The Economics of Loyalty Programmes
Airline Miles: A Currency of Their Own
Frequent-flyer points have become an alternative currency, with airlines earning large sums by selling miles to banks and partners.
The prototype loyalty scheme.
Origins
American Airlines launched AAdvantage in 1981.
Earning
Miles are earned by flying and by spending on co-branded credit cards.
Sale to banks
Airlines sell miles to banks and merchants, sometimes earning more from loyalty programmes than from flying.
Devaluation
Airlines can raise the miles needed for a reward, reducing points’ value.
A points hike
A programme raises the miles required for a flight, and customers grumble.
Assuming miles hold stable value
Programmes can change the rules.
Key takeaways
- Airlines pioneered loyalty programmes.
- Cards fuel miles.
- Loyalty can be highly profitable.
- Points can be devalued.
No recording for this one yet - EconReader can read it aloud for you.