouldn't be so quick to suggest people should be churning credit cards. There are some great values there if you are detail oriented and keep on top of things. However, it is hard to come up with an objective value for points and a simple mistake or two can wipe out any gains you would have made. There is a reason banks continue to offer high sign up bonuses.
- jacquesm 6y agoSame here. Never collected one either. Complete nonsense these programs, I like the ability to vote with my wallet and a loyalty program would be friction on the way to do doing that.
- thotsBgone 6y ago
- yelloweyes 6y ago21st century capitalism is a total house of cards just waiting to collapse
- xoxoy 6y ago“making money” from your business has nothing to do with the valuation of your company...
- ben1040 6y agoDuring the recession in 2009, American Airlines needed liquidity and Citibank (who issued their cobrand credit card) came in. Part of the $2.9B package was Citibank buying $1B worth of air miles to give to their cardmembers. https://dealbook.nytimes.com/2009/09/17/american-airlines-gets-29-billion-lifeline/ https://dealbook.nytimes.com/2009/09/17/american-airlines-ge... That created a liability on American's books, but because they controlled the redemption policy and capacity (and had an expiration date on miles once issued to customers) that they had some control on how the liability got called in.
- mrweasel 6y agoSorry, but that’s about as stupid as ferry companies only being profitable due to the duty-free shops. I understand it’s as simple as that, but it seems incredible wasteful to operate a transport company only to be able to make money on credit cards or cheap alcohol. And is that why US airlines appear to be better of finacially than the European airlines?
- pdx_flyer 6y agoFrequent flyer programs make a lot of money for airlines but so does flying. Credit cards are also a huge money maker for airlines. The article is looking at valuation, not actual revenue. It's kind of like the idea that certain routes lose money but airlines keep those routes around because they add value to the network. Scott Kirby of United has stated that he wants to bring JFK-LAX/SFO back because of the value it added for customers who didn't want to go to EWR even though the JFK routes supposedly lost money. Also, it's not like we've seen a successful spinoff of a loyalty program. Look at Air Canada or Virgin Atlantic.
- soco 6y agoI don't get how this works with commercially successful low cost airlines.
- jermaustin1 6y agoFor 2.5-3 years I flew continental exclusively, 100s of thousands of miles every year. I was consulting from Houston, TX to NY, CA, AZ, Dallas (sometimes I would fly instead of drive), and CO, after a certain number of miles you basically are auto upgraded to first class every single flight, and then you scale your way up through the membership levels. I had around 500k unused miles in my account because the last thing I wanted on vacation after flying back and forth each week to different places was to go fly somewhere. My vacations were usually cross country road trips. My wife and I would rent a nice car, pile the trunk with luggage and just hit the road stopping whenever we wanted. It was the perfect vacation from an overly structured life. Within a few months of me no longer consulting on the road like that, I was alerted that United was buying Continental, and I'm sure in that press release I didn't read, it probably said something about all my miles, but I didn't pay attention to it until about a year later when United told me my miles were expiring. So I logged to trade those miles in for a couple tickets to somewhere far far away, and saw my 500k miles from Continental had be devalued to 50k miles at United. Worth at the time 2 domestic round trips if I paid $150 per ticket to redeem them before they expired. So my miles that used to get me into lounges, and first class upgrades, and basically free flights to almost anywhere in the world got me about a 20% discount on 2 round trip tickets to Denver... That was the last time I flew United unless it was the cheapest "real" option (I refuse Spirit and Allegiant).
- jdxcode 6y ago> That was the last time I flew United unless it was the cheapest "real" option (I refuse Spirit and Allegiant). Isn't that what most people pick anyways?
- Zhenya 6y agoI think people optimize for value which is a combination of cost, time and convenience. I won't save 50$ or even 100$ if it means I have a connecting flight or spend more time traveling. My goal is to get somewhere as convenientlt as possible balanced with cost..
- dannyw 6y agoShort term management greed has destroyed long term shareholder value.
- InfiniteRand 6y agoI think one thing with loyalty programs that makes corporations care less about employees taking advantage of them (instead of going for the cheapest flight), is that it encourages employees to manage their logistics efficiently. Without loyalty programs, people book things at the last minute, with minimal effort spent looking at the flights (at least that's my attitude and what I've observed in cases when I've had to travel to a location has no airlines with good loyalty programs flying there). This ends up costing the company money due to poor booking. Finding good flights and other travel arrangements is an additional job duty, and usually other job duties take precedence. But if there's a possibility of a traveler benefitting from the booking, they'll do so more promptly, be willing to spend time outside of work looking at flights, and try to find reasonably priced flights to avoid this perk being taken away from them. This is my observation from travelling within a small company, it probably does not hold for larger companies.
- bryanlarsen 6y agoThe argument of the original headline is made all the time and it rarely is a good one. "Airlines look like they make money from flights, but really they make it from frequent flyer programs". The same market is made about car dealerships with maintenance, Tesla about selling regulatory credits, gas stations with junk food, et cetera. But I believe that a more accurate description is that the side behaviour is enabling the companies in question to lower prices in an attempt to steal market share. Without the side businesses, prices would rise, it doesn't necessarily mean that the businesses would be non-viable without the side businesses. Of course if you don't have it but your competitor does, that may cause problems. Doesn't invalidate this article though, it's more about COVID-19 adaption than side businesses.
- cwkoss 6y agoSeems like banning credit card reward/loyalty programs would be a net societal good - they encourage overspending and make people feel like they are 'earning' by using credit. Further, the net result of them is to enable more carbon-emitting travel. Unfortunately the credit lobby is too powerful in this country, so seems politically untenable.
- JumpCrisscross 6y ago> they encourage overspending Do we have evidence rewards increase total spending? I thought it was more about issuers fighting for wallet share. Not increasing spend.
- cwkoss 6y agoI have personal anecdotal evidence. One friend will make increasingly frivolous purchases as they approach rewards thresholds. They ended up with 5-figure credit card debt and a net loss of funds because they considered rewards at time of purchase, but not the interest on the credit for not paying full statement balance. I'd be curious to see a more formal academic analysis of this, however.
- chrisseaton 6y ago> and make people feel like they are 'earning' by using credit But you are earning by using credit. When I buy on credit I literally earn cash back. I also get additional consumer protections. No scare quotes needed!
- monksy 6y agoWait .. their survival depends on a program they love to devalue and spit in customers' faces with? (Long explaination but look up sky pesos, devaluation charts, PQDs, CC hawking, etc) If anything they've done all that they can to try to make status harder to hit/maintain and used it to grab more profit. Now that they're not getting profit they're trying to cry to FFs.
- handmodel 6y agoBefore Covid, I would fly roundtrip from California to Boston 4 or 5 times a year. I almost always flew JetBlue, not because of a program but because it was the cheapest and I like their planes. After an entire year of doing this I had earned under $100 in credit. Meanwhile, the cost differential between flying at 9am or 6am or a different airline is usually $100. I've never been convinced after that the pain of dealing with the tracking and the login account is even worth it.
- taylortrusty 6y agoTo be fair you’re not a frequent flyer or even really valuable to the airlines. They’re not making money on you - they’re making it on the business people flying BOS -> LAX round trip in first class 30-40 times a year.
- handmodel 6y agoThat is fair! I guess there must be some stickiness although I kinda get the feeling that some of that stickiness was from when it was more complicated to find times and book? What is the discount for those flyers still - one free round trip for every ten flights? That 10% is still pretty small difference compared to how much you/the company would save switching airlines or skimping $15 a day on per diem.
- gm3dmo 6y agoHe that depends Upon frequent flyer programs swims with fins of lead, And hews down oaks with rushes. William Shakespeare, Coriolanus
- cwhiz 6y agoI generally don't care if the current airlines survive. If their business model can't handle an emergency then we should let them fail. They can enter bankruptcy and someone or someones will come in, swoop up the assets, and start new airlines. It is not written in the stars that American Airlines, United, Delta, and Southwest get to be THE premier airlines for the United States. Let them find their own way. Maybe next time the airlines won't use 96% of their cash flow on share buybacks. I would also entertain the idea of loaning the airlines money at student loan interest rates. We can even defer payments until the pandemic is over, accruing interesting in the interim of course. Or liquidate shares and sell them to the public treasury if they need the cash so badly. Anything, legitimately anything, other than a bailout.
- jm20 6y agoThere isn’t a single business model out there that can survive a 90+% reduction in customers. That categorization is absurd. It would be like saying if Google can’t survive a sudden reduction of 90% of people using the internet it should fail. You can say what you want about bailouts but saying a “business model is bad” because of a once in a lifetime disaster is ridiculous.
- setpatchaddress 6y agoTwice in a lifetime, if you were born before September 2001.
- rhino369 6y agoThis is way worse than 9/11 for the airlines. Probably an order of magnitude worse.
- deleted 6y ago[deleted]
- cwhiz 6y agoPlenty of businesses keep many months of runway in cash for emergencies. Airlines spent 96% of their free cash flow, over the span of a decade, buying back their shares. Since you mentioned Google, they have over $100 billion in cash and could easily survive an interruption of this magnitude. Google could go to $0 in revenue and survive for many years. Having cash for an emergency is what a well managed and responsible business should do. Airlines don’t have any money because they were poorly run and greedy. Let poorly run and greedy businesses fail.
- Sophistifunk 6y agoI've been watching my points stack up while all our business travel is shelved, thinking to myself "my next SYD->LAX leg is gonna be antimatter-class", but then I realised everybody's points are stacking up and they're not going to be worth the bits they're counted in when travel becomes a thing again :(
- baron_harkonnen 6y ago> travel becomes a thing again Business travel will never become a thing again except for the cases where it is absolutely necessary (and those travelers are still traveling now). Business travel is where the majority of profits come from for airlines. Now that layoffs can start happening expect airlines to shrink and air travel to return to what it was in the 60s: an expensive, luxury travel option.
- e5v7 6y agoLot's of discussions in here are dancing around the main point but no one's making it because it's either already very much implied or sounds kind of naive, but allow me Subsidizing your frequent customers at the expense of your infrequent ones is anti-competitive and anti-consumer and obviously not strictly a scam but somewhat scam-adjacent. It all seems like very race-to-the-bottom type stuff. I'm not much of a ban-happy guy but honestly I'd be open to the idea if it were not so unfeasible. Related https://news.ycombinator.com/item?id=24654363 https://news.ycombinator.com/item?id=24654363