This is a double tax on the airlines.
A recent CNBC news profile on American Airlines® identified some interesting facts about credit card frequent flyer "rewards" and parnership programs:
- American Airlines has 50 million AAdvantage program loyalty members
- Of the more than one-thousand AAdvantage program partners, credit cards are the largest partners
- 1/2 of all frequent flyer miles are earned from non-flying sources
- There are nearly ten-trillion unused miles
- Demand for redemption is very high and it is not easy to cash in
- New gimmick: AAnytime mileage costs flyers two-times the regular points to redeem
- Most profitable segment: airlines selling miles to banks; they get the funds upfront; generates $3-billion dollar annually for the airlines
- 1/3 of all miles are not redeemed
- Actual variable cost to the airlines to redeem 25,000 miles, when not displacing a revenue generating seat is just $10.00
What this means is that the incentive to have caredholders pay for products with credit cards is actually a sizable expense to businesses and consumers. It appears that Visa® and MasterCard's® member banks are the real benefactors. The perception is that there is a rich value to cardholders, but do the math to understand that businesses accepting credit cards are also being taking on a ride ... and a costly one at that.
[Source WayTooHigh.com, via CNBC: "Inside American Airlines"]