I’m always fascinated by the business side of miles & points. Loyalty programs can be huge profit centers for airlines and hotel groups, and the more we know about the economics of these programs, the better we can understand the evolution of credit card rewards.
Continue reading: How Much Do Credit Card Issuers Pay For Airline & Hotel Points?
Share your questions, experiences, and thoughts below.
I seriously doubt that the cost is more than 1 cpm. We know this because many card issuers have gotten rid of the opportunity to redeem for cash at 1 cpm (citi and wells fargo just recently). If they were paying over 1cpm for points they wouldn't have gotten rid of what is likely to be their most expensive redemption.
In a financial disclosure a few years ago, Amex bought Avios for 0.8cpp. maybe that's changed.
The buyers and sellers have opaque marketing and goodwill expenses in the transactions. You will never know the true valuation.
I always doubt how loyalty is bringing money to let's say airlines. I purchase something using Alaska airlines. I get 1 Atmos for 1$ spent. I redeem that for 1.5 - 2¢/point, instead of using cash. Whatever benefit they got from transaction is voided by my award redemption. I am sure what is the profit equation here.
I can't believe they pay more then 1 cent per point.
Even as a miles and points enthusiast I find it hard to value them much more than 1 cent per point.
Especially with how airlines are refusing to give awards to partners these days I think the tides are changing.
I think it boils down to how most people use points. That is, not too effectively. Readers of this blog are certainly getting better value than most others, but in the grand scheme of things, we are a pretty small minority of business. On the other side, you have whales that accumulate millions of points and never use them. Small minority as well.
Then you have the big middle. They just typically want to get some value out of it, and don't really know what value they are getting. Most of them are probably net positive for the card issuer. Since that accounts for the vast majority of card holders, it adds up.
I have some familarity with the industry. The points are purchased at "market value" which is generally at or very close to what OMAT and others show their real value to be. Which is why Delta makes more money selling its points to AMEX than it does as an airline selling airplane tickets.
