Over four years ago I wrote a post speculating what airlines compensate one another for award tickets. If you’ve ever redeemed an award ticket, especially for travel on a partner airline, I’m guessing you’ve asked yourself just how much the airline with which you’re redeeming miles has to pay the airline on which you’re flying.
Admittedly cash probably isn’t actually changing hands with every transaction, in the sense that there’s some balance — US Airways Dividend Miles members may earn and redeem miles on United, and the opposite is true for United MileagePlus members on US Airways. So my guess is that it gets pretty close to “balancing out” for many carriers when it’s time to pay up.
But that didn’t stop me from speculating how much airlines are compensating one another. My general thought process was that it had to be enough for it to be worthwhile for an airline to release award space, but nowhere near the cost of an actual seat in that cabin. For example, why else (at least until recently) would Cathay Pacific release two of their six first class seats for award redemptions right when the booking window opens? If they’re getting $100 for a seat on a longhaul I imagine they wouldn’t. I think the question gets even more interesting given United’s recent devaluation, whereby they hugely jacked up redemption rates on partner airlines (which suggests they’re disproportionately expensive compared to booking their own flights, where award passengers could theoretically be displacing revenue passengers), so there’s a potentially high opportunity cost there.
At the time I speculated as follows (and yes, this was during the good old days when Aeroplan had an attractive award chart and no fuel surcharges on partner carriers — oh, how times have changed):
Take Air Canada’s spun-off Aeroplan, for example. I converted 240,000 American Express Membership Rewards points to Aeroplan miles, which I used to book two crazy first class awards.
While I don’t know how much Membership Rewards compensates Aeroplan for the miles, I’m guessing it’s less than a cent a mile, probably closer to .75 cents per mile, so around $1,800-2,400 for 240,000 miles. For that we got two first class tickets to Europe and Asia on multiple world class airlines in some very comfortable suites. But of course that’s not the typical redemption. The airlines count on passengers using miles at the “standard” level with huge fuel surcharges for their own flights that would go out with empty seats otherwise, or sometimes even see transferred miles expire.
But this does raise the question, just how much are the airlines paying each other when it comes to partner awards? In other words, how much did Aeroplan have to pay United, Swiss, Turkish, and Thai Airways for my first class award ticket? I’m betting it’s way more than the amount Membership Rewards paid Aeroplan for those miles. I think it’s safe to say that the cost has something to do with the complexity of the ticket. In this case I would guess that Aeroplan had to pay somewhere in the ballpark of $2,500-3,000 per ticket. It’s a guess I’m pulling out of thin air, but it seems about right for a first class international award. The amount has to be enough for airlines to be encouraged to release first class award inventory, while not being so much that the airlines can’t afford to pay (minus United, of course). I’m guessing coach awards are substantially cheaper, probably around $400-500 per ticket to Asia.
So it appears as if I may actually have an interesting data point to share. I was talking to a friend last week that was able to take advantage of the Singapore Airlines premium cabin booking glitch from last July. As some of you may recall, those that booked a route in first class that was later switched to an A380 got booked in Suites Class, which is the first class equivalent on the A380. However, due to the way the rebooking happened, passengers got rebooked in a revenue fare class, since there wasn’t a corresponding award fare class at the time.
What’s interesting in this case is that my friend had his KrisFlyer account number on the reservation for a one-way San Francisco to Singapore flight (via Hong Kong), and KrisFlyer has a revenue calculator in terms of qualifying for PPS Club status. In this case the one-way Suites Class flight posted ~$1,300 in revenue towards PPS Club status. So it could be a coincidence or not actually significant, but that’s exactly in the range of what I predicted redemption costs would be over four years ago.
Admittedly it probably varies by airline and route, though I found it an interesting data point as it’s the first time I’ve seen any concrete number.
What do you guys think? $1,300 for a one-way first class redemption between the US and Asia sound like what you were expecting?