The article explains how frequent flyer programmes generate an incredibly large amount of business for airlines. The airlines benefit in two key ways: firstly, from selling rebate points with a margin to partnering firms; and secondly from attracting passengers – often at the employer’s expense – to expensive flights, which makes redeeming the miles balance seem unattractive.
Airlines achieve such high margins from these credits that their frequent flyer programmes become decisive for their profit and loss.
“Big airlines, at least in the US or Europe, would be loss-making without the returns from their frequent flyer programmes,” Alexander says.
He explains: “In financial terms, operating the flights is a necessary evil for airlines in order to keep their frequent flyer programmes running. However, these programmes have grown to the extent that airlines are in danger of choking on unredeemed miles – in the region of almost 30 trillion unredeemed miles worth US $300 billion globally, as estimated by The Economist. At the same time, there are fewer and fewer free seats available on aircrafts which can be purchased using the rebate points. Ten years ago flights had a utilisation rate of 70 per cent at best – today this often reaches 90 per cent in high season".
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