U.S. Frequent Flyer Profits

[dfcatch]

Some folks may be interested in the latest data on U.S. Airline FFP Profitability.

https://www.linkedin.com/pulse/americans-loyalty-program-worth-more-than-theairline-feldman-gaicd



Disclosure: I was involved in the research and analysis.

 

[DaveB]

Surprising how our local airlines haven't tried to capture the business owner market given the FF points a small-medium sized business would generate. Buying tickets only using the funds spent on annual credit card fees would likely keep a family of 4 all WP's.
Only US experience is with Delta Skymiles who definitely make it much easier than QF or VA to redeem flights. DL appear to demand manage points constantly changing points redemption rates based on seat availability relative to flight time. Whilst Skymiles lowest rates are higher than VA or QF, they have low charges with any available ticket able to be bought using Skymiles at much lower rates than comparison any seat reward rates.

 

[serfty]

Gary Leff disagrees with the estimates.

NOT QUITE: Financial Analyst Claims "Airlines Make More Money Selling Miles Than Seats" - View from the Wing

Let's Not Forget How Important Frequent Flyers are to Airlines (And Maybe They'll Remember, Too.) - View from the Wing

 

[lovetravellingoz]

Despite the current and upcoming "enhancements" to FF Credit Card earn and transfer rates my main hope for the FF gravy train to continue is that FF Points are way to important to the airlines for them to allow them to wither and die.

 

[dfcatch]

Gary Leff disagrees with the estimates.

NOT QUITE: Financial Analyst Claims "Airlines Make More Money Selling Miles Than Seats" - View from the Wing

Let's Not Forget How Important Frequent Flyers are to Airlines (And Maybe They'll Remember, Too.) - View from the Wing

I concur with Gary's second article - but his first article is inaccurate.

Firstly - he used net including special items instead of GAAP pretax earnings.

Secondly - he failed to accurately account for the flow of deferred revenue back into passenger revenue (from mileage sale revenue that was previously deferred).

The analyst estimates for EBIT are correct within a very tight margin of error. (In fact my estimates are slightly higher for the 2015/16 years).

His estimates of mileage sale prices are inflated (at least as far as AA goes). My estimate for 2015 is a weighted average of 1.232 cents per mileage credit sold. Obviously banks pay less, and everyone else pays more.

And his valuations are probably on the higher side - but I'm not the investment analyst and that's his area of expertise.

Of course - the limited airline disclosures mean it's relatively easy to discern the annual billings volume - but it takes some work to back into the EBIT contributions.

But it's a case of "watch this space", if the airlines do improve disclosures - this will only improve estimate accuracy.

Of course AA this year actually reduced their levels of disclosure.