A longtime OMAAT reader messaged me an interesting question, which is something I’ve been wondering about as well. I figure it makes for an interesting discussion:
In this post:
US airlines don’t really directly make money flying
Here’s an interesting question about the fact that even profitable US airlines don’t directly make money transporting passengers:
I’ve been sitting on this question for a while and was wondering if you had any thoughts. Earlier this year, it was reported that CASM (cost per available seat mile) for American, Delta, Southwest, and United, was higher than RASM (revenue per available seat mile) in 2024. While that’s partially due to aircraft shortages in some cases, that’s still not great.
Obviously, they were profitable because of their credit cards and frequent flyer programs, and that’s where my question starts. As points continue to get devalued, lounges get increasingly packed, and elite status gets harder to attain (and requires more credit spending, if getting status just from credit cards), can airlines count on their frequent flyer programs as their main revenue generators in the long run, or will they will need to look elsewhere?
If so, where do you see airlines turning to? It seems unlikely they could turn these type of profits just from flying alone.
I’d also add that as a result of frequent increases in requirements to earn elite status, devaluations in the value of actually having elite status, and award redemption devaluations, airlines face another headwind, which is that they’ve probably caused a lot of folks in their 20s and 30s to become “free agents” when it comes to airline loyalty (as they’ve only really traveled in an era with declining value in being loyal to a specific airline), which could cause the value of frequent flyer programs to decline over time as well.
In 2024, the “big four” US carriers had over $200 billion in revenue, and combined, they had net income of around $8 billion, and operating income of around $14 billion. All four airlines had higher CASM than RASM. United was the closest to breaking even (16.7 cents CASM vs. 16.66 cents RASM), while Delta was the most profitable, but had quite a gap (19.3 cents CASM vs. 17.65 cents RASM).
Of course, the reality of the “big four” US carriers essentially earning their profits through non-flying means makes it tough to maintain a competitive airline industry. Smaller airlines don’t get the same opportunities with their frequent flyer programs, so how are the supposed to compete, and turn a fair profit?
It’s worth noting that this is all still a fairly new trend. Pre-pandemic, RASM was higher than CASM at profitable US airlines. However, we’ve seen a massive increase in costs (particularly labor costs), and this has changed the economics of the industry.
One way that airlines are improving their CASM is by flying larger, more fuel efficient jets, like the A321neo. While that helps with costs, it also means there are more seats to fill, and that can be a challenge in some markets, and puts downward pressure on fares.
What does this reality mean for the future of airlines?
I find this all to be an excellent question, and I don’t actually have a great answer, other than saying that I have the same question. I guess a few thoughts come to mind:
- At this point, airline labor costs are unlikely to decrease, and if anything, they’ll keep going up, given that newly negotiated contracts include incremental pay increases in the coming years
- The major US carriers aren’t even directly making money flying passengers during what I’d consider to be among the best of times, and that says nothing of the potential impact of any sort of an economic downturn
- Consumers often like to label airlines as greedy, and that’s not fair, as this is one of the most difficult industries in the world; I think we sometimes see poor decisions made by airline executives, but the airline industry is hardly greedy
I don’t think airlines will be able to reinvent themselves in any sort of a meaningful way, beyond just continuing to do everything possible to monetize their customer base. I mean, you know it’s a tough time for the industry when Southwest, the United States’ most long term profitable airline, throws in the towel and says “hey, let’s be just like everyone else,” while not having first class or long haul flying.
The way I view it, the future of US airline profitability comes down to two things…
I think more industry consolidation is inevitable
I know it’s not a popular take, but I think that one way that industry unprofitability will be addressed is through further consolidation. There’s a general belief out there that “oh, industry consolidation is done, and a thing of the past.” However, consolidation has been happening for decades, and I think it will continue to be the case going forward.
There’s simply not room in the market for so many players all trying to undercut one another, with increasingly limited differentiation (look at Southwest copying the business models of other carriers, all while ultra low cost carriers try to become more full service). Airfare will need to go up somewhat.
Take Spirit, as an example. JetBlue tried to take over the airline, and that takeover was ultimately blocked by regulators, in order to preserve competition in the industry. But an airline can only have a negative 20% operating margin for so long, before something’s gotta give. Of course we all want low fares, but shareholders can only subsidize those for so long, before bankruptcy comes knocking…
Airlines will keep trying to monetize their customers
Frequent flyer programs started as a cost center to get people to be loyal to an airline, but of course they’ve taken on a life of their own, and have now become the most profitable part of US airlines. Ultimately airlines have access to a huge membership base, and there are all kinds of things they can market to members. Of course credit cards are the most profitable, but there are other opportunities as well.
So I think airlines will keep trying to do that. However, personally I’m a bit more skeptical of airlines’ ambitions to grow their loyalty revenue. Some US airlines expect that their frequent flyer program revenue will increase by up to 50% in the coming years, and I just don’t think that’s realistic.
On the one hand, interest in travel is probably at an all-time high in recent years, and there are more people willing to splurge and spend their disposable income on premium travel experiences. On the other hand, consumers have a lot more choices, and the increased profitability of airline frequent flyer programs is contingent on consumers acting irrationally:
- Airline elite status just isn’t worth as much as it used to be, with upgrades so hard to come by; that eliminates a huge incentive to earn status
- We’re increasingly seeing people use cards that belong to the major non-airline points ecosystems, where you can redeem rewards efficiently toward the paid cost of a ticket, rather than just earning miles, and that offers lots more flexibility
- Redeeming miles in general is becoming more difficult, and as airlines increasingly switch to dynamic and revenue based award pricing, the incentive to be loyal to an airline decreases
Personally, I think we’re reaching the point of market saturation when it comes to the growth possibilities for airline frequent flyer program profitability. There are so many airlines competing not just with one another, but also with other products outside the airline frequent flyer program ecosystem.
Don’t get me wrong, I’m not suggesting airline frequent flyer programs will collapse, and suddenly become unprofitable. However, I don’t think we’re going to see the level of growth that some airline executives are predicting, and are counting on to continue to increase their profits.
One other thing worth mentioning is that there’s always talk among some politicians of trying to cap interchange fees, which would make the credit card industry much less profitable. If that were to ever happen, that would have a massive impact on airlines and consumers, as current credit card agreements are essentially subsidizing airfare.
Bottom line
Nowadays, the major US airlines are earning most of their profits through non-flying means, and in particular, through their lucrative credit card agreements. While this has proven a reliable source of revenue, it presents a challenge, since it’s hard for smaller airlines to compete, as a profitable loyalty program requires scale.
So, will US airlines have to reinvent themselves? Personally, I’m not sure what their next amazing innovation could be, other than continuing to monetize their customer base in every way possible. I think the more likely scenario is that we see industry consolidation, and the same cycle continue as before.
How do you see all of this playing out?
Ben as I mentioned the other day, Elon Musk or someone like him will bring air travel to a difference.
Much larger craft, 1000 or two on board, might not even need jet fuel.
All seats will be good. Maybe only one class.
Until then, Airline travel is like Heathrow Airport, has run its course and needs to reinvent and revamp.
LHR bashing is bound to illicit a response from those who know!
Those who know when someone is simply attention seeking, could that be you Anthony?
This missive is not a windup, I will simply attempt to explain one’s own experience of the US aviation industry from an English travellers perspective. I cross the pond on a monthly basis, we visit family in the US two or three times per year. We travel within the US on various regional carriers.
In general terms, as I see it, the US carriers are providing a very basic point A to point B,...
This missive is not a windup, I will simply attempt to explain one’s own experience of the US aviation industry from an English travellers perspective. I cross the pond on a monthly basis, we visit family in the US two or three times per year. We travel within the US on various regional carriers.
In general terms, as I see it, the US carriers are providing a very basic point A to point B, Uber-like service. One does not look forward to what has become a battle to travel between destinations. Often one is exhausted by the time one leaves the destination airport even after very short airtime, relieved to be free from the ordeal.
The Asian and Middle Eastern airlines offer something which US carriers no longer provide. They offer a far better overall flying experience. Furthermore, they have to a great extent, put some of the glamour back into the flying experience. At the risk of pointing out the obvious and sounding male chauvinistic, the days of the PanAm eye candy, trolly Dollie’s, has long gone in the US. For better or for worse it is always going to be a contentious matter of opinion.
The US airframes, cabins, etc, to the outsider, often look outdated and tired. The cabin crew, less warm and welcoming, serving very mediocre refreshments, sometimes apparently begrudgingly. The old adage “Service with a smile”, is no longer applicable.
The European airlines appear to have seen the writing upon the wall and are catching up fast. There is further evidence that my experience is reasonably accurate if one cares to take into account global customer satisfaction surveys. Some poo-poo the SkyTrax World Rankings simply because it is not a US organisation, or perhaps, because they do not like to read the opinions of others. However, as there is no US airline rated in the top twenty and some are rated in the bottom third, surely this must mean something significant?
There you have it, a customer opinion backed up by those of a global survey, now I await my fate at the hands of those who choose to shoot this messenger.
I think the question stems from a sort of black-and-white understanding of the business. In reality you should separate the marketing (generating demand) and production (catering to demand) parts of the business. The production is about having the right plane at the right time with the right cost structure as requested by the marketing/sales side. Every airline faces the same challenges on production despite differences due to network and technological capabilities.
On the generating demand...
I think the question stems from a sort of black-and-white understanding of the business. In reality you should separate the marketing (generating demand) and production (catering to demand) parts of the business. The production is about having the right plane at the right time with the right cost structure as requested by the marketing/sales side. Every airline faces the same challenges on production despite differences due to network and technological capabilities.
On the generating demand there is the question of sales channel that differ vastly between airlines and where they opereate. The corporate channel is for example a healthy and profitable channel that exists worldwide and has stayed so, only American was stupid enough to think they could squeeze more out of it.
What has gradually changed along the years in the US is the sales channel for the non corporate traffic: holidays VFR etc. There, more and more demand has been funneled through the miles and points system which has had several benefits to airlines: capture market share before any decision of flying is done, control the pricing in a manner that makes price comparison difficult, control the currency in which airfare is traded which means there is little other option to redeem the miles value than on airfare.
Obviously the system has been too greedy and increasingly consumers are seeing that relying on airlines for currency is not a very healthy idea for them. I predict they will more and more move towards a currency handled by a middleman (points or hard cash) that can be more readily compared in value vs other airfare and other purchases.
What airlines will lose in the process is the opportunity to generate very irrational purchase decisions (for example someone sitting on a pile of miles, seeing an expensive redemption with lots of surcharges and needing to top up miles and still going for it). Some of those redemptions will continue to happen if the consumers stick to a points system than hard cash.
Still I see increased competition between airlines as demand will be less captive in the future. That increased competition will drive down margins (that are not great with the last crew cost bump) and lead to more consolidation. But all of that will happen very gradually as airlines will try to find a new equilibrium in their business model. We will also see if airlines in fortress hub manage to keep the consumer captive with miles or if they'll switch to points. The points system definitely has a few cards to play there. What counts for credit cards is people keep using them.
Maybe the model will change and for example to Europe one carrier will create a hub similar to what ME carriers have done and the connections are with train or LCC. Everybody can survive 2.5 hours from Munich on an LCC to their hub and then train. The model to travel will change. The flt to the hub will be like shuttle service with possibly three classes and the first class pax will fly nonstop...
Maybe the model will change and for example to Europe one carrier will create a hub similar to what ME carriers have done and the connections are with train or LCC. Everybody can survive 2.5 hours from Munich on an LCC to their hub and then train. The model to travel will change. The flt to the hub will be like shuttle service with possibly three classes and the first class pax will fly nonstop closest to final destination. Let’s face it, if u can pay 15 k to Europe now u can also pay 25 k. Miles are not relevant to this clientele. Similar in Aia once high speed rail moves beyond China.
One avenue that "won't" work is acquisition of a hotel chain and/or rental car agency. UA attempted this in the '70s with long term disappointment. And Allegiant recently stubbed its toe on its Florida resort in the middle of no where. Current hotel service has hit rock bottom post COVID. And the horror stories of Hertz would scare anyone. In fact, these two services would not add any significant margin to the airlines. Each is...
One avenue that "won't" work is acquisition of a hotel chain and/or rental car agency. UA attempted this in the '70s with long term disappointment. And Allegiant recently stubbed its toe on its Florida resort in the middle of no where. Current hotel service has hit rock bottom post COVID. And the horror stories of Hertz would scare anyone. In fact, these two services would not add any significant margin to the airlines. Each is cutting service to the bone to break even. (The only exception to the above is the oil refinery near Philadelphia owned by DL which has provided mixed results).
Consolidation doesn't seem to add much to the recipe. Economy of scale only goes so far when the labor rates of the acquisition are brought in line with that of the new owner. Even with our current administration, there would be push back considering that the big four currently control 70% of the market. Spirit needs a dance partner, so Frontier still has that engagement ring in its back pocket. And JetBlue can only survive if it finds a long term dance partner of its own (foreign or domestic like re-igniting the NEA with AA).
Long term, the only answer is:
- automation (ie: diminished customer support)
- outsourcing (bone of contention with heavily unionized airlines)
- leverage of airline alliances (via adjoining gates or terminals at airports, handoff services, etc)
- keeping labor cost under control (if in doubt, see "outsourcing" above)
If the airlines don't get a handle on the situation, they will end up like Eastern, Pan Am, or TWA with corporate raiders picking the bones. The same is currently happening with Southwest and Elliot. Who's next??
As a frequent traveler with top status at Delta among others. I no longer find loyalty as important as I once had. While Delta is best of the lot, the level needed to obtain that status outweighs the value.
The upgrade certificates rarely work as they are very restricted & other then getting a preferred phone number to call,
there is little value. Making it wiser to shop price not loyalty
As a frequent traveler with top status at Delta among others. I no longer find loyalty as important as I once had. While Delta is best of the lot, the level needed to obtain that status outweighs the value.
The upgrade certificates rarely work as they are very restricted & other then getting a preferred phone number to call,
there is little value. Making it wiser to shop price not loyalty
The fundamental question that Ben asks is wrong.
Just because the big 3 do not make money just from flying passengers and cargo does not mean their business model is broken.
There are a host of very lucrative non-transportation revenues that are part of airline business models including bag and change fees as well as loyalty program, club and vacation sales etc.
The fact that 2 out of the big 3 are generating margins...
The fundamental question that Ben asks is wrong.
Just because the big 3 do not make money just from flying passengers and cargo does not mean their business model is broken.
There are a host of very lucrative non-transportation revenues that are part of airline business models including bag and change fees as well as loyalty program, club and vacation sales etc.
The fact that 2 out of the big 3 are generating margins superior to rest of the industry says the model does work.
If there is a need to reinvent business models, it is for those carriers that do not get enough revenue to generate industry average profit margins, regardless of the model they use.
add in an equal playing field for costs - such as that UA needs to increase its labor costs significantly unless UA employees are willing to work for less than AA, DL and WN employees - and we are far from in a stable position to assess anything.
it won't be changes in loyalty behavior - which have been evolving since the programs began - or how lucrative they are for some passengers vs. others - that will determine the outcome of the industry.
Consolidation and transfer of market share will only reinforce that the financially strongest will get stronger while the weakest will get weaker.
It's beyond me why anyone would chase airline points through BIS now, and it's becoming increasingly difficult to do the same through CCs. Fine, if you client is reimbursing you 200K/year so it's not your money and if they are spending 5K a week flying you to Europe and back so you can actually rack up a million miles.
But even then these days when you can't find a single FC seat on Cathay...
It's beyond me why anyone would chase airline points through BIS now, and it's becoming increasingly difficult to do the same through CCs. Fine, if you client is reimbursing you 200K/year so it's not your money and if they are spending 5K a week flying you to Europe and back so you can actually rack up a million miles.
But even then these days when you can't find a single FC seat on Cathay and for ANA - I looked the entire year out to find a single NRT-HNL for February 2026 (yes you rad it correctly) seat on ANA and I looked at all routes they offered (to partner redemption), and I think Singapore does not even offer FC to others (though it might be the CX situation scenario -so I can't vouch for this one). JAL is slightly better (on AA) - a seat or two from NA to TYO. I would never ever again fly BA because of extra $1000 for a "free seat" - Air NZ has ridiculously awful biz seats for long distance. Even LAN (now LATAM) - level of service has degraded by a lot since I flew them (but for you lucky Delta fliers still the best one in South America). Air Tahiti Nui is fine but that's still only biz class - though if you look at conversion and availability maybe the only redemption worthwhile for AA fliers. From Asia to ME an the rest of Asia FC has been largely converted to biz and a lot of routes are so reasonable that you are much better paying cash. Especially if you know which airport to either connect or start with.
As far as biz model - Delta got it right. They are making billions - they are focused on actual comfort. (I am so shocked compared to what sort of airline they used to be). Ed did a great job, but he has been greatly helped by inaptitude, and incredible incompetency of Doug Parker and his lemmings who completely degraded AA to experience you used to get on US Airways 20 years ago, which is what AA feels now. I doubt that Delta would be as profitable without alienation of premium AA customers by Doug Parker. United sort of got lost in that mix which way we go - and it didn't help that they started beating up their own passengers.
IMO, the labor cost issue comes down to the US having a far higher cost of living. That higher cost of living comes from several factors:
1. Personal vehicles. The US, and to a lesser extent Canada, are really the only developed economies that require their people to own personal vehicles in order to hold jobs. Sure there are some cities (NYC, SF) where it's relatively easy to get by without a car, but...
IMO, the labor cost issue comes down to the US having a far higher cost of living. That higher cost of living comes from several factors:
1. Personal vehicles. The US, and to a lesser extent Canada, are really the only developed economies that require their people to own personal vehicles in order to hold jobs. Sure there are some cities (NYC, SF) where it's relatively easy to get by without a car, but for the vast majority of the population you must own and maintain at minimum a $20-30k depreciating asset for the privilege of holding even a minimum wage job.
2. Housing costs. The US, and again to a lesser extent Canada, (but also the UK funny enough) have underbuilt new housing for decades resulting in massive lack of supply in every major city and most second- and third-tier cities. This drives the prices of existing houses and apartments through the roof, and what new development there is tends to be concentrated farther and farther from city centers, with zero transit access and requiring people to buy cars and pay for more wear and tear to access jobs.
3. Healthcare costs. There's a lot of reasons for this, many of them more structural and not related to the single-payer socialized or private insurance models people like to point to. Limits on residency positions for new doctors is one, and another is the hold doctor lobbying groups have on government on the public opinion on medicine. See the recent outcry about "insurance companies not paying for anesthesia for the whole surgery", which in reality was Anthem Blue Cross trying to bring their practices in line with Medicare/Medicaid to negotiate down healthcare costs for their customers. Nobody was actually going to stop being anesthetized or charged for extra anesthesia during a surgery that went long, but that's the story the American Society of Anesthesiologists sold the public.
The labor costs jump because pilots were in shorter supply coming out of Covid with airlines incentivizing early retirements during Covid. Delta then agreed to a very generous pilot contract that the rest (UA, AA, and WN) of the industry matched. Costs for machinists, parts, and aircraft were all affected by inflation too.
Pilots are just one part of the equation, costs went up for every other employee too. Flight attendants, machinists, etc. Inflation didn't help things in terms of non-labor inputs, but inflation also affects labor costs because labor has to be able to afford things to be able to work. Housing especially is the single most costly thing for Americans, and it's skyrocketed over the past decade. Car ownership has been baked in for a long...
Pilots are just one part of the equation, costs went up for every other employee too. Flight attendants, machinists, etc. Inflation didn't help things in terms of non-labor inputs, but inflation also affects labor costs because labor has to be able to afford things to be able to work. Housing especially is the single most costly thing for Americans, and it's skyrocketed over the past decade. Car ownership has been baked in for a long time, but it's also a significant cost that your labor has to pay out of pocket, and the cost of owning cars has also gone up due to just plain inflation, but also car companies in the US cutting their cheapest offerings to focus on higher-margin luxury vehicles because it's a captive market, Americans have no other choice and must buy a car.
Whether making profits from non flying activity is sustainable long term is unknown. Airlines will continue with the current business model and if it fails there will be restructuring, consolidation, and cutting capacity. The ULCC business model at least in the US isn't sustainable and at least the two biggest ULCC are trying to moderate their business model.
Probably interesting times coming up for the industry.
Ban non-US airlines from flying to to US, that way, if people wants to fly to the US, they can only us US airlines only. It's time we stop letting overseas company steal income that is otherwise ours.
If other countries don't comply, we should threaten them with not flying to their countries anymore, the lost of income from US tourist is enough to cripple their entire economy to the point that they'll definitely comply.
God tier rage-bait xD
"Ban non-US airlines from flying to to US,..."
Didn't think that one through, did ya? As soon as the U.S. did that, every other affected country would, and rightly so, turn around and do the same thing and, voila, no way for Americans to go to a foreign country and no way for foreigners to visit the U.S. Real smart!
What U.S. airlines need to do is to make an effort to compete with foreign...
"Ban non-US airlines from flying to to US,..."
Didn't think that one through, did ya? As soon as the U.S. did that, every other affected country would, and rightly so, turn around and do the same thing and, voila, no way for Americans to go to a foreign country and no way for foreigners to visit the U.S. Real smart!
What U.S. airlines need to do is to make an effort to compete with foreign carriers. I would never fly a U.S. carrier outside the U.S. unless there was no foreign carrier and I absolutely, positively HAD to make the trip. Flying a U.S. carrier has become pretty much the equivalent of taking an inner city bus - it's one thing to take the bus to one of the coasts to catch a real airline and another to take it overseas.
And there isn't a country in the world whose economy would be crippled if U.S. tourists decided not to visit; it would just make the stays of non-U.S. tourists to those countries much more pleasant.
You are absolutely incorrect, Musk and Trump has clearly demonstrated that every country depends on the rightful US citizens visiting their country and spending money, without our money, most country will go bankrupt.
Other countries will not dare to ban US airlines from flying to their countries solely because of that. Don't forget that we are the best and richest country in the world.
We should also implement rules where non-citizens will need...
You are absolutely incorrect, Musk and Trump has clearly demonstrated that every country depends on the rightful US citizens visiting their country and spending money, without our money, most country will go bankrupt.
Other countries will not dare to ban US airlines from flying to their countries solely because of that. Don't forget that we are the best and richest country in the world.
We should also implement rules where non-citizens will need to pay more to visit our country, it's time we deter poor people from entering our country, the US should only be opened for the right people and their wife and kids.
@JPlat Say what? Do you seriously think that the U.S. would even implement the ideas you are proposing here? Nope. And yes @Gentleman Jack Darby is correct. The other countries would retaliate as well. You really think that if the U.S. bans foreign carriers from flying to the U.S. and that other countries wouldn’t do the same? You wrote that they would not dare? Would love to see you get proven wrong but no need...
@JPlat Say what? Do you seriously think that the U.S. would even implement the ideas you are proposing here? Nope. And yes @Gentleman Jack Darby is correct. The other countries would retaliate as well. You really think that if the U.S. bans foreign carriers from flying to the U.S. and that other countries wouldn’t do the same? You wrote that they would not dare? Would love to see you get proven wrong but no need because like I said Uncle Sam would never do what you wrote here.
JPlat wrote: ‘ the US should only be opened for the right people and their wife and kids.’
What is the right kind of people? Only straight white people? Are you now not hiding your true colors?
Other countries can try to retaliate, but when their countries run out of money because they no longer receive any US income and aid, the government will collapse and be forced to open up again. Don't forget, this is the similar to the tariffs, in the end, Trump and Musk and US will win. My sole concern is that the two term limit will restrict the good that can be done, and we should remove...
Other countries can try to retaliate, but when their countries run out of money because they no longer receive any US income and aid, the government will collapse and be forced to open up again. Don't forget, this is the similar to the tariffs, in the end, Trump and Musk and US will win. My sole concern is that the two term limit will restrict the good that can be done, and we should remove that immediately.
It works either way really, if countries comply, US airlines get their rightful income. If countries retaliate, they go broke and we can swoop in and buy them on the cheap. Look at Ukraine and Gaza.
well said, in principle.
the simple reality is that the US has the largest economy in the world, the US economy is heavily driven by consumer spending, the USD is the world's reserve currency, and the US has massive trade imbalances with many countries.
Whether Trump succeeds in rebalancing trade remains to be seen and there will certainly be a whole lot of collateral damage even if he succeeds, but it is economically unsustainable...
well said, in principle.
the simple reality is that the US has the largest economy in the world, the US economy is heavily driven by consumer spending, the USD is the world's reserve currency, and the US has massive trade imbalances with many countries.
Whether Trump succeeds in rebalancing trade remains to be seen and there will certainly be a whole lot of collateral damage even if he succeeds, but it is economically unsustainable for the US to contain as it currently is - with government spending far exceeding tax revenues and many other countries building wealth on American consumer spending.
Wow... if anyone thinks that the US will win with Trump 2.0 tariff wars, they need to take a look back at history, in particular look at the Smoot-Hawley Tariff Act of 1930, which drove the country deeper into the great depression. Musk and Trump (being led by the Federalist Society and Heritage Foundation) are pulling the wool of the eyes of Americans to shift the status quo to benefit billionaires even more, while consolidating...
Wow... if anyone thinks that the US will win with Trump 2.0 tariff wars, they need to take a look back at history, in particular look at the Smoot-Hawley Tariff Act of 1930, which drove the country deeper into the great depression. Musk and Trump (being led by the Federalist Society and Heritage Foundation) are pulling the wool of the eyes of Americans to shift the status quo to benefit billionaires even more, while consolidating power and destroying the democratic norms that keep the US stable (similar to what autocrats did in Hungary, Russia, and Venezuela). These trade wars and isolationism ways have always hurt the economy in the long run historically and caused global recession. Meanwhile, any American that supports bypassing the constitution to implement political ideology are the opposite of a patriot, they are traitors to the very principles that my family fought for in the revolutionary war. These unconstitutional actions, including passing tariff under false emergency claims (Congress is supposed to pass tariff, unless a true emergency), trying to pass laws with executive orders or sidestep the constitution, are the very things that the founding fathers like Madison and Jefferson warned about. As Jefferson once said. "When questioning power and man, have no faith and bind him down by the chains of the constitution." It was the US in it's willingness to defend freedom, democracy, to lead and protect on the global stage, that made the US a superpower. You cannot retreat to extreme nationalism and isolationism, and still be a superpower. The US cannot bully other countries to be our allies. That is like having your cake and eating it too. It is not going to happen. What is going on will only damage the country, it just depends on how much and how far it will go. A third Trump term would mean Civil War, just like the movie that came out last year, where that fictional leader took a third term. It would be the end of the great American experiment. The hubris and arrogance of this un-American conservative movement thinking they can get away with it, will be our downfall.
As far as Airlines go, it is going to be a tricky balancing act going forward, especially if all the economic indicators and experts are correct with a major recession possible. If you think that US tourism income is THAT important to foreign countries, that is a mistake, and those countries will just turn to cater to Chinese tourists and others instead, which has been on a drastic increase in recent decades. Maybe small island nations and the like, but not the EU bloc and other larger ones that actually have airlines.
@JPlat we understand that weed is legal in many parts of the US. You don't have to demonstrate this by blathering here abiut situations that will simply never happen.
There isn't a country on earth whose economy would be crippled if U.S. tourists decided to stay home.
Even the most tourist-friendly countries have a relatively small percentage of their economy that is tourism dependent; for example, Thailand, which is one of the most popular tourist destinations earns only about 12% of its GDP from tourism. For the arithmetically challenged, that means 88% of GDP has nothing whatsoever to do with tourism, American or otherwise.
...There isn't a country on earth whose economy would be crippled if U.S. tourists decided to stay home.
Even the most tourist-friendly countries have a relatively small percentage of their economy that is tourism dependent; for example, Thailand, which is one of the most popular tourist destinations earns only about 12% of its GDP from tourism. For the arithmetically challenged, that means 88% of GDP has nothing whatsoever to do with tourism, American or otherwise.
Mexico, which gets most of its tourists from America by far, earns even less of its GDP from tourism, approximately 8.6%.
So even if ALL the tourists in the world were Americans, which they clearly are not, (in most countries they're pretty far down the list) and they all decided to stay home, it wouldn't by any stretch of the imagination "...cripple their entire economy to the point that they'll definitely comply." Fact is, most countries won't even notice or care.
the issue is not tourism but manufactured goods.
The US has a services trade surplus largely driven by IT. Mexico isn't going to develop replacements to Microsoft, Google and Facebook overnight, if ever.
The US can and likely will force more manufacturing back to the US which has been heavily outsourced to Mexico as a result of a North American free trade area.
Trump, right or wrong, believes that total trade needs to be in...
the issue is not tourism but manufactured goods.
The US has a services trade surplus largely driven by IT. Mexico isn't going to develop replacements to Microsoft, Google and Facebook overnight, if ever.
The US can and likely will force more manufacturing back to the US which has been heavily outsourced to Mexico as a result of a North American free trade area.
Trump, right or wrong, believes that total trade needs to be in balance. Tourism is and always will be a relatively small part of the picture.
So much for the US being the home of free enterprise, when the current thinking is that if you can't compete with it either tax it into oblivion or ban it altogether. You can't just erase the competition because you're losing, you need to innovate and get your customers back. A company that either can't or won't do that is doomed to fail, and they must be allowed to fail, not be bailed-out, even if...
So much for the US being the home of free enterprise, when the current thinking is that if you can't compete with it either tax it into oblivion or ban it altogether. You can't just erase the competition because you're losing, you need to innovate and get your customers back. A company that either can't or won't do that is doomed to fail, and they must be allowed to fail, not be bailed-out, even if it means 100K+ people are suddenly out of a job. Endlessly propping-up losers with artificial life support like Chapter 11 protections ultimately helps nobody. Let 'em go under.
This idea is so bad that someone (preferably Musk and Trump) should try it.
Yes, many nations will be hit, people will suffer, but if there's anything that we humans are great at, it is our ability to adapt.
Tariffs and various other economic measures will benefit, and boost Trump's agenda, but that does not mean that America is a winner. Americans will pay a price for these measures...
We do that already with not allowing international airlines 5th freedom rights of connecting US cities. Reciprocal arrangements are good for everyone. I am glad you have done well, but a lot of good paying blue collar work (UAW jobs) has been lost to countries such as Mexico that can build a cheap car with minimal pay, safety, and environmental considerations, then export it back to the US market.
Cost structure is the problem and will always be the problem for US airlines.
The joint ventures are a perfect example to explain. US based airlines incur far higher costs in terms of labor and supply than their European and Asian counterparts, but earn the same revenue.
This is the reason why US airlines cannot become premium. In Japan, they can have as many as 5 FAs on a domestic one hour flight on a...
Cost structure is the problem and will always be the problem for US airlines.
The joint ventures are a perfect example to explain. US based airlines incur far higher costs in terms of labor and supply than their European and Asian counterparts, but earn the same revenue.
This is the reason why US airlines cannot become premium. In Japan, they can have as many as 5 FAs on a domestic one hour flight on a narrowbody, which provides very effective and efficient service. In the US, this would not be possible as FAs are already largely understaffed and to some extent underpaid.
The primary advantagethey have in the US is point of sale. Americans are more likely to purchase from US based airlines.
Asian airlines are much less likely to have career employees while many US airline employees are long-term, top of scale with rich benefits.
The US has some of the least effective healthcare outcomes per dollar spent than just about any country so older, high seniority employees in the US are very expensive relative to other countries.
and the biggest difference between service is not because of the number of staff but the attitudes towards...
Asian airlines are much less likely to have career employees while many US airline employees are long-term, top of scale with rich benefits.
The US has some of the least effective healthcare outcomes per dollar spent than just about any country so older, high seniority employees in the US are very expensive relative to other countries.
and the biggest difference between service is not because of the number of staff but the attitudes towards serving people; Americans are simply not service friendly compared to people from other countries. DL and WN staff are much less confrontational than other airline employees but virtually no US airline employees have the level of commitment to deferential service that once marked Pan Am employees on int'l routes and still is the norm for most foreign airline employees.
I respectfully disagree. US airlines can't compete with services such as La Premiere because consumers don't want to pay the fair market value that it costs. American consumers and businesses are will to pay for domestic F or J. US airlines will supply the product consumers want and will pay for. The top end of the US market has left and is flying private.
Some of the most profitable La Premiere routes are to the US, so that argument doesn't hold the water - US carriers could offer premium products on the very same routes.
In reality I think the problem is more cultural. If you run an airline where crews lecture passengers about being there for safety, not for service, and where using a crew call button is punishable by death, you can hardly hope to develop a...
Some of the most profitable La Premiere routes are to the US, so that argument doesn't hold the water - US carriers could offer premium products on the very same routes.
In reality I think the problem is more cultural. If you run an airline where crews lecture passengers about being there for safety, not for service, and where using a crew call button is punishable by death, you can hardly hope to develop a product such as La Premiere which very much revolves about top notch, personalised service. To staff La Premiere and deliver the service standard that's expected, you just need mid-tier workers, because the service culture is embeded in the local population. Whereas to deliver the same result with US staff, you'd need to pay top dollar to get the very best ones work for you.
One problem is that FF programs have shifted more to rewarding only high spend, not decisions. Many people have no choice about which carrier to use, maybe they are hub captive, or their employer makes decision. They would choose that airline regardless of status, so that expense is essentially wasted, and the program is not driving any additional revenue. The vast majority of people don't spend enough to earn meaningful status, even if they fly...
One problem is that FF programs have shifted more to rewarding only high spend, not decisions. Many people have no choice about which carrier to use, maybe they are hub captive, or their employer makes decision. They would choose that airline regardless of status, so that expense is essentially wasted, and the program is not driving any additional revenue. The vast majority of people don't spend enough to earn meaningful status, even if they fly regularly. Airlines have essentially given up on them, essentially they are saying "my offer is this: nothing". They must find a way to get non high spenders to act irrationally loyal again.
except all of the big 3 show that their revenue is growing.
the big 3 all redeem millions of award tickets per year; they are just much more often going to be for economy and, increasingly, international premium economy than domestic first class or int'l business class as far too many people expect
Nothing you said refutes, or really has anything to do with what I wrote. Perhaps read what you're responding to before rushing to keep your most prolific poster status.
you throw in a lot of maybes and mights and then get offended when someone tells you that you missed the point.
The loyalty programs have never been about "average Joes" gaining much other than an occasional reward.
The most loyal customers are still heavily committed to loyalty plans and the rewards they get from them; the line that it takes to become high-tier keeps moving up but the concept still works.
you fundamentally...
you throw in a lot of maybes and mights and then get offended when someone tells you that you missed the point.
The loyalty programs have never been about "average Joes" gaining much other than an occasional reward.
The most loyal customers are still heavily committed to loyalty plans and the rewards they get from them; the line that it takes to become high-tier keeps moving up but the concept still works.
you fundamentally don't understand the incremental changes that are taking place and have been for years.
"you throw in a lot of maybes and mights"
A lot = precisely one "maybe"? Nice try. Just to help you out, I'll throw one more in for you: you "might" be a narcissistic sociopath.
And no, I'm not offended that you posted a completely irrelevant reply. You're an insufferable blowhard, so if anything I just feel pity for you and those in your life. Not wasting any more time with you, so good luck and seek professional help.
@Tim Dunn
‘Many people have no choice about which carrier to use, maybe they are hub captive, or their employer makes decision.’
@Mantis wrote a good comment here. As he pointed out they do not have a choice in the matter such as Apple employees traveling on United Airlines for their travel to Asia. The employer chose in this scenario.
They are also hub captive although I would still say that if their hub...
@Tim Dunn
‘Many people have no choice about which carrier to use, maybe they are hub captive, or their employer makes decision.’
@Mantis wrote a good comment here. As he pointed out they do not have a choice in the matter such as Apple employees traveling on United Airlines for their travel to Asia. The employer chose in this scenario.
They are also hub captive although I would still say that if their hub is a major city then choose a foreign carrier that makes sense for them and even better if they belong to one of the three global alliances.
Mantis,
rather than call me names, how about you admit that your conclusions are flawed because you believe that loyalty programs and consumer behavior has now suddenly changed when both have been doing that since the programs began.
You and Stanley are correct that there are hub captive and corporate travelers that are loyal to an airline but you are incorrect that, without loyalty programs, those passengers would be up for grabs. Corporate contracts...
Mantis,
rather than call me names, how about you admit that your conclusions are flawed because you believe that loyalty programs and consumer behavior has now suddenly changed when both have been doing that since the programs began.
You and Stanley are correct that there are hub captive and corporate travelers that are loyal to an airline but you are incorrect that, without loyalty programs, those passengers would be up for grabs. Corporate contracts and hubs STRENGTHEN the dominant carriers in a market but they do not eliminate competition. Loyalty programs and corporate contracts add strength.
Further, loyalty programs are low cost - not no-cost as there are real costs - but they are high enough margin and reward size - both of the airline and of the size of the consumer's spend.
Loyalty programs aren't going anywhere
The fact that UA is now doing alot of the same things that DL has done says that UA is increasingly in a position to not be as generous. AA will do the same when AA reaches that point - or DL and UA will continue to steal share. DL has the most lucrative credit card deal because it carries the most high value revenue because it carries the most corporate and business traffic.
The goal is revenue gain and retention; loyalty programs are simply the means to reinforce what is happening in the market.
First, if the airline industry tips into losses, it will be because of a loss of demand because of economic uncertainty and an end to the post-covid travel boom that has boosted demand. Isolationism, nationalism, and a need for increased defense spending will harm consumer spending across multiple sectors with airlines certain to feel the impact.
Second, US labor costs have grow substantially post covid as a result of Delta’s willingness to throw money...
First, if the airline industry tips into losses, it will be because of a loss of demand because of economic uncertainty and an end to the post-covid travel boom that has boosted demand. Isolationism, nationalism, and a need for increased defense spending will harm consumer spending across multiple sectors with airlines certain to feel the impact.
Second, US labor costs have grow substantially post covid as a result of Delta’s willingness to throw money post-covid to replace the tens of thousands of employees that left the company during covid. Delta’s bullishness on labor spending is putting pressure on most of the rest of the sector. For all the talk about how well United is doing, by this summer, nearly all of their unionized employees except for pilots will have amendable contracts – which means that UA’s labor costs are below industry average and will increase by $1 billion/year esp. if UA employees expect to actually receive (not just be promised) profit sharing comparable to DL employees. It is doubtful that the low cost and ultra low cost carriers including WN work with labor costs as high as they are.
Third, if losses start piling up in the industry – not just in the US but western countries – weaker carriers will fail. Half of US airline capacity is being flown by carriers that are either unprofitable or have unsustainably low profit margins – on top of covid debt that has not been repaid. AA is by far the most vulnerable of the big 4 and WN is being saved by its strong balance sheet offset by the rapid changes to its business model. There will be a rearrangement of market strength at some level and no government can stop the shift in market share from weaker to stronger carriers even if consolidation doesn’t take place. If consolidation takes place between or involving the big 4 and other airlines, it will quickly collapse the US into 2 to 3 megacarriers and very few smaller niche players. There is too much capacity in the industry.
Fourth, if the loyalty model is broken, UA is the most exposed. They have the least lucrative loyalty credit card contract of the big 4 and also the most international exposure. AA just got a new contract w/ Citi while DL’s contract w/ Amex comes up for renewal later this decade. But, as much as some people might want to believe the loyalty/credit card model is failing, there are no indications from carriers that is happening.
And fifth, you have to look at where the next sources of revenue will come from for airlines. DL has won engine overhaul contracts for every new generation aircraft engine family in the US airline fleet except for the GEnx engines on the 787; that engine will likely be refreshed or replaced within the next 5-10 years. DL estimated that it would get $5 billion plus in revenues and $1 billion plus in profits from engine maintenance by the end of the decade but that timeline has probably been pushed back because of delivery delays for just about all aircraft and the availability of new parts. Behind MRO revenue, airlines have to figure out the next big competitive advantage – and based on history, DL is most likely to lead the industry in figuring out where that will be.
airline stocks have lost enormous value since the first of the year due more to negative sentiment than bad financial performance.
Delta will be the first to report its 1st quarter financial performance (the quarter ends today) next week. All eyes and ears will be on what DL says as it always the case - because DL usually sets up how the rest of the industry will report. We'll know within weeks if the US and western airline industry is on the verge of major financial challenges and strategic change
I completely agree with your analysis, especially regarding labor costs, industry consolidation, and the vulnerability of weaker carriers. The data supports your points:
CASM vs. RASM – The fact that all four major US airlines had a CASM higher than RASM in 2024 is alarming. United came closest to breaking even with a 0.04-cent gap (16.7¢ CASM vs. 16.66¢ RASM), while Delta had a 1.65-cent gap (19.3¢ CASM vs. 17.65¢ RASM). This structural inefficiency suggests...
I completely agree with your analysis, especially regarding labor costs, industry consolidation, and the vulnerability of weaker carriers. The data supports your points:
CASM vs. RASM – The fact that all four major US airlines had a CASM higher than RASM in 2024 is alarming. United came closest to breaking even with a 0.04-cent gap (16.7¢ CASM vs. 16.66¢ RASM), while Delta had a 1.65-cent gap (19.3¢ CASM vs. 17.65¢ RASM). This structural inefficiency suggests that airlines rely on non-flying revenue for profitability.
Labor Cost Pressures – Delta’s aggressive wage increases post-COVID have set a precedent. If United’s labor costs rise by $1 billion annually as contracts become amendable, this would add ~0.5¢ to CASM based on its 200 billion ASM output. Low-cost carriers like Southwest and Spirit, operating on thinner margins, will struggle to absorb similar cost hikes.
Debt and Financial Risk – Post-COVID debt remains a major issue. If half of US airline capacity is flown by carriers with unsustainable margins, then potential failures could trigger a shift in market share, even if outright consolidation is blocked. AA, carrying $30 billion in net debt, is particularly vulnerable—interest expenses alone ($1.5 billion/year) account for nearly 20% of its operating income.
Frequent Flyer Revenue Uncertainty – UA’s weaker credit card contract relative to AA’s Citi renewal and DL’s Amex deal places it at risk if loyalty revenue plateaus. Given that DL expects $5B+ in MRO revenue and $1B+ in profits from engine maintenance, alternative revenue sources will be critical. If interchange fees are capped, credit card revenue declines could force airlines to further monetize seat selection, baggage fees, or partnerships.
Stock Market Sentiment – Airline stocks have underperformed YTD despite stable financials. If Delta’s Q1 earnings (coming soon) indicate softening demand or worsening margins, expect further devaluations. The post-COVID travel boom is ending, and with higher costs, airlines need either revenue growth or efficiency gains to sustain profitability.
In short, I agree that industry restructuring is inevitable. Either weaker airlines exit, consolidation occurs, or the majors innovate new revenue streams beyond credit cards. The next earnings cycle will be telling.
Look at this. It's Tim's chatgpt buddy back again. With formatting right out of the chatgpt response box...
Tim, get a life. and stop replying to yourself
just admit, pain the backside Jane, that this is all way over your head. All you have to do to prove a modicum of intelligence is reply to just a single paragraph.
Nick W gets it and is capable of intelligently responding in more than 2 word sentences.
The industry will change. The timing of change only a few years after covid and while much of the industry's business models are still being "improved" means...
just admit, pain the backside Jane, that this is all way over your head. All you have to do to prove a modicum of intelligence is reply to just a single paragraph.
Nick W gets it and is capable of intelligently responding in more than 2 word sentences.
The industry will change. The timing of change only a few years after covid and while much of the industry's business models are still being "improved" means that large chunks of the US sector are likely to be forced to restructure one way or another.
The only two carriers that are reasonably comfortable from a financial standpoint are DL and UA -and UA has enormously larger financial commitments that will increasingly harm its finances even as its labor costs are certain to rise.
WN is really the wildcard; it is far from clear where they will end up but AA is unlikely to fix its revenue problem - even w/ a new credit card contract - to offset its low margins.
AS is closer to DL and UA in margins but has to digest HA which has lost a lot of money - and AS is trying to push upward in the sector w/ longhaul international flights and it is far from certain that they will succeed.
Most of the rest of the industry is unsustainable. Government cannot force unsustainable companies to continue to operate. Either competitors will slowly steal high value customers - as DL and UA have done to AA - or the government will allow consolidation. ultimately it will be creditors that will draw the line when they don't believe they will be repaid. NK reached that point and won't be the last. As Ben notes it is far from clear that NK is sustainable on its own or even as part of another airline.
Stop replying to yourself from chatGPT, Tim. And maybe you won't get called out on it.
You and your MANY fake profiles are getting old. Where's Aero? Did you retire him?
Only you are dumb enough to think no one notices. Anyone who has ever used ChatGPT knows how it comes back formatted but at least this time you waited more than 3 minutes to reply to yourself with 1,000 words.
I wonder how mentally disturbed one has to be in order to create fake profiles just to kiss your own butt.
Really, this guy is up there !
Tim,
What are your thoughts on the upcoming changes to UA's credit cards, club access, "enhancements to service"
-m
I believe UA will succeed and is doing this in part in order to demonstrate the value of its program as part of a complete renegotiation of its credit card contract. It might take longer than they are planning but they will make it happen
the speed at which UA can reap the gains of a new credit card contract are highly related to its penetration of the domestic market; if the economy and industry soften, it will be harder for UA to had new domestic capacity.
I think this is why it is better to be loyal to a foreign carrier frequent flyer program. Also, if you are a higher tier elite with them you can get a lot of benefits with one of the three global alliances such as OW Emerald, ST Elite+ and *Alliance Gold. What are you really missing out on? The ever so diminishing cabin upgrade on domestic flights.
Ben’s quote: ‘Consumers often like to label...
I think this is why it is better to be loyal to a foreign carrier frequent flyer program. Also, if you are a higher tier elite with them you can get a lot of benefits with one of the three global alliances such as OW Emerald, ST Elite+ and *Alliance Gold. What are you really missing out on? The ever so diminishing cabin upgrade on domestic flights.
Ben’s quote: ‘Consumers often like to label airlines as greedy, and that’s not fair, as this is one of the most difficult industries in the world’ ——No, Ben. I think more readers here are just labeling the greed of U.S. airlines. They put a minimum number of spend with airline tickets tied with miles flown and/or CC spend but they put even more restrictions, deductions, and limitations on the value of elite status with them. Why would or should customers even be loyal to a U.S carrier frequent flyer program?
Airlines diversify revenues to credit cards, loyalty programs, etc but in the long run, if the core business model of flying people isnt profitable the industry will collapse. There will be bankruptcies and mergers leading to a lower supply of flights / seats. This will bring in a big increase in airfare till the supply and demand curves meetup at a profitable point.
AA to go bust and WN, DL and UA to pick up their slots. Smaller airlines like Frontier and B6 will do better without AA in the picture.
The Next Gen Big 3 won't include AA. Here. First.
you are probably right to an extent but carving up failing large airlines - including AA and potentially WN if they don't get things turned around pretty quickly - will be how you eat an elephant which is one piece at a time.
DL and to a lesser extent UA have thrived in part because they are pulling high value customers away from AA in major markets like NYC, LA, and Chicago.
Everyone is...
you are probably right to an extent but carving up failing large airlines - including AA and potentially WN if they don't get things turned around pretty quickly - will be how you eat an elephant which is one piece at a time.
DL and to a lesser extent UA have thrived in part because they are pulling high value customers away from AA in major markets like NYC, LA, and Chicago.
Everyone is trying to poach WN's passengers now... WN's future depends on how well they can retain their passengers and poach from other carriers.
and DL has succeeded esp. during covid and after by rapidly growing in NYC, BOS and LAX, all of which are high value markets where DL's gain has been at someone else's loss. No other carrier has grown new hubs by poaching other airline customers like DL
Doubt it. AA was supposed to go bust during Covid and it didn't happen. The company has stabilized its finances and has stopped waisting money on buyback. AA deserves credit for understanding itz financial jeopardy and trying to address it.
It shouldn't be too much longer before people begin canceling their airline co-branded cards en masse; with the recent price hike and benefit devaluation for United cards and the points earning devaluation and redemption devaluation at Southwest, co-branded cards have become much more trouble than they're worth.
I have six or seven airline cards and I'm lining them up for cancellation based on renewal dates and using up accumulated miles.
Soon enough, I'll be strictly...
It shouldn't be too much longer before people begin canceling their airline co-branded cards en masse; with the recent price hike and benefit devaluation for United cards and the points earning devaluation and redemption devaluation at Southwest, co-branded cards have become much more trouble than they're worth.
I have six or seven airline cards and I'm lining them up for cancellation based on renewal dates and using up accumulated miles.
Soon enough, I'll be strictly cash back because I earn a minimum of 2.625% cash back on my cash back cards and usually more with my Chase Sapphire Reserve and Freedom cards; I never forget that Ultimate Rewards can always be redeemed for at least one cent and it's so much easier to simply pay cash for the best flights and for whatever services I may need on those flights rather than try to juggle a bunch of coupons or hope that my card benefits are recognized.
Soon enough the airline card bubble will burst and I for one wouldn't mind seeing airline fares rise and the Jerry Springer-type airlines either go out of business or be absorbed by the Big Three. Time to clean up the skies!
The American credit card model is so silly. Pay 3-4% in transactions fees and get 2.5% as cash-back. Why dont you just adopt the EU system where card transaction fees are capped at 0.3%?
Or US tax refunds every year as part of the process. Why not just pay the amount you owe and get on with your day??
People don't see the 3-4% but do see the 2.5%. It leads to a situation where the don't know they're being fleeced but instead see it as an incredible deal instead! On an individual level it makes no sense as the cost is built into the price normally, instead it has to be government enforced changed, good luck with that in this presidential term!
One isn't being fleeced if they use a Chase Freedom card when the quarterly bonus category is grocery stores, they earn 5 Ultimate Rewards points (5%), and then turn around and convert the points to cash at a penny a point, barring a better redemption such as transferring the points to an airline partner.
And 2.625% is the lowest cash back amount one should settle for when using a cash back card for "other" purchases;...
One isn't being fleeced if they use a Chase Freedom card when the quarterly bonus category is grocery stores, they earn 5 Ultimate Rewards points (5%), and then turn around and convert the points to cash at a penny a point, barring a better redemption such as transferring the points to an airline partner.
And 2.625% is the lowest cash back amount one should settle for when using a cash back card for "other" purchases; things like restaurants and travel categories usually earn 3.5%
For the arithmetically challenged, 5% - 4% = 1%, so one comes out at least 1% ahead; as well, there isn't a major retailer around who will give a discount equal to the interchange fee for paying cash. Those days ended in the 1970s. If interchange fees magically disappeared, retailers aren't going to pass on their lowered costs to the consumer; it was proven to be so when interchange fees were capped for debit cards - No one gets a lower price for using a debit card rather than a credit card.
@Gentleman Jack Darby
‘If interchange fees magically disappeared, retailers aren't going to pass on their lowered costs to the consumer; it was proven to be so when interchange fees were capped for debit cards - No one gets a lower price for using a debit card rather than a credit card.’
YES!!! Your comment here is so spot on. I remember back in the days when debit cards had some good benefits before Senator...
@Gentleman Jack Darby
‘If interchange fees magically disappeared, retailers aren't going to pass on their lowered costs to the consumer; it was proven to be so when interchange fees were capped for debit cards - No one gets a lower price for using a debit card rather than a credit card.’
YES!!! Your comment here is so spot on. I remember back in the days when debit cards had some good benefits before Senator Durbin killed it with the passage of his bill. It was good for the businesses but not good for the consumers. Won’t be surprised if he did it in order to appease the lobbyists that support him with campaign donations.
@JJ but the American consumers are not paying the three to four percent transaction fees. It is the businesses that pay that.
Also, as a result of the transaction fees banks and credit card companies are able to offer the American consumers the benefits such as top tier diamond status with Hilton and those huge welcome bonuses and this is what you Europeans complain about because many European readers here have said that their...
@JJ but the American consumers are not paying the three to four percent transaction fees. It is the businesses that pay that.
Also, as a result of the transaction fees banks and credit card companies are able to offer the American consumers the benefits such as top tier diamond status with Hilton and those huge welcome bonuses and this is what you Europeans complain about because many European readers here have said that their co-branded CCs offer so minimal when compared to the American credit cards offers.
@Stanley C: Thank you for the kind words but I have to take exception:
"@JJ but the American consumers are not paying the three to four percent transaction fees. It is the businesses that pay that."
At the end of the day, a business, if it is to stay in business, must recover all of its costs and, especially with retailers, that's the end consumer. So consumers do pay the interchange fee.
However, it does...
@Stanley C: Thank you for the kind words but I have to take exception:
"@JJ but the American consumers are not paying the three to four percent transaction fees. It is the businesses that pay that."
At the end of the day, a business, if it is to stay in business, must recover all of its costs and, especially with retailers, that's the end consumer. So consumers do pay the interchange fee.
However, it does me no good to pay for the trip to a retailer with cash because, absent a discount, I'd be paying more than if I used a credit card and earned healthy rewards, either cash back or transferable points. In other words, it's foolish to pay cash or use a crappy rewards card because one gets nothing or little of the interchange fee that's already baked into the cost of the goods that I buy.
Senator Durbin and his five co-sponsors of S.1838 - Credit Card Competition Act of 2023 are right in one respect:
People who pay with cash are subsidizing the rich rewards of those who pay with top-shelf credit cards because the interchange fees are baked into the cost of goods that we all buy. And the retailers aren't going to give it back in the form of a price reduction if S.1838 becomes law - the retailers got the cash and they ain't giving it back.
Yup, I’m sure you’re coming out ahead and it’s corporate America that is getting fleeced.
On an unrelated note, I have a Pacific island that I’d like to sell you…at a great price!
@Gentleman Jack Darby you are right. I agree that the interchange fee is included in the cost of the item that the consumer wants to buy. I guess what I meant was that we do not overtly pay the fee but it is mixed in with the item cost. Regardless, businesses do make us pay for that in the end.
Yet, what @JJ is not getting is that if they cap the credit card...
@Gentleman Jack Darby you are right. I agree that the interchange fee is included in the cost of the item that the consumer wants to buy. I guess what I meant was that we do not overtly pay the fee but it is mixed in with the item cost. Regardless, businesses do make us pay for that in the end.
Yet, what @JJ is not getting is that if they cap the credit card interchange fees like the EU does as JJ suggested there will be a huge change in the credit card rewards ecosystem for us in America. Sayonara to the huge welcome bonuses and the benefits and parks attached with it. OMAAT and other blogs would seriously need to find other articles to write about because they are not going to get the welcome bonuses to help pay for the flights and hotel stays.
What I'm saying is that the welcome bonuses and other benefits are not a free lunch. You are paying for it one way or another. I understand this is intrinsically built into the US retail and payment economy so there isnt an easy fix. But that doesnt mean its a good system. As we are clearly seeing from the airline business model, at the end of the day it only benefits the businesses. All the...
What I'm saying is that the welcome bonuses and other benefits are not a free lunch. You are paying for it one way or another. I understand this is intrinsically built into the US retail and payment economy so there isnt an easy fix. But that doesnt mean its a good system. As we are clearly seeing from the airline business model, at the end of the day it only benefits the businesses. All the customers are being taken for a ride.
Not to mention the impact it has on the poorest and most disadvantaged sections of society who tend to pay for things with cash and, as a result, get the worst deal of all.
I agree that welcome bonuses and other benefits are not a free lunch but if you don't play the game, you lose big(ger) since no significant retailers offer goods or services at at a cash price with a discount equal to their interchange fee. That would be fairly difficult to do since cards with rich rewards (think Chase Sapphire Reserve) have higher interchange fees than those with lesser benefits. Unless one comes out ahead by...
I agree that welcome bonuses and other benefits are not a free lunch but if you don't play the game, you lose big(ger) since no significant retailers offer goods or services at at a cash price with a discount equal to their interchange fee. That would be fairly difficult to do since cards with rich rewards (think Chase Sapphire Reserve) have higher interchange fees than those with lesser benefits. Unless one comes out ahead by paying cash, there's no point in doing it given the inconvenience and the risks.
So the folks who pay with cash are not re-capturing any of the interchange fees that are built into the cost of goods and are in effect subsidizing those who use cards with rich rewards structures.
About the only retailers who are offering discounts for cash are some gas stations but the discount isn't even close to what I earn in rewards, not to mention the inconvenience of paying with cash, so paying cash for gas isn't an option.
Few economic activities are a zero-sum game and while businesses do benefit from the current card system by increased sales and increased security of the transaction, customers benefit as well by being able to buy goods they may not otherwise be able to afford, increased security of the transaction, and getting "a little more" for their money in the form of rewards. It's not a "card I win" for the retailer and "card you lose" for the consumer type of transaction.
Further consolidation in the industry is lazy thinking and will not guaranty profitability. If consolidation did result in such profitability
United/Continental
Delta/Northwest
American/UsAir
Would all now be profitable.
You forgot Southwest/ATA
Any well-run business is continuously evolving. I find the whole "airlines don't make money by flying" to be a snarky oversimplification (mostly promulgated on other blogs, not here, to be fair). The miles programs are money-makers that subsidize the cost of flying. Without them, ticket-prices would more-closely reflect price levels from the dawn of deregulation (inflation-adjusted).
If the cards business changes and the limits on monetizing product are reached, fares will simply have to...
Any well-run business is continuously evolving. I find the whole "airlines don't make money by flying" to be a snarky oversimplification (mostly promulgated on other blogs, not here, to be fair). The miles programs are money-makers that subsidize the cost of flying. Without them, ticket-prices would more-closely reflect price levels from the dawn of deregulation (inflation-adjusted).
If the cards business changes and the limits on monetizing product are reached, fares will simply have to rise consistent with the demand for the product that can actually be sold (today, that's miles+transportation+premium extras--tomorrow, could be just a component of that, or maybe something new added). Without the miles program subsidies, demand may very well be lower than today and the industry could shrink and/or require futher consolidation to remain healthy.
This is probably one of the most important questions of the next decade for the airline industry as a whole. If there truly is a recession in the next 18 months, we may see who comes out of this still standing. Margins are incredibly thin and it only takes an event like that or credit card companies like Amex, Chase or Citi to stop cutting massive checks to these airlines in exchange for miles to really see if the big 3 airlines are too large to fail.
Fundamental question: In the CASM/RASM calculation, if United is closest to breaking even and Delta is negative on the profit equation, how is Delta most profitable? Did you just mean to say that they generate the most revenue? Unsure if the profitable claim holds (again, just based on that equation).
Delta is the most profitable despite their lower CASM/RASM because they make more from their frequent flyer program and partnerships (such as their partnerships with Amex). That income helps make up for their losses from operating their schedule, and is large enough to put them ahead in profitability compared to all other US airlines.
If the US/world economy is really going to shrink in the next few years, its going to expose unprofitable/inneficient businesses, so I would not be surprised to see some names go under or merge. The only factor that can help airlines is fuel prices, if we really are going to have a huge downturn, oil prices usually go down.
A thoughtful article...thanks. I think Delta has led the industry in raising labor costs so high that if something happens like a bad recession or loss of credit card income....we will see a new round of bankruptcies in the majors. The smaller airlines, with the exception of Alaska, are already struggling.
As far as a new business model emerging I guess we will all be entertained by the changes at Southwest. It could be dramatic and not necessarily good.
Shareholders don't "subsidize" unprofitable airlines; they're businesses owners who have chosen to own shares in an unprofitable business.
We're also looking at a period of isolation which is going to have downward pressure on global travel. Since this is where the Big Three make a ton of their revenue, I think we're going to see some bad times for the aviation industry. As reflected in recent stock plunges
Absolutely this. I think it's irresponsible to even respond to this question without considering the immediate- and near-term effects of what this administration is doing to the US' reputation abroad. Independent of whom anyone voted for, you'd be lying to yourself to remotely think the US is in good standing with any of the economic powerhouses that partially fuel our airlines - specifically Europe. And with tariffs and the costs of goods about to increasing...
Absolutely this. I think it's irresponsible to even respond to this question without considering the immediate- and near-term effects of what this administration is doing to the US' reputation abroad. Independent of whom anyone voted for, you'd be lying to yourself to remotely think the US is in good standing with any of the economic powerhouses that partially fuel our airlines - specifically Europe. And with tariffs and the costs of goods about to increasing accordingly, fewer Americans are going to be willing/able to travel given the costs to fly versus the costs to merely live. Airlines will have to figure out a way to make up for the decrease in RASM *and* revenue from loyalty programs as people simply cannot afford to travel medium or long distances. Can corporate travel keep them afloat while the US makes more and more enemies? Especially if companies start to feel the pinch, too. I work at a FAANG (or MAANG, if you wanna recognize Meta instead) and we are severely travel restricted right now in general and we haven't even begun to feel the squeeze from external boycotts, tariffs, DOGE actions, etc.
Global travel will be fine, this will be a very US-specific issue. Tourism to the US will probably tank, and US customers will not have money to travel abroad. But the rest of the world will keep travelling, just to different locations. From the global perspective, I think the only market outside the US that may have a problem is the EU, where some airlines put all of their chips on TATL. Of course they...
Global travel will be fine, this will be a very US-specific issue. Tourism to the US will probably tank, and US customers will not have money to travel abroad. But the rest of the world will keep travelling, just to different locations. From the global perspective, I think the only market outside the US that may have a problem is the EU, where some airlines put all of their chips on TATL. Of course they can realocate the capacity elsewhere (as much as bilaterals allow), but that essentially means Asia, except for a few routes to Canada, and airlines like BA simply can't compete against Asian airlines. They have set themselves up as a TATL lowcost, penny pinching, cutting service and getting away with it because they can do direct high frequency LHR to US service. When that business tanks, they can add Asian frequencies instead of the removed US frequencies but who's gonna buy them when you can fly CX, EK, QR, etc.
The global market will be fine. Most airlines will actually boost their revenue as the money from US travel will shift elsewhere. It's only the airlines that relied on the US market too much that will suffer.
I think a notable thing not addressed here is how high interchange rates are in the US (I think it’s about ~2% vs 0.3% in EU). With politicians and regulators teasing with the idea of capping the rates that posed a huge risk to the points business and banks ability to buy points from airlines to offer as rewards
I agree it's a huge risk to the current US model of frequent flyer programmes. In Australia when interchange rates were cut back by the RBA, points credit cards were pared back and offered fewer points per dollar spent, or monthly caps on points. But both our mainline airlines still have profitable programmes. People still grumble about them and look enviously at award flights in the US, but would be horrified if status or buying...
I agree it's a huge risk to the current US model of frequent flyer programmes. In Australia when interchange rates were cut back by the RBA, points credit cards were pared back and offered fewer points per dollar spent, or monthly caps on points. But both our mainline airlines still have profitable programmes. People still grumble about them and look enviously at award flights in the US, but would be horrified if status or buying a seat at the pointy end didn't get them lounge access.
But that still points to the need to change your business model if the operating environment changes, in the frequent flyer space as well as their aviation operations.
As long as they stay above water and aren't stagnant, they'll be fine. If however an airline - or any other business - gets complacent, they'll go the way of Pan Am. One hopes that the network carriers are already trying to figure out their next moves, though if their ability to handle IROPs is any indication, they probably aren't.
JetBlue, Spirit, Frontier, and most likely, Alaska will all have to merge. Same for WN. Their days as independent carriers are not long. In all likelihood, it will look something like this:
NK/F9 finally combine.
B6 is acquired by AA, with some assets divested, and sold to UA.
AS is absorbed by DL.
WN is acquired by UA.
American Airlines absolutely must re-invent itself and create the same illusory marketing scheme that...
JetBlue, Spirit, Frontier, and most likely, Alaska will all have to merge. Same for WN. Their days as independent carriers are not long. In all likelihood, it will look something like this:
NK/F9 finally combine.
B6 is acquired by AA, with some assets divested, and sold to UA.
AS is absorbed by DL.
WN is acquired by UA.
American Airlines absolutely must re-invent itself and create the same illusory marketing scheme that DL and increasingly UA have mastered and that is creating the absurd concept of the "premium" airline, of which neither are. American has to find ways to drive more revenue from fees and upsells, because not a single airline in the US makes money selling tickets and moving passengers from A to B or through B to get to C.
The US economy is headed for a massive and lasting recession, accompanied by a long period of stagflation. The industry is staring down the same economic challenges that perpetuated consolidation in the late 2000s on. The newly enlarged US3 post all these mergers will also cut deeply into their networks and employee ranks. The world is turning away from America, politically and economically. America will be an island onto its own pretty soon and the demand for travel to and from will be sharply reduced for a long period of time. Buena Suerte!
Completely agree. The US's days as a global economic power are over, matching its dwindling political influence. And that's a good thing.
Incorrect @mercuryrising
Only to provincial, stupid MAGA idiots like yourself.
That's a very interesting take. I could see the United States funding or taking a controlling stake in either one of the big 3 to keep it afloat. Make the airline cut down to their top 30 most profitable and frequent routes and then cut the rest.
I also wouldn't rule out Boeing being gobbled up by the government either. They are one of the most important pieces in all of this.
Absolutely not! The US Government using taxpayers money should not get involved. It's capitalism - sink or swim. Privatization is supposed to be so wonderful and efficient and government can't run a business we are told. Well here you go. Sort your own mess out.
Sadly it's all fun and games until the government is staring down a major recession caused by the failure of an entire industry. In all seriousness, if the airlines are unable to be profitable, they should be nationalized. At least then the profits can go back into improving the service and the infrastructure supporting it, rather than to shareholders playing Wall Street bets.