39 ms·

Airlines make more money from mileage programs than from flying planes

535 points by chapulin 3y ago

maltalex 3y ago
I'm surprised that no one mentioned Wendover's excellent video about this topic: https://www.youtube.com/watch?v=ggUduBmvQ_4 https://www.youtube.com/watch?v=ggUduBmvQ_4
slavboj 3y ago
At a certain size, every business becomes a bank - stable businesses usually get more marginal return from optimizing their capital structure than actual product development.
- lxgr 3y ago
  Not every large business effectively takes customer deposits of that magnitude, though. Starbucks is another good example of one that does (with gift cards instead of points); Amazon might be another.
  - purpleflame1257 3y ago
    Starbucks isn't making extra money directly when you load a Starbucks card, though. They "make" money when you leave a balance on the card.
    - eszed 3y ago
      "Directly"? Isn't the point that they get to invest the money their customers add to their cards, for whatever time Starbucks hold it? That some customers also fail to redeem the balance is for them a bonus, but not what the "Starbucks is a bank" comment addresses.
      - lxgr 3y ago
        > That some customers also fail to redeem the balance is for them a bonus Starbucks does not get to keep unredeemed balances indefinitely in most US states!
        eszed 3y ago
        Oh? I did not know that. What happens to un-redeemed balances? After how long? Regardless, the underlying point remains. They'll profit from the float until whatever it is they have to do happens.
    - lxgr 3y ago
      They're definitely making money: You pay them the full amount of the gift card upfront, in exchange for coffee later. That's an interest-free loan to Starbucks, and these have a monetary value these days! > They "make" money when you leave a balance on the card. In many US states, the money interestingly goes to the state in the end when unused, under a common law doctrine that doesn't exist in many other countries: https://en.wikipedia.org/wiki/Escheat https://en.wikipedia.org/wiki/Escheat In that case, there is no breakage income for the gift card issuer, but the interest free loan, together with people's tendency to spend higher total amounts at the same merchant when using gift cards, still makes them an amazing deal to the issuer. I suspect that there's also a non-negligible benefit being exploited in the form of differences in subjective value between gifter and giftee: In a nutshell, the gifter spends more money than they normally would at a store they frequent, or viewed from the giftee's perspective, they spend "money" at a company they normally wouldn't.
  - slavboj 3y ago
    Any large manufacturer or retailer is in the credit business - taking credit from their suppliers and extending credit to their customers.
- paulusthe 3y ago
  As someone who has studied financial crashes extensively, I agree with you but worry that we lack the regulations. All these bank-ish companies offering credit cards are having impacts on the money supply (every loan they issue becomes an asset somewhere), and at some point their interconnections with the financial system are going to become a risk. I assume most to all fund their loans with money market borrowing, for example. Then there's the broader question of whether this is good for productivity. If every company is a financial company, who actually makes tangible stuff?
  - kylebenzle 3y ago
    When you triple the money supply every couple years what's a few extra trillion here and there? /s Hyperinflation is coming, the kind that will be THE central issues for everyones life for awhile. When it happens it won't be these guys fault. I would not blame airlines and home Depot credit cards for the coming hyperinflation, just a symptom of its approach.
    - rcarr 3y ago
      What makes you think hyperinflation is coming? If anything, inflation seems to have peaked and is now starting to fall. The only way I can see hyperinflation happening is if there’s another major conflict, climate change causes some major simultaneous disasters, or some kind of black swan event like another pandemic. Of course, individual countries might see hyperinflation if they’re mismanaged (e.g Argentina right now) but I can’t see it happening globally except in the cases listed above.
      - adolph 3y ago
        > If anything, inflation seems to have peaked and is now starting to fall. Before folks make comments about currency still inflating (gerund), let us stipulate that the noun "Inflation" is a positive rate and the rate has recently decreased. Let us all be thankful that there exists some amount of inflation which in a broad sense reflects a growing and dynamic world (how closely remains to be seen) as opposed to deflation.
    - 3y ago
- seanhunter 3y ago
  That's not what a bank is or does.
chollida1 3y ago
> In short, SkyMiles is no longer a frequent-flier program; it’s a big-spender program. This is probably how frequent-flier programs should have been run in the first place. Airline don't care that you fly alot, they care that you are a profitable customer. That means business customers and the wealthy will still be their main clients. This just means they lose the churners and the price sensitive bargain hunters, which almost every airline would be happy to trade away for more business customers. It's a win for the airline as they keep their core customers happy as their rewards won't change and they'll lose the unprofitable customers who used their rewards programs alot without spending much. > A 2020 analysis by the Financial Times found that Wall Street lenders valued the major airlines’ mileage programs more highly than the airlines themselves. United’s MileagePlus program, for example, was valued at $22 billion, while the company’s market cap at the time was only $10.6 billion. This looks alot like car companies whose leasing arms became more profitable than their manufacturing arms for part of the 2000s. But wallstreet loves companies that they can easily value and this "conglomerate" style business has been out of favour for a while now. Sooner or later some airlines will spin out their rewards business into a separate company to get the maximum valuation from it. Just like how deregulation lead to the consolidation of airlines, I wouldn't be surprised to see only a couple of rewards programs that every airline uses in a decade. As usual PE will be the winner. I'd bet Blackstone or Apollo will roll up multiple programs into one or two uber rewards/credit card programs that are spun out into public companies. VISA and Mastercard won't care who owns them. As long as it drives more credit card usage, they'll be on board.
- matwood 3y ago
  > This looks alot like car companies Every successful company eventually becomes a bank. See also Apple.
  - pixl97 3y ago
    Turns out usury is profitable!
    - contravariant 3y ago
corbezzoli 3y ago
Here we go! What’s next on the “X is a bank” bingo card? Here’s what you all get wrong about this: if I can’t withdraw, it’s not a bank. Points are just prepaid assets and services that you may or may not be able to ever receive. Bank money does not simply “expire” (it can be used for fees however)
- kybernetikos 3y ago
  Is that a deliberate reference to twiXter?
  - kylebenzle 3y ago
    They are saying, "______ (blank) is a bank", not X, formerly Twitter. Again, X is the dumbest possible name for aything, I will never user it, just call it Twitter if you have to. No one is saying X, the platform formerly know as Twitter, is a bank.
    - xcxcx 3y ago
      [flagged]
      - pif 3y ago
        I think I married her.
        xcxcx 3y ago
        Let's double check on the We Are Married To The Same Wife Facebook group
    - Mechanical9 3y ago
      Honestly how is it even possible to name a company or a product after a single letter? That shouldn't even be trademarkable.
    - TeMPOraL 3y ago
zeroCalories 3y ago
The only issue with this system is the credit card fees being shared by non-card users. This is why the government needs to find a no fee alternative, or at least make it mandatory to charge a fee on card users to cover the costs.
- kylebenzle 3y ago
  [flagged]
- Schiendelman 3y ago
  Have you heard of FedNow?
suckitsam 3y ago
Forget crypto; let's replace The Fed with SkyMiles™!
dncornholio 3y ago
This article makes no sense. > They make more money from mileage programs than from flying planes—and it shows. I spend 15 minutes of my time trying to find where is shows but I couldn't. All I can see is you get points from spending money and the difference now is, people get less points and perks.
- AnimalMuppet 3y ago
  Perhaps they meant that it shows in how bad the experience of actually flying is.
Throwawayh89 3y ago
Hasn’t this been true for decades at this point?
jacknews 3y ago
"the blame ultimately lies with Congress." For de-regulating? Sure. But it shows that market capitalism is actually the problem, and governments are to blame for not managing, harnessing, and policing it stringently.
- RajT88 3y ago
  Dunno why you're getting downvoted from this. All that deregulation did increase America's GDP, but at the cost of income inequality and lack of real wage growth for most. If you're lucky enough to get into a profession for upper-middle class people, you'll be in good shape (like most of the people on this forum). Most people don't make it. Perhaps that's where the downvotes come from, is the tendency of people to think subconsciously, "I did it; everyone else can too, it's not that hard".
  - jdminhbg 3y ago
    Cheaper flights didn't cause income inequality.
    - RajT88 3y ago
      We're talking about deregulation and the ills it causes. Do try to keep up.
      - jdminhbg 3y ago
        Yeah, that's the problem. This is a deregulation that we can't even pretend caused any of those ills. It's kind of dumb to try to lump it in with the ones for which there's a case.
- refurb 3y ago
  How is capitalism the problem? Go back to the 70’s before regulation when the government enforced minimum fares. Air travel has gotten much cheaper and far more accessible to lower income people. That sounds like a win for deregulation.
throw1234651234 3y ago
I thought this was going to be about over-leveraging. Aka banks loaning out more than they have. Aka airlines overbooking seats on a flight in hopes people don't show up. I saw 6 people told there is not enough space for them on a recent flight.
- bluedays 3y ago
  I remember when I was younger when planes didn’t fill completely. You’d have so much room. You always prayed your seat mate didn’t show up. Times have changed for sure
seydor 3y ago
i dont see a problem
tomcam 3y ago
> Consumers now charge nearly 1 percent of U.S. GDP to Delta’s American Express credit cards alone. $269 billion, if true. Amex normally charges more than other credit cards. Let’s say 4%, so they’d gross $10 billion in fees. That’s… that’s a whole lot of money for a single card.
- Schiendelman 3y ago
  Keep in mind that the $10B in fees isn't profit - some half of that goes to Delta as miles for the users, and some proportion of it actually keeps the network operating.
  - tomcam 3y ago
    Agreed; that's why I said gross
- okaybutno 3y ago
  [dead]
some_random 3y ago
>Is this a good deal for the American consumer? That’s a trickier question. Paying for a flight or a hotel room with points may feel like a free bonus, but because credit-card-swipe fees increase prices across the economy—Visa or Mastercard takes a cut of every sale—redeeming points is more like getting a little kickback. Certainly the system is bad for Americans who don’t have points-earning cards. They pay higher prices on ordinary goods and services but don’t get the points, effectively subsidizing the perks of card users, who tend to be wealthier already. It sounds like their actual issue is CC fees, so why not write about that? Why not demand congress institute fee maximums or something? Meanwhile, I still don't understand what the actual harm is in airlines being "quasi-banks", other than these fees which are not set or managed by airlines.
- yborg 3y ago
  >what the actual harm is in airlines being "quasi-banks" The word "air" in "airline" implies that the main purpose of the business is to move passengers and freight via aircraft. If the main purpose of the business is to generate credit card swipe fees it will probably not do a good job at moving passengers and freight through the air since that part of what it does doesn't generate most of the profits. And we've seen this already with the onerous fees and packed planes that are the standard model now ... because each airline has a captive population that flies it because that is where their points are.
  - some_random 3y ago
    Are the fees because of lock-in from credit card points, or are they just airlines squeezing as much money out of customers as possible? I'm not convinced it's the former in the slightest. It's also worth noting that much of these onerous fees and cramped accommodations are not applied to their high mileage customers who by your logic are the most locked in.
- aldebran 3y ago
  The CC interchange rate is fixed in Europe but not in the US. Should they be? ;-)
surfingdino 3y ago
Any sufficiently large commercial organisation is a bank. Starbucks, airlines, utilities...
- RajT88 3y ago
  I think Doctorow said something along those lines, no? "Any sufficiently advanced technology ends up regulated as a bank" or similar
griffinkelly 3y ago
It's been funny to me that the mileage calculations oftentimes have no tie to the trip mileage--I'm a civilian pilot and often track the flight via foreflight. I'm a frequent filer on United, and I've often wondered the crazy math they come up with to get the number of 'miles' I earned--as the article says I think its purely based off of dollars now despite United also having 'premier qualifying points' which is directly tied to dollars spent.
- sokoloff 3y ago
  I'm not as familiar with United's program, but Delta's earning of miles redeemable for awards is entirely based on a multiplier of money spent. United's appears that way for typical tickets on United/United Express metal as well: https://www.united.com/ual/en/us/fly/mileageplus/earn-miles/united.html https://www.united.com/ual/en/us/fly/mileageplus/earn-miles/...
- ghaff 3y ago
  PQP used to be tied to miles ( with adders for business/first) so miles were used for status and points. Now, except for lifetime miles, it’s all just dollars.
GuB-42 3y ago
Frequent flyer programs can be seen as bribery. Here is the thing. Often, when travelling for work, the company pays for the flight, but the traveler get the points, the traveler can then use the points for personal travels. Maybe the frequent flyer programs are worth more than the business of flying planes, but without business travel expenses, my guess is that you wouldn't have these bank-like frequent flyer programs. As the article mentions, these are just kickbacks.
- lysecret 3y ago
  Bribery, or tax evasion.
  - sokoloff 3y ago
    In the US, it's not tax evasion, because the IRS has declared it so more than two decades ago: https://www.irs.gov/pub/irs-drop/a-02-18.pdf https://www.irs.gov/pub/irs-drop/a-02-18.pdf
    - lastofthemojito 3y ago
      You're correct, but (IMO) it's such a weird stance for the IRS to take. In response to "is X taxable income?" for almost all values of X, it seems like the IRS's answer is yes, if non-trivial amounts of money are involved. You sell a couple of items on eBay, yeah it's fine not to report that as income. But if you sell tens of thousands of dollars worth of stuff on eBay the IRS would see that as taxable income. Your kid has a savings account with a hundred bucks in it and they earn a few dollars interest - not taxable! You keep $100k in a savings account and earn thousands in interest, yep the IRS gets notified and you pay taxes on it. You earn a handful of frequent flier miles this year after a couple of trips home to see Grandma? Nah, that's not taxable. But if you travel multiple times per week for work and accrue tens of thousands of dollars worth of flier miles that you get to keep? Not taxable income for some reason. shrug
      - sokoloff 3y ago
librish 3y ago
It's insanely smart to reward business travelers personally based on how much their company spends. A lot of people working for big companies are completely price insensitive, and might in fact choose a worse and more expensive flight if it means they get to accrue more miles.
- nerdponx 3y ago
  The ability to accrue miles/points/whatever for yourself is considered one of the offsetting perks of having to travel a lot of work. So strong reward programs for frequent business travelers is indirectly a product or service being offered by the airlines to companies that employ business travelers, which employers implicitly pass along to travelers as a form of soft compensation.
  - BoiledCabbage 3y ago
    You have it backwards. Airlines aren't paying customers and companies are paying the payment forward to their employees. Employers are paying their employees and funneling it through airlines. At a deeper level airlines and business travelers have no real business relationship. Employers are buying a service, airlines are selling a service. Business travelers are the "cargo" that airlines are shipping. Businesses pay airlines to ship this cargo. Airlines have no relation to the cargo. Employers also pay the cargo (their employee) a wage. But they funnel part of that payment wage through airlines via miles. It's not much different than company sponsored health care, but it's company sponsored vacation/personal travel. It's an employer benefit, but not treated as one.
    - nerdponx 3y ago
      I think we're saying the same thing. What I was trying (poorly) to say is that the airlines offering the employers the ability to compensate their employees is indirectly a service that airlines offer to employers.
- solarkraft 3y ago
  It's funny that that's even possible. For my next business, I'll personally pay companies' decision makers to choose me as a supplier. Hell, why stop there? I'll also pay politicians and judges to rule in my favor!
dangus 3y ago
Even Amtrak, a government train service with no competitors, has a rewards program. The part of the equation that I think the article is missing is that air travel is an industry with an extremely high level of substitute options. Rewards programs are there to try and combat the fact that their products are 100% interchangeable and create some level of loyalty. Yes, they're also a convenient financial instrument, but I'm personally failing to see how that's a problem requiring intervention. Even with these programs as a profit center, airlines are overall some of the lowest profit margin businesses you can find. There aren't many travelers out there who have much justification to be upset about the prices they pay to fly when the airline is only making single-digit percentage profit off their flight. The article, in my opinion, was too zealous about advocating for reinstatement of a style of regulations that I don't think makes a lot of sense for consumers or the airlines. It's well-understood that fares decreased and service volume increased after the Airline Deregulation Act was passed. Many aspects of the defined routes and fares setups of the Civil Aeronautics Board actively stifled competition by preventing competition from entering routes and fixing prices. > The Civil Aeronautics Board decided which airlines could fly what routes and how much they could charge. Doesn't that sound kind of awful? This would be like your local health department regulating the precise recipe of each meal served at a restaurant, going above and beyond regulating health and safety practices. The article acts like the airline industry is just 100% devoid of regulations, but that isn't at all true. For example, airlines are required to advertise the tax-inclusive airfare, required to refund fare plus penalty in cash in the event of bumping overbooked customers, and obviously long list of safety regulations, and numerous other requirements.
- BoiledCabbage 3y ago
  > The part of the equation that I think the article is missing is that air travel is an industry with an extremely high level of substitute options That's the entire point of a free market. Obtaining perfect competition. If you are producing a product that cannot be easily substituted then you shouldn't get to have a fully free market. Customer lock-in is the opposite of the concept and benefit of a free market. Second, and industry with high startup costs, extreme barriers to entry, limited access to fixed resources (airport runways), and is of strategic importance to a country will always be regulated. Airlines will never be left to die (like for example the NFT market) - and we saw this during the 2008 period. And if you're going to socialize loses and have govt as your back stop there are rules you have to adhere to to ensure customer benefit.
debo_ 3y ago
Is "All businesses eventually become financialized" the business equivalent of Zawinski's Law[0]? "Every program attempts to expand until it can read mail. Those programs which cannot so expand are replaced by ones which can." [0] https://en.wikipedia.org/wiki/Jamie_Zawinski#Zawinski's_Law https://en.wikipedia.org/wiki/Jamie_Zawinski#Zawinski's_Law
somethingsidont 3y ago
One of my favorite YouTube videos on this subject: https://www.youtube.com/watch?v=ggUduBmvQ_4 https://www.youtube.com/watch?v=ggUduBmvQ_4 Key point: airlines are more powerful than normal banks - they are central banks, with complete control of the money (point) supply. On the trilemma [0], they chose to control the exchange rate (points to flight value) and have an independent monetary policy (how many points to issue to flyers or other buyers). [0] https://en.wikipedia.org/wiki/Impossible_trinity https://en.wikipedia.org/wiki/Impossible_trinity
- rawgabbit 3y ago
  When fliers realize points-miles are a fool’s errand, they will simply ignore them and go back to only considering price, flight time, number of stops, and customer service. Points-miles are a way for airlines to lock and keep their customer base while treating their customers like cattle.
sheepybloke 3y ago
While this article is about credit cards and miles, the moment I realized they were banks was when I learned that most airline's fleets are leased. Since maintenance and planes are so expensive, lots of airlines lease a fleet with support contracts from places like GE Capital. From an MBA perspective, it makes sense, but it is such a weird concept to me that you don't own such a pivotal part of your business.
- polygamous_bat 3y ago
  It makes perfect sense if you realize that the airline execs are maximizing their bonuses for the next quarter or four, and not optimizing for the health of the company for the next 10 years. Being stuck with a company and losing a job if the company goes bankrupt is for losers like us, not for those who will leap off with the golden parachute and land another cushy job somewhere with their "years of experience driving growth and providing value to the shareholder".
  - rrrrrrrrrrrryan 3y ago
    Executives build the company that the investors want them to build. By far, the biggest costs of running an airline are the planes and the fuel. But the investors don't want to bet on the value of physical planes, nor do they want to bet on the price of oil. If they wanted to place those bets, they'd just invest in Boeing or Exxon. Instead, they usually want to bet that one airline will perform better than her competitors over the next year or so. So, airline executives lease their fleets and buy tons of oil futures. This gives them a better shot of hitting their targets even if the price of oil skyrockets, it makes their fleet easier to scale up or down according to demand, and it makes their stock more attractive to investors who want more predictable performance.
    - polygamous_bat 3y ago
      > Executives build the company that the investors want them to build. Assuming they're mindless drones of the faceless "investors" with no free will or intent of their own. > But the investors don't want to bet on the value of physical planes, nor do they want to bet on the price of oil. If they wanted to place those bets, they'd just invest in Boeing or Exxon. You're putting the cart before the horse since that's a choice by the exec. If they wanted to derisk themselves they could as well hedge by buying puts on Boeing or calls on Exxon. Overall, who decides what a good business is? Unfortunately, that's come down to a gang of Wall Street suits who would much rather punish good businesses for not catering to their attention span deficient trading/gambling habits. We would much rather have some jack of all trades making business decisions based on their next year's bonus/chalet/yacht rather than people who depend on those businesses (customers and employees), so of course we get to this state.
izzydata 3y ago
But it isn't like they can make money from their mile program if they didn't fly planes so their business is still completely dependent on providing this service. So despite most of their money being made there I still wouldn't call it a bank unless it can be extracted from their core business and survive. Which it can't.
JanSolo 3y ago
The article mentions that due to consolidation there are only 4 major airlines in the US and they are very aligned in their prices and policies thus giving little choice to US consumers. Doesn't that mean there's an opportunity for someone to start a new airline that could compete with the big 4 by offering better prices or more lenient policies? Demand for flights is clearly very high right now; perhaps there's an entrepreneurial opportunity here? Thoughts?
- s3p 3y ago
  Not exactly. Airlines (in my view) are not a perfectly competitive industry: there are extremely high setup costs and barriers to entry. It would be very very difficult for a newcomer to compete with the established ones, at least in the US. Edit: a word
- bvirb 3y ago
  That sounds like Virgin America 20 years ago and I think it worked out well for them and for consumers. They had really cheap, reasonable flights, and they forced everyone else to put entertainment in the seat backs. I really miss their silly purple lighting and lounge music when you boarded.
- standardUser 3y ago
  There's almost a dozen other national-ish airlines and a few dozen regional and commuter airlines, but it's hard to compete with the big ones because they can't offer the same number of routes. I fly JetBlue whenever I can because I'm tall and they have the best legroom, but about half my trips end up on other airlines because JetBlue doesn't fly everywhere. But people who fly a lot and use Delta or United can travel virtually anywhere without ever having to go "out of network". The smaller airlines can capture the people who frequently take a small number of routes, but the best customers are always going to gravitate towards an airline they can use a much as possible to maximize status and rewards.
- falcolas 3y ago
  The cost of entry is absurd, and the industry is highly regulated. The profit margins for acting as just an airline are also pretty thin, IIUC. I think you’re ultimately right, but finding an investor would be irrationally difficult.
objektif 3y ago
I have to say airline travel is the worst experience out of anything I do in my daily life. Something has to change here.
- kylehotchkiss 3y ago
  Sure. Try out this miles thing everybody here is chatting about. Amex rewards. A few months of spending for the average HN audience will get you a free flight or an upgrade on one. I recommend saving them up for an upgrade on an international flight
  - objektif 3y ago
    Is Amex rewards the best program to enroll? I heard good things about Chase.
    - kylehotchkiss 3y ago
      There isn’t a perfect one for everybody. Choose based on transfer partners and benefits you like. I’ve also heard capital one is great. But you can safely skip any Bank of America or Wells Fargo ones.
bdunks 3y ago
I generally agree with the article's premise and conclusions, but the lead in is not true: > They make more money from mileage programs than from flying planes—and it shows. Delta reported 5% of its revenue came from its loyalty programs in 2022 (2.5B of 50B according to 2022 10k). Although in the June annual shareholder meeting, it expected >6.5B in AMEX remunerations in 2023 with a long term goal of 10B. American Airlines may have been closer to 10% (4.5B of 49B according to 2022 10k). I can't quickly find any public data on it's long term goals. Both still well short of "more money" than from flying planes.
- BoiledCabbage 3y ago
  I don't know the details of the industry but that is revenue ignoring expenses. Presumably it is orders of magnitude more expensive to fly the planes than manage a rewards system. I expect the author is saying that if your split each up into profit, the profit is greater on the rewards program than the flying part.
  - goldfish3 3y ago
    Revenue ignoring expenses is also known as revenue.
  - bdunks 3y ago
    The points are not "free" to airlines, though. (Without looking at every airlines 10k, at least one mechanism is to): Account for them as a liability on the balance sheet as "deferred revenue." They then recognize the revenue when the points are redeemed, meaning they incur the same blended Cost per Available Seat Mile (CASM) as a purchased ticket. That's in addition to the significant costs of managing a loyalty program (IT, Partnerships, Legal, etc.)
cvalka 3y ago
The author hasn't heard about southwest.
- adrr 3y ago
  What about southwest? They don't have a mileage program or they aren't a disaster like the rest of the industry?
  - cvalka 3y ago
    They are not a disaster like the rest of the industry and their mileage program is not a substantial factor in their business.
    - adrr 3y ago
      They had a huge outage for over a week that left people stranded over xmas. > More than 16,700 Southwest flights were canceled and 2 million passengers stranded between December 20 to 29, scuttling holiday plans and leaving mountains of unclaimed baggage nationwide.
      - cvalka 3y ago
        Shit happens, while unfortunate it does not substantially affect their long term prospects.
mberning 3y ago
The fact that these programs obscure or even hold hostage the different fare classes is what I really dislike about them. The only fare class that you can get realistic, transparent pricing on is the most basic economy class. Sometimes "premium economy" as well. Anything higher than that has a suggested price that is ludicrous, often being 10x an economy fare, which nobody in their right mind would pay, yet the seats always end up filled. They end up going to people with "status" or some other angle used to slide into the higher class seat. It's annoying because I am willing to pay a higher price for a better experience, but I don't want to play status games across 5 different airlines.
jrwiegand 3y ago
Interesting, I watched a video about this topic a while back[0]. I don't remember it exploring the larger impacts related to government and such but instead digs into how exactly airlines make money from this system. [0] https://www.youtube.com/watch?v=ggUduBmvQ_4 https://www.youtube.com/watch?v=ggUduBmvQ_4
- cheeze 3y ago
  I love Wendover! His videos are fantastic and always interesting.
next_xibalba 3y ago
Is anyone else annoyed by headlines like this? It's clickbait adjacent "Counterintuitive, I must click to learn more." But the reality is, airlines are still airlines. They fly people from A to B, employ many thousands of pilots, flight attendants, baggage handlers, etc. In other words, no, they're not banks. Not by any normal definition.
- eloisant 3y ago
  I think it makes sense. They're banks and their currency is miles. Their customers have accounts with balances, transactions, and they make money by selling miles that they make out of thin air. They don't just create miles from travels, they also sell them for real money to customers and business partners. They're "more" banks than airlines in the sense that their loyalty programs valuation is roughly twice that of the airlines themselves.
  - next_xibalba 3y ago
    The people transport business could continue on as a stand-alone business without the miles/loyalty business, whereas the opposite is not true. Also, banks typically take deposits, facilitate payments, etc. In short, not a bank.
BiteCode_dev 3y ago
I'm flabbergasted that points are not considered taxable at this point.
jppope 3y ago
"A business either dies or lives long enough to become a financial company."
supernova87a 3y ago
Just like countries and banks that have no effective restraint or external supervision, the amount of devaluation of points that airlines have been tempted to do in recent years (and have done) is incredible. The only thing keeping most points-accumulating customers from being angered about this (while there is a hardcore group of fans who track it) is that no airline is required to publish the history of inflation/devaluation. And the airlines hide it behind having changed from actual static charts showing what an airline mile is worth, to now floating dynamic pricing, which completely obscures what has happened. Sell tons of miles dirt cheap to credit card companies, and devalue the miles when it comes time to redeem them. Of course, that is their right, and this is not a state currency, and these are "bonuses", not some entitlement. But people should justly have lowered their faith in it from the beginning. Although you might say the same thing about lotteries -- people are participating in those voluntarily, yet those are regulated and have restrictions on what they can and can't do. But anyway, now people just discover that the 200,000 miles they'd been working towards for years no longer even buys the ticket(s) they thought it would. It has made me, personally, seriously lower my loyalty or pursuit of loyalty for any future promised benefits. (and an end note/minor side story, this applies not just to points/miles but also elite status -- the perks you get for loyalty, such as better seats during flights, lounges, check-in, etc. Airlines have devalued these just as well, by letting the ranks of "elite" customers swell through credit card spending qualification, promotions, etc, and then devaluing the benefits at the tiers of qualification. They're glad to shovel people in with promises which then turn out to be not worth the benefits you thought. Or they add a secret higher tier that you didn't know about.)
- lotsofpulp 3y ago
  > People just discover that the 200,000 miles they'd been working towards for years, now no longer even buys the ticket they thought it would. Being able to continuously arbitrarily devalue them is the whole point of designing a rewards system with “miles” and “points” or whatever non official currency unit.
  - WalterBright 3y ago
    > Being able to continuously arbitrarily devalue them is the whole point of designing a rewards system with “miles” and “points” or whatever non official currency unit. Which is exactly the point of creating the fiat money system in 1914. Have you noticed that the dollar has been continuously devalued ever since? And no, it wasn't to "stabilize" the monetary system. That is just propaganda.
dehrmann 3y ago
> From the late 1930s through the ’70s, the federal government regulated airlines as a public utility. The Civil Aeronautics Board decided which airlines could fly what routes and how much they could charge. It aimed to set prices that were fair for travelers and that would provide airlines with a modest profit. Then, in 1978, Congress passed a sweeping law deregulating the airline industry and ultimately abolishing the CAB. Unleashed from regulation, airlines devised new tactics to capture the market. That makes it sound like air travel was great before free markets stepped in. The real cost of air travel fell by about half since then. Before deregulation, there weren't as many competitive incentives, and airlines couldn't experiment with routes. Air travel became much more popular and got much safer (this might be a coincidence). Granted, service got worse, but you can still buy service at 2x the price in first class. People just don't. There are probably a bit too few customer and worker protections, but on the whole, airline deregulation shows just how bad command economies are at planning and allocating resources.
- WalterBright 3y ago
  > The Civil Aeronautics Board decided which airlines could fly what routes and how much they could charge In this era, it was commonplace to fly with only a few passengers aboard. Full flights were rare. Immediately after deregulation, the flights became routinely full. I.e. the airlines became far more efficient and served the flying public much better.
  - riscy 3y ago
    that could only happen because of service reductions along routes. that gives the public fewer options for when they fly and makes them less comfortable being crammed into planes with ever tinier seats. doesn’t sound like a benefit to me. the benefits to society is in terms of reduced fuel consumption, only because that’s directly aligned with the airline’s profits.
    - WalterBright 3y ago
      The benefit to customers was the planes were directed to where the customers were and flew to where they wanted to go. There was not a sudden decrease in aircraft flying. > the benefits to society is in terms of reduced fuel consumption, only because that’s directly aligned with the airline’s profits Companies don't burn fuel for fun. The fuel is about 40% of the cost of your ticket. Increased fuel efficiency is the major driver of new airline designs.
dehrmann 3y ago
Not really. They're like banks in the same way insurance companies are like banks and can make make money on the float. That's not what this is saying. I'm not sure what it's saying. It's a cutthroat industry where infrequent travelers (and there are a lot) have driven margin for economy seats booked early to almost zero. So you make money on premium services and loyalty for customers that are less price sensitive. Thinking about miles like a real currency gets you lost in the weeds of what's just a complex loyalty program.
WalterBright 3y ago
What's interesting about this is "Skymiles" are a form of private currency. Yes, there are many private currencies in use. Banknotes also used to be private money. Each bank issued their own. The government eventually made that illegal, but banks still issue private currencies in the form of: 1. personal checks 2. cashier's checks 3. traveler's checks (though I think Amex stopped printing them) 4. credit cards 5. debit cards
- MikeTheRocker 3y ago
  I think you're conflating currency with interfaces to the financial system. The currency is the medium of exchange: the dollar itself. A debit card is merely a tool to transact using dollars.
  - WalterBright 3y ago
    I'm not conflating things. They're currency. I talked about this with my dad, who was head of the finance department at a college. He had a degree in economics from MIT and an MBA from Hahvahd. > A debit card is merely a tool to transact using dollars. And banknotes were just a convenient tool to transact gold that was on deposit in the bank vault.
aranchelk 3y ago
> Unleashed from regulation, airlines devised new tactics to capture the market. American Airlines was one of the most aggressive. In the lead-up to the deregulation bills, it created discount “super saver” fares to sell off the final few remaining seats on planes. Strategies like these are great, otherwise those empty seats just go to waste. I consulted for an online travel company. Interestingly in source code stuff like airline tickets were collectively called “pGoods”. After a while (limited documentation) I found out the “p” stood for “perishable” which is an apt description. Of course airlines provide a service, not “goods”. — naming things.
TheRealPomax 3y ago
So is Apple. So is Starbucks. And really so is any large company with a "points card" system that lets you turn money into points or points into money.
finfrastrcuture 3y ago
I'm not one to wear a tin-foil hat, but the timing of this piece is interesting. the Credit Card Competition Act (CCCA) may be lumped into the upcoming spending vote [1]. basically, this would end card rewards under the premise that merchants would pass along interchange savings to consumers. the same argument was made for debit, yet of course the savings never materialized. 1. https://subscriber.politicopro.com/article/2023/09/senator-threatens-to-hold-up-appropriations-package-to-get-vote-on-credit-card-fee-crackdown-bill-00116031 https://subscriber.politicopro.com/article/2023/09/senator-t...
- joshstrange 3y ago
  > basically, this would end card rewards under the premise that merchants would pass along interchange savings to consumers. I mean, I wouldn't expect merchants would lower prices by <2% but maybe they waited longer to raise prices later? I mean debit cards are cheaper than credit cards but not by much the last time I looked (like ~1% cheaper, around 2% vs closer to 3% for CCs).
local_crmdgeon 3y ago
"Without industrial policy, all industries bend towards financialization" True here, true of auto manufacturers, increasingly tech, housing, etc.
omneity 3y ago
This reminds me that car manufacturers in Germany (maybe in other places too) are actually financial services companies with factories attached to them, or so the joke goes. Almost everyone buys new cars through some form of financing, and the structure of the company reflects that.
chem83 3y ago
Re the link referred to in the article: https://thepointsguy.com/news/why-i-wont-chase-airline-status https://thepointsguy.com/news/why-i-wont-chase-airline-statu... I suppose everyone has their own priorities, but it's insane to me that someone would willingly take layovers, crappy routes and less desirable destinations just to chase airline status for a given calendar year. And for what? An eventual upgrade that may never come because someone else bought a higher fare class or business is full? Free access to cheap beer and sad sandwiches inside a packed lounge? Slightly earlier boarding, which any $95/yr airline credit card would give you anyway? These so-called perks can't be more valuable than the time wasted gambling on dodgy connections. At the end of the day, it's easy to hack the system: just do what 99% of the people are too lazy to do. Plan trips early and study routes carefully. Use 3P tools to optimize fares. Pack and travel light. Arrive early at the airport. All these are much cheaper than what airlines are asking to bump your status level and go a long way in making the perks feel like they don't really make that much of a difference.
- fred_is_fred 3y ago
  Which airline gets you lounge access with a $95 card? United's is roughly $500.
  - chem83 3y ago
    You misread my comment.
rkagerer 3y ago
I really hate all these stupid loyalty points programs that have permeated nearly every industry. I flat out refuse to participate. I'd rather the vendor just mark down their sticker prices instead of playing these games. If you want my loyalty, here's a tip: treat me as a valued customer not cattle.
- standardUser 3y ago
  The thing is, if you get status on airline, it's the only way they actually do stop treating you like cattle (mostly). That or be rich and always fly first class.
  - klabb3 3y ago
    My main pains with flying are completely unrelated to the airline, like waking up early, packing, taxis, layovers, delays and endless dead waiting time in the most sterile environment imaginable. Any flight under ~4h all I care about is reducing the amount of time, not increasing the amount of comfort. Drinking while sitting down alone to the pleasurable tunes of 80db ambient noise, really? Do these people think it’s luxury to sit on the couch with their laptop at 11am on a Tuesday with construction workers outside? I cannot wrap my head around how that mediocrity is thousands of dollars worth of luxury when you can get a better experience for $20-$50 on the outside, with minuscule effort. I’m convinced a large appeal is simply the flex that others can see you in first- or business class.
    - standardUser 3y ago
      I'm a bit too tall for airplanes so I would love a business or first class seat purley for pain avoidance. Especially on an overnight flight - I cannot sleep in a coach seat without causing myself harm. Outside of that, I totally agree. And on any short flight (< 4 hours) I could stand for all I care.
      - klabb3 3y ago
        Ah yes luckily I don’t have that problem but that’d be infuriating. They should really have extra leg space in a set of economy/coach seats as well that you can claim if you’re taller. I mean, you pay equal for being twice the weight so I don’t see why being a less than a foot taller than average should be such a crazy thing to accommodate. How often do you manage to book the exit row seats? I assume a lot of non-tall folks take them too just for the extra space.
neonate 3y ago
http://web.archive.org/web/20230921191028/https://www.theatlantic.com/ideas/archive/2023/09/airlines-banks-mileage-programs/675374/ http://web.archive.org/web/20230921191028/https://www.theatl... https://archive.ph/A8cxk https://archive.ph/A8cxk
motohagiography 3y ago
Subsidising flight costs with what is essentially a mix of futures options and a lottery in points systems is probably beneficial all around. The diversification keeps prices down, and maintains it as a viable business. I'd wonder what other defacto utilities could add similar features. A market for options on road pricing would be useful, last mile internet service needs something more than surveillance/advertising.
6stringmerc 3y ago
HEB makes / made a fuck ton of money in Texas - specifically DFW - buying property and selling it when people find out HEB bought it and potentially could put in a location of some sort. I mean it’s good business sure. Ruthless? Kinda.
knallfrosch 3y ago
This article can't really be understood unless you know that Visa/Mastercard take a 2-3% cut from all sales in the US. They redistribute some of that with these points-programs. The cut is limited to 0.2% in the EU. This regulation basically kills all the transfer-from-poor-to-rich point schemes and leads to transparent pricing.
- warkdarrior 3y ago
  If US adopts the same limits on credit card fees as EU, do you think mileage programs will go away? I really doubt it, since airlines will still make a lot of money from fees and fake perks.
  - bombcar 3y ago
    The credit-card side of the miles programs would have to change (but most people who dig deep into it use the cards for the bonuses and run purchases through better rewards cards anyway).
    - notyourwork 3y ago
      I gave up and use a unlimited 2% cash back card. It's much easier and gets me about the same as most without any extra work.
      - bombcar 3y ago
        I'm almost entirely converted to the stupid Apple Card, and that's not even very good cash back - but it's so easy! Once you work out how much you're being "paid" to deal with the thought and hassle, it becomes kind of embarrassing.
schainks 3y ago
Relevant video: https://youtu.be/ggUduBmvQ_4 https://youtu.be/ggUduBmvQ_4
asah 3y ago
What's lost about dereg, is that dereg inspired waves of entrepreneurs and inventors which regulation stifled. No, I will not produce evidence for this absurdly obvious point.
- feoren 3y ago
  Go find a cross-section of things random internet strangers consider "absurdly obvious" and you'll start to understand the need to provide evidence. Fun fact: did you know that different regulations are different, and produce different outcomes? What waves of entrepreneurs and inventors are stifled by the regulation that you can't dump arsenic in rivers?
huijzer 3y ago
For a compilation of Buffett and Munger saying that the airline business is a terrible business, see https://youtu.be/OHvzyLEzVBY https://youtu.be/OHvzyLEzVBY.
snarf21 3y ago
This is not surprising .. A lot of department store retailers used to (still?) lose money on sales but push hard for all spend to be on some store credit card and make all their money there including accounting for the loss via sales.
forgingahead 3y ago
Every public company, once they get to a certain size and scope, end up "financializing" some or all parts of their business to keep chasing those quarterly profits and never-ending growth. It's just a lot easier to generate magic coins from thin air to collect & store / earn interest on, than to keep building and innovating new physical products.
killjoywashere 3y ago
With LEO constellations coming online rapidly, I think it's time the railroads start competing for pax travel again. Start at the high end. My dad worked for BN and I remember the corporate business car: walnut paneling, frosted glass, brass, comfortable seats. I would totally take that: package up the cost of hotel, half the airfare, and meals, and have your offsite, workshop, or other in-person event on the train.
- ant6n 3y ago
  If you put 10 passengers in one fancy business railcar, it will cost 50c/km and reduce greenhouse emissions relative to flying by half rather than by a factor of ten. Night/hotel trains only make sense with decent density.
  - killjoywashere 3y ago
    Ok, now include facility carbon costs for the hotels. At scale. Include the concrete for construction of the fraction you won't need.
bitwize 3y ago
So airline points are basically a CBDC. Neat.
m3kw9 3y ago
This is same thing as points except there is no mystique about points and money ratio. You spend X you get y. No difference
r00fus 3y ago
All of this is possible because credit cards are pervasive. I'd prefer getting some of those fees back by paying cash. We could limit financialization of everything if we had a national payment network like other countries, and removed the inability for vendors to prefer cash by discount.
gavin_gee 3y ago
why when reading the quote "Airlines create points out of nothing and sell them for real money" do I think of ICO's? i guess if there was a way to trade miles it would get into the is it a security debate
trimbo 3y ago
Wendover Productions had a good video about this, framed around United getting a loan during the pandemic: https://www.youtube.com/watch?v=ggUduBmvQ_4 https://www.youtube.com/watch?v=ggUduBmvQ_4
JoshTriplett 3y ago
> Paying for a flight or a hotel room with points may feel like a free bonus, but because credit-card-swipe fees increase prices across the economy—Visa or Mastercard takes a cut of every sale—redeeming points is more like getting a little kickback. And the ones that give a cash kickback (1.5% or occasionally more with a few specific cards) are even easier and more straightforward about this. Suppose someone wanted to reverse this trend and just make everything cheaper rather than having interchange fees of which the cardholder gets a fraction back? What incentive structure would move towards a model with goods whose prices don't need to buffer the 3+% haircut of credit card fees?
domrdy 3y ago
For business class, its often less expensive to buy airline miles than buying a cash ticket. Consider Lufthansa and their Miles & More program. You can currently buy 160k miles for $2,010 (1.26¢ per mile). A return business class flight from the West Coast to Germany is 156k miles and ~$100 in fees. The same flight is usually at least $5,000 for the cash ticket. In my experience, Miles and more tickets are superior to cash tickets, as they can be cancelled and changed for free. There is availability from SF to Munich on the 25th for 78k miles - go enjoy Oktoberfest!
- tehwebguy 3y ago
  Just triple confirm availability beforehand and put it on hold if you can (AA can, not sure about others).
- kylehotchkiss 3y ago
  Miles programs have purchase caps for this exact reason

535 points by chapulin 3y ago

I'm surprised that no one mentioned Wendover's excellent video about this topic: https://www.youtube.com/watch?v=ggUduBmvQ_4 https://www.youtube.com/watch?v=ggUduBmvQ_4

slavboj 3y ago

At a certain size, every business becomes a bank - stable businesses usually get more marginal return from optimizing their capital structure than actual product development.

lxgr 3y ago
Not every large business effectively takes customer deposits of that magnitude, though. Starbucks is another good example of one that does (with gift cards instead of points); Amazon might be another.
- purpleflame1257 3y ago
  Starbucks isn't making extra money directly when you load a Starbucks card, though. They "make" money when you leave a balance on the card.
  - eszed 3y ago
    "Directly"? Isn't the point that they get to invest the money their customers add to their cards, for whatever time Starbucks hold it? That some customers also fail to redeem the balance is for them a bonus, but not what the "Starbucks is a bank" comment addresses.
    - lxgr 3y ago
      > That some customers also fail to redeem the balance is for them a bonus Starbucks does not get to keep unredeemed balances indefinitely in most US states!
      - eszed 3y ago
        Oh? I did not know that. What happens to un-redeemed balances? After how long? Regardless, the underlying point remains. They'll profit from the float until whatever it is they have to do happens.
  - lxgr 3y ago
    They're definitely making money: You pay them the full amount of the gift card upfront, in exchange for coffee later. That's an interest-free loan to Starbucks, and these have a monetary value these days! > They "make" money when you leave a balance on the card. In many US states, the money interestingly goes to the state in the end when unused, under a common law doctrine that doesn't exist in many other countries: https://en.wikipedia.org/wiki/Escheat https://en.wikipedia.org/wiki/Escheat In that case, there is no breakage income for the gift card issuer, but the interest free loan, together with people's tendency to spend higher total amounts at the same merchant when using gift cards, still makes them an amazing deal to the issuer. I suspect that there's also a non-negligible benefit being exploited in the form of differences in subjective value between gifter and giftee: In a nutshell, the gifter spends more money than they normally would at a store they frequent, or viewed from the giftee's perspective, they spend "money" at a company they normally wouldn't.
- slavboj 3y ago
  Any large manufacturer or retailer is in the credit business - taking credit from their suppliers and extending credit to their customers.
paulusthe 3y ago
As someone who has studied financial crashes extensively, I agree with you but worry that we lack the regulations. All these bank-ish companies offering credit cards are having impacts on the money supply (every loan they issue becomes an asset somewhere), and at some point their interconnections with the financial system are going to become a risk. I assume most to all fund their loans with money market borrowing, for example. Then there's the broader question of whether this is good for productivity. If every company is a financial company, who actually makes tangible stuff?
- kylebenzle 3y ago
  When you triple the money supply every couple years what's a few extra trillion here and there? /s Hyperinflation is coming, the kind that will be THE central issues for everyones life for awhile. When it happens it won't be these guys fault. I would not blame airlines and home Depot credit cards for the coming hyperinflation, just a symptom of its approach.
  - rcarr 3y ago
    What makes you think hyperinflation is coming? If anything, inflation seems to have peaked and is now starting to fall. The only way I can see hyperinflation happening is if there’s another major conflict, climate change causes some major simultaneous disasters, or some kind of black swan event like another pandemic. Of course, individual countries might see hyperinflation if they’re mismanaged (e.g Argentina right now) but I can’t see it happening globally except in the cases listed above.
    - adolph 3y ago
      > If anything, inflation seems to have peaked and is now starting to fall. Before folks make comments about currency still inflating (gerund), let us stipulate that the noun "Inflation" is a positive rate and the rate has recently decreased. Let us all be thankful that there exists some amount of inflation which in a broad sense reflects a growing and dynamic world (how closely remains to be seen) as opposed to deflation.
  - 3y ago
seanhunter 3y ago
That's not what a bank is or does.

chollida1 3y ago

> In short, SkyMiles is no longer a frequent-flier program; it’s a big-spender program. This is probably how frequent-flier programs should have been run in the first place. Airline don't care that you fly alot, they care that you are a profitable customer. That means business customers and the wealthy will still be their main clients. This just means they lose the churners and the price sensitive bargain hunters, which almost every airline would be happy to trade away for more business customers. It's a win for the airline as they keep their core customers happy as their rewards won't change and they'll lose the unprofitable customers who used their rewards programs alot without spending much. > A 2020 analysis by the Financial Times found that Wall Street lenders valued the major airlines’ mileage programs more highly than the airlines themselves. United’s MileagePlus program, for example, was valued at $22 billion, while the company’s market cap at the time was only $10.6 billion. This looks alot like car companies whose leasing arms became more profitable than their manufacturing arms for part of the 2000s. But wallstreet loves companies that they can easily value and this "conglomerate" style business has been out of favour for a while now. Sooner or later some airlines will spin out their rewards business into a separate company to get the maximum valuation from it. Just like how deregulation lead to the consolidation of airlines, I wouldn't be surprised to see only a couple of rewards programs that every airline uses in a decade. As usual PE will be the winner. I'd bet Blackstone or Apollo will roll up multiple programs into one or two uber rewards/credit card programs that are spun out into public companies. VISA and Mastercard won't care who owns them. As long as it drives more credit card usage, they'll be on board.

matwood 3y ago
> This looks alot like car companies Every successful company eventually becomes a bank. See also Apple.
- pixl97 3y ago
  Turns out usury is profitable!
  - contravariant 3y ago

corbezzoli 3y ago

Here we go! What’s next on the “X is a bank” bingo card? Here’s what you all get wrong about this: if I can’t withdraw, it’s not a bank. Points are just prepaid assets and services that you may or may not be able to ever receive. Bank money does not simply “expire” (it can be used for fees however)

kybernetikos 3y ago
Is that a deliberate reference to twiXter?
- kylebenzle 3y ago
  They are saying, "______ (blank) is a bank", not X, formerly Twitter. Again, X is the dumbest possible name for aything, I will never user it, just call it Twitter if you have to. No one is saying X, the platform formerly know as Twitter, is a bank.
  - xcxcx 3y ago
    [flagged]
    - pif 3y ago
      I think I married her.
      - xcxcx 3y ago
        Let's double check on the We Are Married To The Same Wife Facebook group
  - Mechanical9 3y ago
    Honestly how is it even possible to name a company or a product after a single letter? That shouldn't even be trademarkable.
  - TeMPOraL 3y ago

zeroCalories 3y ago

The only issue with this system is the credit card fees being shared by non-card users. This is why the government needs to find a no fee alternative, or at least make it mandatory to charge a fee on card users to cover the costs.

kylebenzle 3y ago
[flagged]
Schiendelman 3y ago
Have you heard of FedNow?

suckitsam 3y ago

Forget crypto; let's replace The Fed with SkyMiles™!

dncornholio 3y ago

This article makes no sense. > They make more money from mileage programs than from flying planes—and it shows. I spend 15 minutes of my time trying to find where is shows but I couldn't. All I can see is you get points from spending money and the difference now is, people get less points and perks.

AnimalMuppet 3y ago
Perhaps they meant that it shows in how bad the experience of actually flying is.

Throwawayh89 3y ago

Hasn’t this been true for decades at this point?

jacknews 3y ago

"the blame ultimately lies with Congress." For de-regulating? Sure. But it shows that market capitalism is actually the problem, and governments are to blame for not managing, harnessing, and policing it stringently.

RajT88 3y ago
Dunno why you're getting downvoted from this. All that deregulation did increase America's GDP, but at the cost of income inequality and lack of real wage growth for most. If you're lucky enough to get into a profession for upper-middle class people, you'll be in good shape (like most of the people on this forum). Most people don't make it. Perhaps that's where the downvotes come from, is the tendency of people to think subconsciously, "I did it; everyone else can too, it's not that hard".
- jdminhbg 3y ago
  Cheaper flights didn't cause income inequality.
  - RajT88 3y ago
    We're talking about deregulation and the ills it causes. Do try to keep up.
    - jdminhbg 3y ago
      Yeah, that's the problem. This is a deregulation that we can't even pretend caused any of those ills. It's kind of dumb to try to lump it in with the ones for which there's a case.
refurb 3y ago
How is capitalism the problem? Go back to the 70’s before regulation when the government enforced minimum fares. Air travel has gotten much cheaper and far more accessible to lower income people. That sounds like a win for deregulation.

throw1234651234 3y ago

I thought this was going to be about over-leveraging. Aka banks loaning out more than they have. Aka airlines overbooking seats on a flight in hopes people don't show up. I saw 6 people told there is not enough space for them on a recent flight.

bluedays 3y ago
I remember when I was younger when planes didn’t fill completely. You’d have so much room. You always prayed your seat mate didn’t show up. Times have changed for sure

seydor 3y ago

i dont see a problem

tomcam 3y ago

> Consumers now charge nearly 1 percent of U.S. GDP to Delta’s American Express credit cards alone. $269 billion, if true. Amex normally charges more than other credit cards. Let’s say 4%, so they’d gross $10 billion in fees. That’s… that’s a whole lot of money for a single card.

Schiendelman 3y ago
Keep in mind that the $10B in fees isn't profit - some half of that goes to Delta as miles for the users, and some proportion of it actually keeps the network operating.
- tomcam 3y ago
  Agreed; that's why I said gross
okaybutno 3y ago
[dead]

some_random 3y ago

>Is this a good deal for the American consumer? That’s a trickier question. Paying for a flight or a hotel room with points may feel like a free bonus, but because credit-card-swipe fees increase prices across the economy—Visa or Mastercard takes a cut of every sale—redeeming points is more like getting a little kickback. Certainly the system is bad for Americans who don’t have points-earning cards. They pay higher prices on ordinary goods and services but don’t get the points, effectively subsidizing the perks of card users, who tend to be wealthier already. It sounds like their actual issue is CC fees, so why not write about that? Why not demand congress institute fee maximums or something? Meanwhile, I still don't understand what the actual harm is in airlines being "quasi-banks", other than these fees which are not set or managed by airlines.

yborg 3y ago
>what the actual harm is in airlines being "quasi-banks" The word "air" in "airline" implies that the main purpose of the business is to move passengers and freight via aircraft. If the main purpose of the business is to generate credit card swipe fees it will probably not do a good job at moving passengers and freight through the air since that part of what it does doesn't generate most of the profits. And we've seen this already with the onerous fees and packed planes that are the standard model now ... because each airline has a captive population that flies it because that is where their points are.
- some_random 3y ago
  Are the fees because of lock-in from credit card points, or are they just airlines squeezing as much money out of customers as possible? I'm not convinced it's the former in the slightest. It's also worth noting that much of these onerous fees and cramped accommodations are not applied to their high mileage customers who by your logic are the most locked in.
aldebran 3y ago
The CC interchange rate is fixed in Europe but not in the US. Should they be? ;-)

surfingdino 3y ago

Any sufficiently large commercial organisation is a bank. Starbucks, airlines, utilities...

RajT88 3y ago
I think Doctorow said something along those lines, no? "Any sufficiently advanced technology ends up regulated as a bank" or similar

griffinkelly 3y ago

It's been funny to me that the mileage calculations oftentimes have no tie to the trip mileage--I'm a civilian pilot and often track the flight via foreflight. I'm a frequent filer on United, and I've often wondered the crazy math they come up with to get the number of 'miles' I earned--as the article says I think its purely based off of dollars now despite United also having 'premier qualifying points' which is directly tied to dollars spent.

sokoloff 3y ago
I'm not as familiar with United's program, but Delta's earning of miles redeemable for awards is entirely based on a multiplier of money spent. United's appears that way for typical tickets on United/United Express metal as well: https://www.united.com/ual/en/us/fly/mileageplus/earn-miles/united.html https://www.united.com/ual/en/us/fly/mileageplus/earn-miles/...
ghaff 3y ago
PQP used to be tied to miles ( with adders for business/first) so miles were used for status and points. Now, except for lifetime miles, it’s all just dollars.

GuB-42 3y ago

Frequent flyer programs can be seen as bribery. Here is the thing. Often, when travelling for work, the company pays for the flight, but the traveler get the points, the traveler can then use the points for personal travels. Maybe the frequent flyer programs are worth more than the business of flying planes, but without business travel expenses, my guess is that you wouldn't have these bank-like frequent flyer programs. As the article mentions, these are just kickbacks.

lysecret 3y ago
Bribery, or tax evasion.
- sokoloff 3y ago
  In the US, it's not tax evasion, because the IRS has declared it so more than two decades ago: https://www.irs.gov/pub/irs-drop/a-02-18.pdf https://www.irs.gov/pub/irs-drop/a-02-18.pdf
  - lastofthemojito 3y ago
    You're correct, but (IMO) it's such a weird stance for the IRS to take. In response to "is X taxable income?" for almost all values of X, it seems like the IRS's answer is yes, if non-trivial amounts of money are involved. You sell a couple of items on eBay, yeah it's fine not to report that as income. But if you sell tens of thousands of dollars worth of stuff on eBay the IRS would see that as taxable income. Your kid has a savings account with a hundred bucks in it and they earn a few dollars interest - not taxable! You keep $100k in a savings account and earn thousands in interest, yep the IRS gets notified and you pay taxes on it. You earn a handful of frequent flier miles this year after a couple of trips home to see Grandma? Nah, that's not taxable. But if you travel multiple times per week for work and accrue tens of thousands of dollars worth of flier miles that you get to keep? Not taxable income for some reason. shrug
    - sokoloff 3y ago

librish 3y ago

It's insanely smart to reward business travelers personally based on how much their company spends. A lot of people working for big companies are completely price insensitive, and might in fact choose a worse and more expensive flight if it means they get to accrue more miles.

nerdponx 3y ago
The ability to accrue miles/points/whatever for yourself is considered one of the offsetting perks of having to travel a lot of work. So strong reward programs for frequent business travelers is indirectly a product or service being offered by the airlines to companies that employ business travelers, which employers implicitly pass along to travelers as a form of soft compensation.
- BoiledCabbage 3y ago
  You have it backwards. Airlines aren't paying customers and companies are paying the payment forward to their employees. Employers are paying their employees and funneling it through airlines. At a deeper level airlines and business travelers have no real business relationship. Employers are buying a service, airlines are selling a service. Business travelers are the "cargo" that airlines are shipping. Businesses pay airlines to ship this cargo. Airlines have no relation to the cargo. Employers also pay the cargo (their employee) a wage. But they funnel part of that payment wage through airlines via miles. It's not much different than company sponsored health care, but it's company sponsored vacation/personal travel. It's an employer benefit, but not treated as one.
  - nerdponx 3y ago
    I think we're saying the same thing. What I was trying (poorly) to say is that the airlines offering the employers the ability to compensate their employees is indirectly a service that airlines offer to employers.
solarkraft 3y ago
It's funny that that's even possible. For my next business, I'll personally pay companies' decision makers to choose me as a supplier. Hell, why stop there? I'll also pay politicians and judges to rule in my favor!

dangus 3y ago

Even Amtrak, a government train service with no competitors, has a rewards program. The part of the equation that I think the article is missing is that air travel is an industry with an extremely high level of substitute options. Rewards programs are there to try and combat the fact that their products are 100% interchangeable and create some level of loyalty. Yes, they're also a convenient financial instrument, but I'm personally failing to see how that's a problem requiring intervention. Even with these programs as a profit center, airlines are overall some of the lowest profit margin businesses you can find. There aren't many travelers out there who have much justification to be upset about the prices they pay to fly when the airline is only making single-digit percentage profit off their flight. The article, in my opinion, was too zealous about advocating for reinstatement of a style of regulations that I don't think makes a lot of sense for consumers or the airlines. It's well-understood that fares decreased and service volume increased after the Airline Deregulation Act was passed. Many aspects of the defined routes and fares setups of the Civil Aeronautics Board actively stifled competition by preventing competition from entering routes and fixing prices. > The Civil Aeronautics Board decided which airlines could fly what routes and how much they could charge. Doesn't that sound kind of awful? This would be like your local health department regulating the precise recipe of each meal served at a restaurant, going above and beyond regulating health and safety practices. The article acts like the airline industry is just 100% devoid of regulations, but that isn't at all true. For example, airlines are required to advertise the tax-inclusive airfare, required to refund fare plus penalty in cash in the event of bumping overbooked customers, and obviously long list of safety regulations, and numerous other requirements.

BoiledCabbage 3y ago
> The part of the equation that I think the article is missing is that air travel is an industry with an extremely high level of substitute options That's the entire point of a free market. Obtaining perfect competition. If you are producing a product that cannot be easily substituted then you shouldn't get to have a fully free market. Customer lock-in is the opposite of the concept and benefit of a free market. Second, and industry with high startup costs, extreme barriers to entry, limited access to fixed resources (airport runways), and is of strategic importance to a country will always be regulated. Airlines will never be left to die (like for example the NFT market) - and we saw this during the 2008 period. And if you're going to socialize loses and have govt as your back stop there are rules you have to adhere to to ensure customer benefit.

debo_ 3y ago

Is "All businesses eventually become financialized" the business equivalent of Zawinski's Law[0]? "Every program attempts to expand until it can read mail. Those programs which cannot so expand are replaced by ones which can." [0] https://en.wikipedia.org/wiki/Jamie_Zawinski#Zawinski's_Law https://en.wikipedia.org/wiki/Jamie_Zawinski#Zawinski's_Law

somethingsidont 3y ago

One of my favorite YouTube videos on this subject: https://www.youtube.com/watch?v=ggUduBmvQ_4 https://www.youtube.com/watch?v=ggUduBmvQ_4 Key point: airlines are more powerful than normal banks - they are central banks, with complete control of the money (point) supply. On the trilemma [0], they chose to control the exchange rate (points to flight value) and have an independent monetary policy (how many points to issue to flyers or other buyers). [0] https://en.wikipedia.org/wiki/Impossible_trinity https://en.wikipedia.org/wiki/Impossible_trinity

rawgabbit 3y ago
When fliers realize points-miles are a fool’s errand, they will simply ignore them and go back to only considering price, flight time, number of stops, and customer service. Points-miles are a way for airlines to lock and keep their customer base while treating their customers like cattle.

sheepybloke 3y ago

While this article is about credit cards and miles, the moment I realized they were banks was when I learned that most airline's fleets are leased. Since maintenance and planes are so expensive, lots of airlines lease a fleet with support contracts from places like GE Capital. From an MBA perspective, it makes sense, but it is such a weird concept to me that you don't own such a pivotal part of your business.

polygamous_bat 3y ago
It makes perfect sense if you realize that the airline execs are maximizing their bonuses for the next quarter or four, and not optimizing for the health of the company for the next 10 years. Being stuck with a company and losing a job if the company goes bankrupt is for losers like us, not for those who will leap off with the golden parachute and land another cushy job somewhere with their "years of experience driving growth and providing value to the shareholder".
- rrrrrrrrrrrryan 3y ago
  Executives build the company that the investors want them to build. By far, the biggest costs of running an airline are the planes and the fuel. But the investors don't want to bet on the value of physical planes, nor do they want to bet on the price of oil. If they wanted to place those bets, they'd just invest in Boeing or Exxon. Instead, they usually want to bet that one airline will perform better than her competitors over the next year or so. So, airline executives lease their fleets and buy tons of oil futures. This gives them a better shot of hitting their targets even if the price of oil skyrockets, it makes their fleet easier to scale up or down according to demand, and it makes their stock more attractive to investors who want more predictable performance.
  - polygamous_bat 3y ago
    > Executives build the company that the investors want them to build. Assuming they're mindless drones of the faceless "investors" with no free will or intent of their own. > But the investors don't want to bet on the value of physical planes, nor do they want to bet on the price of oil. If they wanted to place those bets, they'd just invest in Boeing or Exxon. You're putting the cart before the horse since that's a choice by the exec. If they wanted to derisk themselves they could as well hedge by buying puts on Boeing or calls on Exxon. Overall, who decides what a good business is? Unfortunately, that's come down to a gang of Wall Street suits who would much rather punish good businesses for not catering to their attention span deficient trading/gambling habits. We would much rather have some jack of all trades making business decisions based on their next year's bonus/chalet/yacht rather than people who depend on those businesses (customers and employees), so of course we get to this state.

izzydata 3y ago

But it isn't like they can make money from their mile program if they didn't fly planes so their business is still completely dependent on providing this service. So despite most of their money being made there I still wouldn't call it a bank unless it can be extracted from their core business and survive. Which it can't.

JanSolo 3y ago

The article mentions that due to consolidation there are only 4 major airlines in the US and they are very aligned in their prices and policies thus giving little choice to US consumers. Doesn't that mean there's an opportunity for someone to start a new airline that could compete with the big 4 by offering better prices or more lenient policies? Demand for flights is clearly very high right now; perhaps there's an entrepreneurial opportunity here? Thoughts?

s3p 3y ago
Not exactly. Airlines (in my view) are not a perfectly competitive industry: there are extremely high setup costs and barriers to entry. It would be very very difficult for a newcomer to compete with the established ones, at least in the US. Edit: a word
bvirb 3y ago
That sounds like Virgin America 20 years ago and I think it worked out well for them and for consumers. They had really cheap, reasonable flights, and they forced everyone else to put entertainment in the seat backs. I really miss their silly purple lighting and lounge music when you boarded.
standardUser 3y ago
There's almost a dozen other national-ish airlines and a few dozen regional and commuter airlines, but it's hard to compete with the big ones because they can't offer the same number of routes. I fly JetBlue whenever I can because I'm tall and they have the best legroom, but about half my trips end up on other airlines because JetBlue doesn't fly everywhere. But people who fly a lot and use Delta or United can travel virtually anywhere without ever having to go "out of network". The smaller airlines can capture the people who frequently take a small number of routes, but the best customers are always going to gravitate towards an airline they can use a much as possible to maximize status and rewards.
falcolas 3y ago
The cost of entry is absurd, and the industry is highly regulated. The profit margins for acting as just an airline are also pretty thin, IIUC. I think you’re ultimately right, but finding an investor would be irrationally difficult.

objektif 3y ago

I have to say airline travel is the worst experience out of anything I do in my daily life. Something has to change here.

kylehotchkiss 3y ago
Sure. Try out this miles thing everybody here is chatting about. Amex rewards. A few months of spending for the average HN audience will get you a free flight or an upgrade on one. I recommend saving them up for an upgrade on an international flight
- objektif 3y ago
  Is Amex rewards the best program to enroll? I heard good things about Chase.
  - kylehotchkiss 3y ago
    There isn’t a perfect one for everybody. Choose based on transfer partners and benefits you like. I’ve also heard capital one is great. But you can safely skip any Bank of America or Wells Fargo ones.

bdunks 3y ago

I generally agree with the article's premise and conclusions, but the lead in is not true: > They make more money from mileage programs than from flying planes—and it shows. Delta reported 5% of its revenue came from its loyalty programs in 2022 (2.5B of 50B according to 2022 10k). Although in the June annual shareholder meeting, it expected >6.5B in AMEX remunerations in 2023 with a long term goal of 10B. American Airlines may have been closer to 10% (4.5B of 49B according to 2022 10k). I can't quickly find any public data on it's long term goals. Both still well short of "more money" than from flying planes.

BoiledCabbage 3y ago
I don't know the details of the industry but that is revenue ignoring expenses. Presumably it is orders of magnitude more expensive to fly the planes than manage a rewards system. I expect the author is saying that if your split each up into profit, the profit is greater on the rewards program than the flying part.
- goldfish3 3y ago
  Revenue ignoring expenses is also known as revenue.
- bdunks 3y ago
  The points are not "free" to airlines, though. (Without looking at every airlines 10k, at least one mechanism is to): Account for them as a liability on the balance sheet as "deferred revenue." They then recognize the revenue when the points are redeemed, meaning they incur the same blended Cost per Available Seat Mile (CASM) as a purchased ticket. That's in addition to the significant costs of managing a loyalty program (IT, Partnerships, Legal, etc.)

cvalka 3y ago

The author hasn't heard about southwest.

adrr 3y ago
What about southwest? They don't have a mileage program or they aren't a disaster like the rest of the industry?
- cvalka 3y ago
  They are not a disaster like the rest of the industry and their mileage program is not a substantial factor in their business.
  - adrr 3y ago
    They had a huge outage for over a week that left people stranded over xmas. > More than 16,700 Southwest flights were canceled and 2 million passengers stranded between December 20 to 29, scuttling holiday plans and leaving mountains of unclaimed baggage nationwide.
    - cvalka 3y ago
      Shit happens, while unfortunate it does not substantially affect their long term prospects.

mberning 3y ago

The fact that these programs obscure or even hold hostage the different fare classes is what I really dislike about them. The only fare class that you can get realistic, transparent pricing on is the most basic economy class. Sometimes "premium economy" as well. Anything higher than that has a suggested price that is ludicrous, often being 10x an economy fare, which nobody in their right mind would pay, yet the seats always end up filled. They end up going to people with "status" or some other angle used to slide into the higher class seat. It's annoying because I am willing to pay a higher price for a better experience, but I don't want to play status games across 5 different airlines.

jrwiegand 3y ago

Interesting, I watched a video about this topic a while back[0]. I don't remember it exploring the larger impacts related to government and such but instead digs into how exactly airlines make money from this system. [0] https://www.youtube.com/watch?v=ggUduBmvQ_4 https://www.youtube.com/watch?v=ggUduBmvQ_4

cheeze 3y ago
I love Wendover! His videos are fantastic and always interesting.

next_xibalba 3y ago

Is anyone else annoyed by headlines like this? It's clickbait adjacent "Counterintuitive, I must click to learn more." But the reality is, airlines are still airlines. They fly people from A to B, employ many thousands of pilots, flight attendants, baggage handlers, etc. In other words, no, they're not banks. Not by any normal definition.

eloisant 3y ago
I think it makes sense. They're banks and their currency is miles. Their customers have accounts with balances, transactions, and they make money by selling miles that they make out of thin air. They don't just create miles from travels, they also sell them for real money to customers and business partners. They're "more" banks than airlines in the sense that their loyalty programs valuation is roughly twice that of the airlines themselves.
- next_xibalba 3y ago
  The people transport business could continue on as a stand-alone business without the miles/loyalty business, whereas the opposite is not true. Also, banks typically take deposits, facilitate payments, etc. In short, not a bank.

BiteCode_dev 3y ago

I'm flabbergasted that points are not considered taxable at this point.

jppope 3y ago

"A business either dies or lives long enough to become a financial company."

supernova87a 3y ago

Just like countries and banks that have no effective restraint or external supervision, the amount of devaluation of points that airlines have been tempted to do in recent years (and have done) is incredible. The only thing keeping most points-accumulating customers from being angered about this (while there is a hardcore group of fans who track it) is that no airline is required to publish the history of inflation/devaluation. And the airlines hide it behind having changed from actual static charts showing what an airline mile is worth, to now floating dynamic pricing, which completely obscures what has happened. Sell tons of miles dirt cheap to credit card companies, and devalue the miles when it comes time to redeem them. Of course, that is their right, and this is not a state currency, and these are "bonuses", not some entitlement. But people should justly have lowered their faith in it from the beginning. Although you might say the same thing about lotteries -- people are participating in those voluntarily, yet those are regulated and have restrictions on what they can and can't do. But anyway, now people just discover that the 200,000 miles they'd been working towards for years no longer even buys the ticket(s) they thought it would. It has made me, personally, seriously lower my loyalty or pursuit of loyalty for any future promised benefits. (and an end note/minor side story, this applies not just to points/miles but also elite status -- the perks you get for loyalty, such as better seats during flights, lounges, check-in, etc. Airlines have devalued these just as well, by letting the ranks of "elite" customers swell through credit card spending qualification, promotions, etc, and then devaluing the benefits at the tiers of qualification. They're glad to shovel people in with promises which then turn out to be not worth the benefits you thought. Or they add a secret higher tier that you didn't know about.)

lotsofpulp 3y ago
> People just discover that the 200,000 miles they'd been working towards for years, now no longer even buys the ticket they thought it would. Being able to continuously arbitrarily devalue them is the whole point of designing a rewards system with “miles” and “points” or whatever non official currency unit.
- WalterBright 3y ago
  > Being able to continuously arbitrarily devalue them is the whole point of designing a rewards system with “miles” and “points” or whatever non official currency unit. Which is exactly the point of creating the fiat money system in 1914. Have you noticed that the dollar has been continuously devalued ever since? And no, it wasn't to "stabilize" the monetary system. That is just propaganda.

dehrmann 3y ago

> From the late 1930s through the ’70s, the federal government regulated airlines as a public utility. The Civil Aeronautics Board decided which airlines could fly what routes and how much they could charge. It aimed to set prices that were fair for travelers and that would provide airlines with a modest profit. Then, in 1978, Congress passed a sweeping law deregulating the airline industry and ultimately abolishing the CAB. Unleashed from regulation, airlines devised new tactics to capture the market. That makes it sound like air travel was great before free markets stepped in. The real cost of air travel fell by about half since then. Before deregulation, there weren't as many competitive incentives, and airlines couldn't experiment with routes. Air travel became much more popular and got much safer (this might be a coincidence). Granted, service got worse, but you can still buy service at 2x the price in first class. People just don't. There are probably a bit too few customer and worker protections, but on the whole, airline deregulation shows just how bad command economies are at planning and allocating resources.

WalterBright 3y ago
> The Civil Aeronautics Board decided which airlines could fly what routes and how much they could charge In this era, it was commonplace to fly with only a few passengers aboard. Full flights were rare. Immediately after deregulation, the flights became routinely full. I.e. the airlines became far more efficient and served the flying public much better.
- riscy 3y ago
  that could only happen because of service reductions along routes. that gives the public fewer options for when they fly and makes them less comfortable being crammed into planes with ever tinier seats. doesn’t sound like a benefit to me. the benefits to society is in terms of reduced fuel consumption, only because that’s directly aligned with the airline’s profits.
  - WalterBright 3y ago
    The benefit to customers was the planes were directed to where the customers were and flew to where they wanted to go. There was not a sudden decrease in aircraft flying. > the benefits to society is in terms of reduced fuel consumption, only because that’s directly aligned with the airline’s profits Companies don't burn fuel for fun. The fuel is about 40% of the cost of your ticket. Increased fuel efficiency is the major driver of new airline designs.

dehrmann 3y ago

Not really. They're like banks in the same way insurance companies are like banks and can make make money on the float. That's not what this is saying. I'm not sure what it's saying. It's a cutthroat industry where infrequent travelers (and there are a lot) have driven margin for economy seats booked early to almost zero. So you make money on premium services and loyalty for customers that are less price sensitive. Thinking about miles like a real currency gets you lost in the weeds of what's just a complex loyalty program.

WalterBright 3y ago

What's interesting about this is "Skymiles" are a form of private currency. Yes, there are many private currencies in use. Banknotes also used to be private money. Each bank issued their own. The government eventually made that illegal, but banks still issue private currencies in the form of: 1. personal checks 2. cashier's checks 3. traveler's checks (though I think Amex stopped printing them) 4. credit cards 5. debit cards

MikeTheRocker 3y ago
I think you're conflating currency with interfaces to the financial system. The currency is the medium of exchange: the dollar itself. A debit card is merely a tool to transact using dollars.
- WalterBright 3y ago
  I'm not conflating things. They're currency. I talked about this with my dad, who was head of the finance department at a college. He had a degree in economics from MIT and an MBA from Hahvahd. > A debit card is merely a tool to transact using dollars. And banknotes were just a convenient tool to transact gold that was on deposit in the bank vault.

aranchelk 3y ago

> Unleashed from regulation, airlines devised new tactics to capture the market. American Airlines was one of the most aggressive. In the lead-up to the deregulation bills, it created discount “super saver” fares to sell off the final few remaining seats on planes. Strategies like these are great, otherwise those empty seats just go to waste. I consulted for an online travel company. Interestingly in source code stuff like airline tickets were collectively called “pGoods”. After a while (limited documentation) I found out the “p” stood for “perishable” which is an apt description. Of course airlines provide a service, not “goods”. — naming things.

TheRealPomax 3y ago

So is Apple. So is Starbucks. And really so is any large company with a "points card" system that lets you turn money into points or points into money.

finfrastrcuture 3y ago

I'm not one to wear a tin-foil hat, but the timing of this piece is interesting. the Credit Card Competition Act (CCCA) may be lumped into the upcoming spending vote [1]. basically, this would end card rewards under the premise that merchants would pass along interchange savings to consumers. the same argument was made for debit, yet of course the savings never materialized. 1. https://subscriber.politicopro.com/article/2023/09/senator-threatens-to-hold-up-appropriations-package-to-get-vote-on-credit-card-fee-crackdown-bill-00116031 https://subscriber.politicopro.com/article/2023/09/senator-t...

joshstrange 3y ago
> basically, this would end card rewards under the premise that merchants would pass along interchange savings to consumers. I mean, I wouldn't expect merchants would lower prices by <2% but maybe they waited longer to raise prices later? I mean debit cards are cheaper than credit cards but not by much the last time I looked (like ~1% cheaper, around 2% vs closer to 3% for CCs).

local_crmdgeon 3y ago

"Without industrial policy, all industries bend towards financialization" True here, true of auto manufacturers, increasingly tech, housing, etc.

omneity 3y ago

This reminds me that car manufacturers in Germany (maybe in other places too) are actually financial services companies with factories attached to them, or so the joke goes. Almost everyone buys new cars through some form of financing, and the structure of the company reflects that.

chem83 3y ago

Re the link referred to in the article: https://thepointsguy.com/news/why-i-wont-chase-airline-status https://thepointsguy.com/news/why-i-wont-chase-airline-statu... I suppose everyone has their own priorities, but it's insane to me that someone would willingly take layovers, crappy routes and less desirable destinations just to chase airline status for a given calendar year. And for what? An eventual upgrade that may never come because someone else bought a higher fare class or business is full? Free access to cheap beer and sad sandwiches inside a packed lounge? Slightly earlier boarding, which any $95/yr airline credit card would give you anyway? These so-called perks can't be more valuable than the time wasted gambling on dodgy connections. At the end of the day, it's easy to hack the system: just do what 99% of the people are too lazy to do. Plan trips early and study routes carefully. Use 3P tools to optimize fares. Pack and travel light. Arrive early at the airport. All these are much cheaper than what airlines are asking to bump your status level and go a long way in making the perks feel like they don't really make that much of a difference.

fred_is_fred 3y ago
Which airline gets you lounge access with a $95 card? United's is roughly $500.
- chem83 3y ago
  You misread my comment.

rkagerer 3y ago

I really hate all these stupid loyalty points programs that have permeated nearly every industry. I flat out refuse to participate. I'd rather the vendor just mark down their sticker prices instead of playing these games. If you want my loyalty, here's a tip: treat me as a valued customer not cattle.

standardUser 3y ago
The thing is, if you get status on airline, it's the only way they actually do stop treating you like cattle (mostly). That or be rich and always fly first class.
- klabb3 3y ago
  My main pains with flying are completely unrelated to the airline, like waking up early, packing, taxis, layovers, delays and endless dead waiting time in the most sterile environment imaginable. Any flight under ~4h all I care about is reducing the amount of time, not increasing the amount of comfort. Drinking while sitting down alone to the pleasurable tunes of 80db ambient noise, really? Do these people think it’s luxury to sit on the couch with their laptop at 11am on a Tuesday with construction workers outside? I cannot wrap my head around how that mediocrity is thousands of dollars worth of luxury when you can get a better experience for $20-$50 on the outside, with minuscule effort. I’m convinced a large appeal is simply the flex that others can see you in first- or business class.
  - standardUser 3y ago
    I'm a bit too tall for airplanes so I would love a business or first class seat purley for pain avoidance. Especially on an overnight flight - I cannot sleep in a coach seat without causing myself harm. Outside of that, I totally agree. And on any short flight (< 4 hours) I could stand for all I care.
    - klabb3 3y ago
      Ah yes luckily I don’t have that problem but that’d be infuriating. They should really have extra leg space in a set of economy/coach seats as well that you can claim if you’re taller. I mean, you pay equal for being twice the weight so I don’t see why being a less than a foot taller than average should be such a crazy thing to accommodate. How often do you manage to book the exit row seats? I assume a lot of non-tall folks take them too just for the extra space.

neonate 3y ago

http://web.archive.org/web/20230921191028/https://www.theatlantic.com/ideas/archive/2023/09/airlines-banks-mileage-programs/675374/ http://web.archive.org/web/20230921191028/https://www.theatl... https://archive.ph/A8cxk https://archive.ph/A8cxk

motohagiography 3y ago

Subsidising flight costs with what is essentially a mix of futures options and a lottery in points systems is probably beneficial all around. The diversification keeps prices down, and maintains it as a viable business. I'd wonder what other defacto utilities could add similar features. A market for options on road pricing would be useful, last mile internet service needs something more than surveillance/advertising.

6stringmerc 3y ago

HEB makes / made a fuck ton of money in Texas - specifically DFW - buying property and selling it when people find out HEB bought it and potentially could put in a location of some sort. I mean it’s good business sure. Ruthless? Kinda.

knallfrosch 3y ago

This article can't really be understood unless you know that Visa/Mastercard take a 2-3% cut from all sales in the US. They redistribute some of that with these points-programs. The cut is limited to 0.2% in the EU. This regulation basically kills all the transfer-from-poor-to-rich point schemes and leads to transparent pricing.

warkdarrior 3y ago
If US adopts the same limits on credit card fees as EU, do you think mileage programs will go away? I really doubt it, since airlines will still make a lot of money from fees and fake perks.
- bombcar 3y ago
  The credit-card side of the miles programs would have to change (but most people who dig deep into it use the cards for the bonuses and run purchases through better rewards cards anyway).
  - notyourwork 3y ago
    I gave up and use a unlimited 2% cash back card. It's much easier and gets me about the same as most without any extra work.
    - bombcar 3y ago
      I'm almost entirely converted to the stupid Apple Card, and that's not even very good cash back - but it's so easy! Once you work out how much you're being "paid" to deal with the thought and hassle, it becomes kind of embarrassing.

schainks 3y ago

Relevant video: https://youtu.be/ggUduBmvQ_4 https://youtu.be/ggUduBmvQ_4

asah 3y ago

What's lost about dereg, is that dereg inspired waves of entrepreneurs and inventors which regulation stifled. No, I will not produce evidence for this absurdly obvious point.

feoren 3y ago
Go find a cross-section of things random internet strangers consider "absurdly obvious" and you'll start to understand the need to provide evidence. Fun fact: did you know that different regulations are different, and produce different outcomes? What waves of entrepreneurs and inventors are stifled by the regulation that you can't dump arsenic in rivers?

huijzer 3y ago

For a compilation of Buffett and Munger saying that the airline business is a terrible business, see https://youtu.be/OHvzyLEzVBY https://youtu.be/OHvzyLEzVBY.

snarf21 3y ago

This is not surprising .. A lot of department store retailers used to (still?) lose money on sales but push hard for all spend to be on some store credit card and make all their money there including accounting for the loss via sales.

forgingahead 3y ago

Every public company, once they get to a certain size and scope, end up "financializing" some or all parts of their business to keep chasing those quarterly profits and never-ending growth. It's just a lot easier to generate magic coins from thin air to collect & store / earn interest on, than to keep building and innovating new physical products.

killjoywashere 3y ago

With LEO constellations coming online rapidly, I think it's time the railroads start competing for pax travel again. Start at the high end. My dad worked for BN and I remember the corporate business car: walnut paneling, frosted glass, brass, comfortable seats. I would totally take that: package up the cost of hotel, half the airfare, and meals, and have your offsite, workshop, or other in-person event on the train.

ant6n 3y ago
If you put 10 passengers in one fancy business railcar, it will cost 50c/km and reduce greenhouse emissions relative to flying by half rather than by a factor of ten. Night/hotel trains only make sense with decent density.
- killjoywashere 3y ago
  Ok, now include facility carbon costs for the hotels. At scale. Include the concrete for construction of the fraction you won't need.

bitwize 3y ago

So airline points are basically a CBDC. Neat.

m3kw9 3y ago

This is same thing as points except there is no mystique about points and money ratio. You spend X you get y. No difference

r00fus 3y ago

All of this is possible because credit cards are pervasive. I'd prefer getting some of those fees back by paying cash. We could limit financialization of everything if we had a national payment network like other countries, and removed the inability for vendors to prefer cash by discount.

gavin_gee 3y ago

why when reading the quote "Airlines create points out of nothing and sell them for real money" do I think of ICO's? i guess if there was a way to trade miles it would get into the is it a security debate

trimbo 3y ago

Wendover Productions had a good video about this, framed around United getting a loan during the pandemic: https://www.youtube.com/watch?v=ggUduBmvQ_4 https://www.youtube.com/watch?v=ggUduBmvQ_4

JoshTriplett 3y ago

> Paying for a flight or a hotel room with points may feel like a free bonus, but because credit-card-swipe fees increase prices across the economy—Visa or Mastercard takes a cut of every sale—redeeming points is more like getting a little kickback. And the ones that give a cash kickback (1.5% or occasionally more with a few specific cards) are even easier and more straightforward about this. Suppose someone wanted to reverse this trend and just make everything cheaper rather than having interchange fees of which the cardholder gets a fraction back? What incentive structure would move towards a model with goods whose prices don't need to buffer the 3+% haircut of credit card fees?

domrdy 3y ago

For business class, its often less expensive to buy airline miles than buying a cash ticket. Consider Lufthansa and their Miles & More program. You can currently buy 160k miles for $2,010 (1.26¢ per mile). A return business class flight from the West Coast to Germany is 156k miles and ~$100 in fees. The same flight is usually at least $5,000 for the cash ticket. In my experience, Miles and more tickets are superior to cash tickets, as they can be cancelled and changed for free. There is availability from SF to Munich on the 25th for 78k miles - go enjoy Oktoberfest!

tehwebguy 3y ago
Just triple confirm availability beforehand and put it on hold if you can (AA can, not sure about others).
kylehotchkiss 3y ago
Miles programs have purchase caps for this exact reason