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Summary
- Frequent flyer programs generate significant revenue for airlines as they sell reward points to other companies, such as credit cards and hotel chains, who offer them as rewards to their customers.
- Business travelers, who are crucial to airline profitability, value loyalty programs as they see them as a tax-free benefit and a way to enhance their travel experiences.
- Loyalty programs help prevent passengers from flying on other airlines by incentivizing them to remain loyal through the accumulation of points and rewards.
When flying a legacy carrier, such as American Airlines, United Airlines, or Delta Air Lines, it is difficult to avoid interactions with the airlines’ frequent flyer programs. From cabin crew reciting sales pitches at 10,000 feet to the consistent bombardment of advertisements for credit cards to boarding behind groups with higher status than you, it is difficult to avoid wanting to take advantage of these programs.
Since American Airlines launched the first in 1981, loyalty programs have taken off and expanded to touch upon more and more of a customer’s life, even while nowhere near an aircraft.
But what makes frequent flyer programs so important to airlines? In essence, these programs just give away free flights to customers, so why on Earth would a carrier want to make that easier to do? In fact, the answer is far more nuanced than that initial explanation may seem. Frequent flyer programs generate massive amounts of revenue for airlines and help maintain a carrier’s competitive edge. In this article, we’ll look deeply into three reasons why carriers spend more on their loyalty programs than almost anything else.
1 They are a critical revenue source
A ticket purchased with airline miles can actually generate more revenue than one purchased via traditional means. This is in fact because carriers sell reward points (or miles) out in bulk to different companies, such as credit cards, hotel chains, and cruise lines. In return, these companies offer miles as a reward to their customers.
Photo: Dirk Daniel Mann | Shutterstock
For example, a hotel chain that offers United MileagePlus points as a reward for purchase can gain a competitive advantage over other resorts, and thus businesses are often more than happy to pay large sums for airline reward points. Without investing in the development of such corporate partnerships, airlines would certainly lose out on a massive source of potential revenue.
2 Business travelers care about loyalty programs
Corporate travelers, which are critical to airline profitability as they purchase higher-priced premium seats, care immensely about airline loyalty programs. As employers pay for their tickets, business travelers see miles and other perks that accompany airline status as a key tax-free benefit that they can use to take memorable journeys with their loved ones. Furthermore, this demographic comprises some of the most frequent travelers, and those who fly will often care most about their inflight experience.
Photo: Delta Air Lines
Loyalty programs play a key role in providing a passenger with an elevated experience, from lounge access to priority boarding. Without a strong frequent flyer program, an airline becomes far less appealing to the business traveler, the customer demographic which ultimately determines a carrier’s profitability.
3 Loyalty programs keep passengers from flying on other airlines
When a passenger is strongly committed to a carrier’s loyalty program, they often save up points in order to take free vacations. For example, if a traveler has saved miles from business travel and their credit cards all year in order to fly to Hawaii for the holidays, a passenger will likely continue to fly on that airline whenever possible.
Photo: Markus Mainka | Shutterstock
If two roundtrip flights to Hawaii cost, for example, 100 thousand miles, it is of no use for a passenger to have 40 thousand miles with three different loyalty programs. Therefore, frequent flyer programs, through the structure of their rewards systems, encourage travelers to remain loyal to a single airline.
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