Have you ever wondered how much airlines are reimbursed when you redeem miles for a first or business class ticket? I want to address that in this post, because it’s probably not as much as you’d expect.
Continue reading: How Much Do Award Tickets Cost Airlines? You Might Be Surprised
Share your questions, experiences, and thoughts below.
I do find it interesting that premium carriers release F awards at all. For example: for the carriers like JAL & Qantas whose F awards are snapped up the second the schedule opens, how many of those people will ever be potential cash customers? How many of those awards are taken by people who could otherwise pay cash? AF's model seems to be more economical and achieve the same goodwill. That being said, I am very glad those F awards exist and I hope they are here to stay.
"Airline reimbursement rates for awards are on a per segment basis, regardless of whether you’re booking a segment individually or as part of a larger itinerary"
Would love to know if this remains true in cases where an airline only releases saver space in married segments? Seems that practice is expanding, and it would be very interesting to know more about the economics that are driving that development.
How does reimbursement work for non-award codeshare flights? For example, if I book a ticket via AA for travel on BA, does AA remit the full ticket cost to BA, or is some margin retained for essentially sourcing the customer?
Clearly you should chat with people doing the partnerships, they are far from being accountant. 90% of what’s written is wrong I am sorry … first no airline talks about « reimbursement » or whatever, it’s just redemption rates. Then there is no small check thanks to a balance sheet, each airline pays whatever has been booked to the other airline. It’s entirely independent transactions.
Giving a seat away a year in advance for $450 when it might sell for $13K cash a few weeks or days before departure doesn't make business sense, especially if the $450 sale is to someone who's never even set foot on one of your aircraft. It makes sense to release seats a couple of days before departure and make some money rather than none, sure, but otherwise I completely understand why partner awards are in danger of extinction.
What you pay in points / miles has nothing to do with the rate per sector charged by the operating carrier, it’s two different things. Your FFP programme will still pay for the two sectors.
a few anecdotal interline reimbursement rates are interesting but they will only apply to those specific markets and carriers just because airlines are sophisticated enough to command the highest possible reimbursement from other carriers to use as little "one size fits all as possible"
I am certain that non-US airlines are increasingly pushing back at the amount of mileage redemptions that are coming from credit card awards which are driven by the higher interchange rates that come from US cards - many countries don't have those levels.
On an incremental basis, airlines can forecast a certain amount of redemption for awards but if they rarely are able to satisfy demand, it creates more customer service work and leads to a bad reputation. A dynamic model works better even if the result is sky-high redemption rates.
lower fares should be offered far in advance whether it is for leisure or miles. Airline revenue management is sophisticated enough that airlines know how much low fare activity they need on a flight and offer it in advance rather than at the last minute.
If only married segments are made available, the operating carrier would receive the revenue for each the two (or more) segments, regardless of the availability parameters imposed. It's certainly possible that some agreements can/have been redrawn to be based on O&D remimbursements, though.
The economics of married segments for awards seems to mirror that of revenue inventory--the carrier can create artificial scarcity in O&D markets where it believes a premium can be maintained over others (whether in the form of zero/fewer or higher-priced award seats in a given market).
LOL, trying to explain this is like explaining quantum physics on a blog.
Then some reader would claim that the self anointed physics guru can't determine if the cat is dead.
But don't worry you can always visualize the cat the way you like or something of that kind! 😉
Another would tell you how profitable a premium cat would be.
Or how British cat is the best and other readers never saw a cat cross the continent before.
I would be surprised if the reimbursements remain this simplified today, but the levels are not surprisingly low, as partner remimbursement costs (both rates and volume) ultimately have to jive with issuing carriers' unredeemed mileage liability if they are going to state that accurately on their books.
I suspect limiting partner redemptions, devaluations, award fees, surcharges, etc. all get baked in and can help fine-tune out of pocket discrepancies vs. amortization cost of the carriers' mileage liability.
I am glad those F awards exist as well. Last October, I picked up two sectors for USA/Tokyo travel via AA frequent flyer miles, flying in JL's First Class. I would never have paid cash for JL's FC - especially with prices starting at $23,000 or more. I just quickly checked what the prices are now for my dates of travel - $29,000. Craziness!!
When FF programs began in the 1980s load factors were in the 60% to 70% range so there would always be empty seats to go around. Other than minimal costs like meals/catering it wasn't really costing airlines anything as likely that seat would have been empty to begin with.
Fast forward to load factors of 90%+ and there are far fewer seats going out empty and a higher chance of losing revenue. Accordingly redemption rates have gone up. Airlines want to have fewer redemptions and less chance of loss of revenue.
Comparing the points when you redeem and price right now is just pure stupid.
My 35000 points coach award also cost $8000 on departure day. Craziness!!
23 cpm, it's the holy grail.
Specifically in the case of BA/AA codeshares, this is almost always within the context of their transatlantic JV with Finnair and Iberia. Same goes for DL/AF/KL/VS and the Star Alliance transatlantic JV. In this case, all the airlines are sharing in the business and therefore profits for all flights that are marketed within the JV will be distributed according to their respective percentage interest in the JV. Ie, if you book from Albuquerque to Dallas on AA, connecting to Helsinki on AY and then on to LHR on BA (silly routing, but to prove a point), all of the margin (less an internal per segment cost, billed to the JV) on those flights would be contributed to the JV.
I imagine it's a similar system for any codeshared flight between airline partners.
This is a very reasonable take but the problem is that it does not align with the facts. Just 6 months ago, all of these airlines were whining about overcapacity...
https://onemileatatime.com/insights/airline-industry-overcapacity/
https://qz.com/delta-american-united-southwest-spirit-capacity-crisis-1851624344
Delta barely gives upgrades anymore because it claims that they are selling their premium classes consistently. What Delta, and other airlines, do not tell you is that they're selling upgrades at check in at a fraction of the original cost. Delta will rather sell an upgrade to a non-status member for $50 than give that upgrade for free to someone that has spent thousands of dollars with them.
FF programs have become giant ponzi schemes. They love to get that credit card cash upfront every time someone transfers their points but are creating artificial scarcity when it comes time to actually use it. It is the perfect ponzi scheme. They get cash upfront and get to choose when and how you redeem. Earn and burn people!
I believe if the carrier imposed surcharges (YR/YQ) are charged based on the operating carrier's rate (as opposed to a flat fee by the issuing carrier), they do go to the operating carriers.
The dynamic model (as practiced by AF paticularly) is perplexing as it's common to see a business award SDG-SIN priced at 70,000 miles, with the exact same flight on a day either side priced at 700,000. This is an extreme example but nor uncommon y any means. It is what it is I suppose, and it's dynamic pricing at its most bizzare.
The problem with your analysis is that credit card points are a huge cash cow for airlines - at least as much as selling $13k tickets. Quite a few people already think the whole points game is a scam and choose cash-back credit cards. If award availability shrinks even farther, even more people will walk away from airline credit cards and transferring points from credit cards to airlines. At some point, the airlines know they will kill the goose that's laying the golden eggs. So I think the far-in-advance saver award seat isn't going away permanently, even though its availability has shrunk in recent years.
Airlines continue to offer seats on award miles programs so they must be making money by doing so. Many of these awards are limited to US credit card holders. At some point there will likely be more push back from non US carriers. It seems the peak days of points travel are behind us. I think there will be more pushback limiting points travel. At this point the alternatives come into play. Do I want to pay $5000 for a trip to Europe when I know that many/most of the people next to me have either redeemed travel on points or are crew or are travelling on corporate accounts. Not really. Would I pay $3000 for the same flight if I realized it was a level playing field and most are paying similar amounts for the flight. Yes, in a heart beat. How many other travel methods allow or promote travel by points reimbursement. Trains, Not likely. Uber. No. Why is this unique to airlines. I think if the accountants in big airlines do a revenue analysis they might find the elasticity of cash travel is better than they thought. The credit card points schema has been a cash cow for airlines for some time, and they have become lazy. Sometimes ideas or innovations, like a good scheduling program did in the 1980s, offer great competitive advantage. Perhaps something as simple as a transparent cost per seat might be that innovation. Obviously blasphemy to this audience.
@Eskimo:
What a vitriolic aggressive response from you. Are you OK? When I redeemed my two tickets in October, the FC price for the same dates same routing same carrier was $21,000 RT. It's now $29,000
and yet airline loyalty programs continue to grow, esp. in the US.
all of the US airlines disclose the number of award tickets they "sell" and for the big 3 it is 8-10% of their seats; for WN, I believe it is an even higher percentage.
People get bent out of shape about loyalty programs, esp. SkyMiles because they look at the price for the most expensive product in the store - business class on longhaul international - and fail to accept that millions of people are happy to get domestic and even international coach awards and those are readily available, often at good redemption rates.
credit card programs are worth billions of dollars - DL says it gets $7 billion/year from Amex and believes it can get to $10 billion/year, a number that AA threw out as what its new agreement w/ Citi can generate in a decade.
Yes, airlines make money. they also revenue manage very well. customers have to align their desires to get value from loyalty programs with what the companies allow; there are millions of seats that are redeemed at good rates across the industry - but not necessarily for longhaul international business or first class
Someone in a reply mentioned that people would “not likely” redeem points for train travel.
Amtrak in the US operates its own loyalty program (Amtrak Guest Rewards/AGR), and many of the larger intercity rail services in Europe have loyalty programs as well.
At least as far as Amtrak is concerned, if a passenger books a ticket on points, the reservation system assigns a specific “discount” code to whatever the paid fare is at the time of booking (I do not know the formula). That fare is the amount paid internally by the loyalty program to Amtrak so the revenue is captured properly and attributed correctly to the appropriate route. It’s both part of ticket agent training and it states in the “back side” of points redemption reservations to never share that dollar value with a passenger. With that said, one could presumably submit an FOIA request for all the financial details.
Up until circa 2016, the program was based on geographic zones but transitioned to dynamic pricing. There’s a map here:
https://onecarryon.com/blog/2015/8/maximize-rewards-points
Much like with airlines, most people redeeming AGR do so for what would be considered an aspirational redemption - Acela First Class, long haul Sleeping Car, etc. There are still some very good redemptions for sleepers, especially on higher demand and lower capacity routes.
I put some info on train loyalty program (well, Amtrak’s anyway) in the main thread for you. It’s more common than you think.
At this moment LH group award availability for J and F in 2025 is surprisingly limited. Rewarding loyal customers? Well...
This statement really should read:
"Singapore Airlines only makes most long haul first and business class awards available to members of [Air Canada Aeroplan] and its own KrisFlyer program"
Many times Aeroplan has better award availability than Krisflyer.
Revenue management has moved on from that, especially in the era (at least originating in North America) where there's now a lot more flexibility embedded in the ticket (e.g. no change fee or even exchanges driven by schedule changes). The current common practice is to keep the fare fairly high early (as those booking more than six months in advance will tend to have some occasion where they have to be there then). Then lower fares are opened depending on the sales of those early high fares. While the purchasers of those early fares might change to lower fares, the excess is typically returned as a voucher/time-limited credit and not everyone will change for a lower fare and a residual credit (the earlier bookers are often infrequent flyers, so the credit may not be usable). From about six months out, though, the general pattern is increasing fares, though airlines do that more by having advance purchase requirements rather than through bucketing.
Why is it perplexing?
The expected revenue from the last seat in J can vary from zero (the seat goes unfilled even after offering a cheap upgrade at check-in) to a few hundred dollars (from the cheap upgrade plus whatever they might get for selling the now-open Y/W seat the upgrader vacated) to several thousand dollars if someone buys a flexible last-minute fare.
The 70k mile fare is for a flight where AF is sufficiently afraid that the first two situations will hold. The 700k fare is for a flight where AF thinks it's virtually nailed on that the last seat would be someone willing to pay thousands in cash.
They are all First class products as per hbilbao. It certainly doesn't look like a business class product.
Was explaining all this to my 13yo daughter today . Well. How I see it at least.
Business cabin has 20 seats and sells 10 to business people and 2 to high net worth leisure travelers. Inelasatic travelers who will pay $10k for syd to nyc. But the other 8 seats probably don’t get a bite until they’re offered for say $3-4k which would cannibalise the other seats. So airlines “sell” them via points and buying points etc. business people don’t want them because it’s inflexible and hard to come by. They want to fly out for example Tuesday night and back Saturday morning. Points travelers can do last minute and fly any time over a week (if they truly know what they are doing).
Thanks for the information. I do not live in the US and am not familiar with Amtrak. It seems you can get 20000 points by signing up for one of their credit cards.
If credit card companies and airlines are both making money out of what seems to be a zero sum game, who is the third party footing the bill? Consumers via higher retail prices or the retailers via fees paid credit cards? The money to fund these profits comes from somewhere. It seems there is a part of the puzzle missing in the explanations above. What happens if retailers push back against credit card fees. In my country Amex is not accepted by many businesses because of the fee structure. I still question the long term sustainability of the points for travel scheme. As the number of points for a given flight increases to deflate the points held it takes longer for individuals to accumulate the points which allows for more time for programs to further devaluate their program. Like a dog chasing a car that goes a little faster the closer the dog gets. This scenario is further exacerbated by shrinking availability of rewards seats. Perhaps the domestic US market can sustain this model but international travel using points may not be able to continue as is.
It's anything but a zero sum game.
Your biggest misunderstanding is that points model is there for your benefit.
Hi Ben. You advised us to reach out with details, but what is the best way to reach you.
I saw there’s a sort of message board that will “be reviewed” but not sure if that’s still the case. Send an email? Another way?
How nice of you to teach a 13yo about econ.
Can't wait for you to teach her roles of government.
How out of those 20 seats 1 needs to be reserved for a cop, 3 more are for foreign aid.
You can't sell it to certain people because they were sanctioned by your government.
You have to charge an extra $5k tariff because foreign airlines have more seats.
You can't merge with your not competing business in a different market because you'll make the price higher, now they're bankrupt and the prices are still higher.
But they are also the same people who turned a blind eye and 2 planes plus 1 door fall out of the sky with little accountability.
Who needs econ lessons when authority can override free market and cover it up with propaganda.
I wonder what are some international economy rates for transatlantic and transpacific.
Thanks - that explanation reinforces the research I’ve seen elsewhere.
That said, I really wanted to read the comments to see frustrated people with FF status they believe should gain them regular first class upgrades using the term “Ponzi scheme,” signifying they know little about miles, the number of flyers with status these days, or what a Ponzi scheme actually is (hint: it’s not a generic term for “someone else got the thing I believe is rightfully mine”).