The state of the mileage world (or more accurately, the sad state of the airline industry)

"I’d love if someone could explain to me how airlines try to get away with charging ten times as much for a domestic first class seat as a coach seat. This is something Continental actually agrees with me on, and it’s one of the many reasons upgrades are so tough with them — they actually sell first class seats."

But United has to get fewer paid F seats than CO does do to their higher prices. United can (conceivably, no clue how this works in reality) be getting the same amount of premium revenue as CO does but on fewer seats, thus allowing more elite upgrades, which keeps them happy and loyal. Seems perfectly reasonable in theory from the airline's perspective-No clue how well it works in practice.

@whakojacko - good observation. However, you assume that the demand curve is linear (if you sell 10 seats at $300, you'd be able to sell 3 seats for $1000each just as easily). I'm guessing more revenue would be gained with lower first class prices, and this provides more stability/predictability to cashflow. Ironically, for the same reason that many argue why miles vs. revenue ff programs make more sense to the airlines.

If the buyers of these cheaper seats are frequent fliers, then it seems that the airline would end up ahead (even though there are fewer upgrade seats for other ffers). However, if the buyers are tourists or other infrequent fliers, then it would seem a bad idea for the airlines.

Lucky - I'm new to your blog and find this post very interesting. I'm a fellow college student who's flown a fair bit in my life but never with a significant focus on frequent flyer benefits. I'm starting to pay more attention, and your post brings me to a question.

Towards the end of your post you say 'When I book a ticket from Tampa to Ontario via Washington, New York, Los Angeles, and San Francisco, I’m really booking a Tampa to Ontario roundtrip ticket which just has four transfers in each direction."

I don't have any idea where to find such an itinerary, let alone figure out a way to efficiently determine whether this or some other four transfer iteneary is more economical, both price and mileage wise. Have you ever done a post discussing your "tools of the trade?" If so can you point me in that direction? If not, I think it would make a really interesting post. Maybe this exists on FT already, in which case I'd love to be pointed there as well.

Keep up the good work, I'm enjoying reading.

Zach

> But I think the airlines are best off leaving frequent flyer programs
> alone for the most part. They’re massively profitable beasts that
> have grown totally out of control, and probably for the better!

Out of purely selfish reasons, I agree with you. After all, I believe I actually benefit from the current system and would be at a disadvantage if carriers like United or American implemented revenue-based award systems.

That said, if you were (for whatever bizarre reason) going to start an airline today, what system would you put in place? Would you want to run a company that is really a points program with a redemption transportation appendage, or would you want to run an airline that sees transportation as its primary business and uses awards as a way to encourage loyalty among the customers for that primary business? It seems to me that many newer US airlines have chosen the latter approach (Virgin America, Jetblue come to mind).

You also say that the mileage programs of the legacy carriers are wildly profitable. How profitable, exactly? What's the return on capital? Do the mileage sale profits justify the huge costs of operating a fleet of airliners and employing tens of thousands of people? How does the profitability of mileage-program-driven companies compare to the profitability of the premium cabins of Singapore Airlines, BA, and Lufthansa, for example (ignoring the current economic environment and looking at it over a period of 20+ years, which I think a resource and capital intensive company needs to do.

@ Zach., You can often times book the 4 transfers each direction for the same price as A to B. You just have to pay the taxes on the additional segments.

@ Halothane - I get that, but I've never seen a way to create an itinerary with that many segments. Then again, I've never booked much on United. Most of my flying has been CO, AA, and a bit of USAir. That may be part of them problem.

Hi Lucky, I really enjoyed this post and appreciated your approach to answering the readers comment. I am a huge fan of your blog but because I review it in google reader I feel likeI often miss out on some of the fantastic comment threads. I love that you took this interesting comment and created a new post. Please do this more often. I would recommend that you write new posts to reply to any comments that may be of general interest. Then go back to the original comment and post a reply to the comment that contains a link to your new post. I think this would increase usability of reviewing your archived blog entries and receiving the content (for casual readers like me that don't visit the blog itself regularly but still want to keep up). maybe you could tag these types of posts as "Ask Lucky" if you aren't already doing that... Hope you will run with this suggestion but I'll come back either way - I am totally hooked.

One final comment, I noticed that Zach wants to see some of your old posts but isn't sure how to find the content. I appreciate your use of keywords/labels on the right and I am confident those categories improve readability and indexing of your site but would love a more social aspect like a X 'People found this item helpful' button or some other visibility metric to indicate which content is hot. I for one would love to see a blog post or a dynamic item on the right column of your blog with links to your most popular old posts (maybe this could be a feed item just like your recent comments feature, which, btw I also live although I would prefer to see a comment snipit rather than the full title of the post it refers back to) - fingers crossed you add something like this soon to provide more framewok for those of us who haven't been with you from the beginning but don't want to miss any kernels of advice or helpful info.

I have to say, i disagree with your somewhat pessimistic view of today's legacy airlines. So what if they sell miles, they end up having to fly more people around as a result. Its simply another method of the sales of their services. They've essentially added another way to segment they market, in which the prices is very low, but the services is provided at a time most convenient for the airline. I like to think of this as having the effect of creating a new cheaper non-mileage accruing fare bucket to compete with discount airlines in order to capture more of the infrequent flyer market, while maintaining the marketing needs associated with regular ticket sales, so the frequent business travelers. By selling miles to the population through credit card companies, a lot of people who wouldn't otherwise have miles are ending up with sizable mileage accounts, those miles are then used for the once a year trip to see grandma at Christmas, taking away business that would have most likely belonged to discount carriers.

The problem however comes from the way airlines record these payments as revenue, and the subsequent miles as liability, when they really should be considered as unearned revenue. Selling miles should be just like selling tickets, until the flight has actually been flown, no revenue is earned. But the way they do it now, the revenue aren't being matched by any expenses, and especially in the service industry, when the matching principle isn't being followed, problems and inefficiencies o will occur, and wrong discussions will end up being made by managers and investors, not to mention the tax implications.

And when i comes down to it, airlines do all those seemingly stupid things to segment the market, and maximize revenue. Why dose UA sell domestic F tickets at 10 times the price when CO only sell they at twice, because UA thinks the number of people who will buy F seats on UA will still be high than 1/5 that of CO's. And SAN-LAX is 10 times that of LAX-BOS simply reflects the revenue maximizing prices on the routes. Whether it makes sense is irrelevant.

@nmmercer -- why don't you just add another feed to Google Reader that feeds you all the comments. The URL to use is

https://onemileatatime.com/comments/feed/

(of course, if you don't read the comments here, you're unlikely to see this... oh well)

@Oliver, got it - glorious - thanks so much!