Thursday, October 19, 2006

Are Airlines Double Carded? (

First, travelers use credit cards to book flights, which costs the airlines and travel partners like Travelocity® and Expedia® interchange fees, then they "earn" mileage rewards which costs the airlines more. Since most travel paymernt transactions require hefty interchange fees, the actual milage cost to their airlines can be much less than the merchant card fee card costs.

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.

Why frequent-flyer plans keep you grounded

[Source, via CNBC: "Inside American Airlines"]