The survival of the airlines depends on frequent flyer programs

Worse, they're claims the airline reserves the right to unilaterally devalue. They're deposits in a Venezuelan bank.

As such, the best strategy is eagerly consuming miles. This is admittedly not always easy to do, particularly mileage flights can't be paired with upgrade certificates and do not count towards status. In my experience, frequent fliers with lots of miles and who care about maintaining status are best served by buying others flights with miles.

Flying in my lifetime has moved from being something 'fun and exclusive' to 'taking the bus with strip searches'.

After 911 none of the airlines really pushed back on the Orwellian security theater its customers were forced thru...I understand it, perhaps it just wasn't worth the effort, perhaps enough of their customers wanted more searches.

Around 8 years ago, I moved to trying to do online meetings when possible and agreeing to drive for anything less than 8 hours or so. Its been a welcome upgrade in life. As much of a pain as driving 6 hours for meeting is, you strangely feel less stressed out than dealing with the insanity of airports and cattle-cars.

Isn't that what most people pick anyways?

This is a little bit more complicated.

Part of the reason that airlines used to award miles based on distance flown and not on how much you spend is that they weren't trying to incentivize business travelers.

For most business travelers, the company usually has a corporate contract requiring employees (or strongly incentivizing them) to fly on a given carrier. Otherwise, business travelers will book according to schedule (non-stop vs connecting, timing). Business travelers are also often "hub captives" -- if you're in Atlanta, you're taking Delta. As such, they often don't have discretion, so it doesn't make sense to pay incentives to a group who has no choice but to use your product.

For paid luxury travelers, they're going to be picking based on product.

The expensive fare flyers aren't going to be incentivized to the same extent as the low fares flyers by frequent flier programs. These high fare flyers pretty much pay for the flight.

So what was the deal with frequent flier programs? Once the flight is paid for, any incremental passenger you can get into the back of the bus is pure profit, and they're the most likely to engage with your ancillary products like paying to check a bag, buying food, and buying alcohol.

Historically, the idea was to convince a leisure traveler to take a 1-stop American flight instead of the non-stop on United because of the AAdvantage credit card.

Prior to the pandemic, however, load factors were so high, airlines found they didn't need to incentivize people to fly, so they decimated the value of their programs, and started awarding miles based on amount spent, and capped it per ticket. This was a large net reduction in amount of miles awarded.

There is a certain scam in the fact that miles are a "kickback" for employees, but also keep in mind that third parties will pay vast amounts of money to participate in the miles ecosystem: Every co-branded credit card that is printed is 10-15 USD straight from the bank to the airline, without anybody having booked a flight yet..

That said, these profits are in part an accounting artifact. This is because up until very recently airline accounting rules only required carriers to realize the marginal cost of carrying a passenger when frequent flyer miles were redeemed. Since the marginal cost of a passenger is only ~$20 or so, this yields great margins.

These days however the overwhelming majority of airline miles are awarded for credit card spending rather than actually flying, though. As your second article notes, for United the split is 70/30 or so.

A side comment somewhat in humor is the killer app that's used to explain rete rules engines which is frequent fly programs: how in heck can you compute what a customer is due with all thr crazy rules. This is akin to fica scores for loans and credit cards.

I was flying weekly as a consultant to and from an AA hub last year. I was hired down here this year, so no more corporate expensed AAdvantage points for me. I just got my AAdvantage card so I can earn airline points when I buy groceries or whatever.

Sometimes I need to travel, but if I had enough points for a roundtrip or two, I might take a weekend and fly to go see someone some weekend - when things get back to normal any how. If I had to buy a roundtrip plane ticket for over $300, I might think twice about it, even though I can afford $300. If I get the flight on points, I might just go for a weekend getaway. My card has no annual fee, and I don't plan on carrying anything other than a small balance, if any, so it all works out for me as far as I can see.

This really should be illegal along with advertisements on every screen on the aircraft that you can't turn off.

edit: either i got a downvote or the hackernews bot decided my discussions aren't up to snuff. more gaslighting from the mods.

This is definitely not the case, otherwise airlines like Delta, United, and American wouldn't be in business.

Business travel is the money making industry for airlines, with leisure travel being lagniappe revenue. Business travelers book tickets based on convenience of schedule over everything else. Loyalty programs direct that purchase to a specific airline. That is a proven fact and factually dismisses your claim that "99.999% purchase" based on cost.

I find it hard to believe, however, because the usual pattern when I want to fly out of my small airport is as follows.

I might find United is $298.44 and so is Delta. American airlines is $301.55. Maybe there is a $375 flight listed with an extra stop on one of the airlines. The next price up is a $700 flight which has nothing obviously special about it, in fact it might be worse with more stops, more delays, and worse timing. (Maybe the expensive flight lets me reschedule or has some other benefit but that's not clear when I am buying the ticket)

The market is not giving me any meaningful choice at all through the price mechanism in that two airlines seem to be colluding to give me the exact same price, and the difference between the third is so small that $3.11 is not worth thinking about if you find anything about the American flight preferable to the other two.

In theory I could pay $1200 for a first class flight but the first leg of the flight has no first class cabin, and that's a huge jump. Before 2008 there was no "Premium Economy" or other efforts to let people vote with their dollars in a meaningful way. Still it's limited. When I save everybody time and frustration by checking a bag instead of contributing to "rollerbag hell", why I am paying more when I should be getting a discount?

Looking at airline pricing shows the rules of microeconomics are being thoroughly violated and I'm not going to believe the claim that "customers won't pay more for a better experience" until somebody hits the STOP button on both the flights and the airline bank accounts and accountants go over every single line and they can tell a story that makes sense.

What I see is that customers aren't being offered meaningful choices about their flights, or if they are, only in certain geographies.

I was a 737 hater long before the MAX came along so now it's appealing to drive to Syracuse to take Jetblue which is a no Boeing airline. In terms of $'s to the airline it isn't dramatically different than what I'd pay to fly out of Ithaca, but I an now paying with transport costs and maybe an extra night's hotel stay.

At ITH the service from the major airlines is undifferentiated (do you want to fly a CRJ-200 or E-145?) other than the hub you go to. Delta's Detroit hub is ideal for the west coast, American's hub is ideal for points south. Somehow they charge the exact same for flights that must cost differently for the airlines so there must be price fixing involved.

The real kick is "full content agreements" - the airline has to promise not to undercut the final fee charged by GDS/Agency. This ensured nice profits for the GDS ecosystem, but airlines are starting to fight back by pulling out of them (and hence increasing prices for indirect bookings)

Give me the option to pay the real cost of a comfortable seat, and I'll pay it.

No, I don't believe it costs 5x as much.

Every single airline sells the same product, more or less. The same 2-3 class system, at the same price differentials, with the same seat width and pitches.

For the airline industry, yes. This isn't true in all industries.

Business travel will never become a thing again except for the cases where it is absolutely necessary (and those travelers are still traveling now).

Business travel is where the majority of profits come from for airlines.

Now that layoffs can start happening expect airlines to shrink and air travel to return to what it was in the 60s: an expensive, luxury travel option.

You can say what you want about bailouts but saying a “business model is bad” because of a once in a lifetime disaster is ridiculous.

Airline behavior is a reflection of our revealed preferences and the reasons airlines are the way we are is because we all talk a good game about what we want flying to be but then become the ultimate capitalist bastards when we are asked to weigh our cash against our theoretically appealing goals.

All a restructuring would do is bring airlines even closer to our revealed preferences, think if Amazon ran the airline industry. That means goodbye pilots unions, hello to rigid and punishing performance metrics. Goodbye any free perks, everything becomes a nickel and dime horror show. Goodbye any semblance of a collegiate relationship between regulators and carriers, there will be an out and out attempt to regulatorily capture the regulators.

If you don't travel a lot, it's probably not worth it, but if you're already going through the motions, why wouldn't you?

I also think that these systems, in addition to most retail sales etc, are created to appeal to a segment of the population that only really buys when they feel like they got some kind of special deal.

But you are earning by using credit.

When I buy on credit I literally earn cash back. I also get additional consumer protections.

No scare quotes needed!

Do we have evidence rewards increase total spending? I thought it was more about issuers fighting for wallet share. Not increasing spend.

@dang could we switch the title and link?