Miles…The Crack Cocaine of the Airlines
Frequent flyer miles are one of the only profitable divisions in an airline, and also a reliable means for them to raise capital during an economic downtime. Why? Because frequent flyer miles continue to hold their value even in a bad market. On the contrary, traditional forms of raising money in sluggish capital markets end up being restrictive and expensive for airlines.
For example, last month Continental Airlines raised $413M from their affinity partner, JPMorgan Chase, by selling off a block of miles. This number represented a substantial part (over 12%) of their cash flow at quarter’s end. American and United Airlines also have billions of dollars in miles that analysts predict could be used to bring in money with their respective affinity partners.
Frequent flyer affinity programs are extremely valuable to financial institutions, as they provide the best possible defense against a credit card becoming a commodity. Historically, customers enrolled in credit card loyalty programs tend to spend more money and show a greater commitment to their card versus a regular cardholder.
In fact, creditors will do almost anything to keep their frequent flyer loyalty programs intact. When United Airlines went into bankruptcy in 2002 and considered dissolving their loyalty program to get the liability off their books, Bank One (now Chase) came in with $300 million cash (available for immediate use) to help them out. This money was directly related to their work with United on the company’s branded Visa credit card programs.
As TravelFli continues to work on solving problems for frequent flyers, it’s becoming equally important to develop a strong value proposition to the institutions that rely so heavily on miles as incentives for their customers. Frequent flyer miles are undoubtedly a powerful force in the marketplace and are able to ride out even the worst economies. They are like crack…and we’re all addicted.
“Airlines are crack dealers, and miles are the crack we are addicted to,” says Henry Harteveldt, an airline analyst for Forrester Research in San Francisco.
