Last month I posed the question as to how much airlines compensate one another for award tickets. We’ve seen several massive award chart devaluations lately, and possibly the most painful was United’s, whereby they created a new prohibitively expensive award chart for travel on their Star Alliance partners. In some cases first and business class redemptions on partner airlines went up by almost 100%, which begs the question of what it truly costs an airline to purchase space on a partner carrier, and what impact that might have on award pricing.
So how much do airlines really compensate one another for award tickets? How much does US Airways pay Turkish for a transatlantic business class seat, versus what United pays Lufthansa for a transatlantic first class seat, etc.?
While I don’t have the formula, I can share some general information that I’ve been able to get my hands on, and I think in some cases the amounts might really surprise you.
Before I share some data points, there are a few things to keep in mind:
A lot of award ticket expenses are just accounting exercises.
- Keep in mind that with most award tickets, money isn’t actually changing hands.
- For the most part airlines are hoping to roughly come out even at the end of their accounting periods with partner carriers.
- This is why a while back US Airways started blocking Lufthansa award space — there was too much of an imbalance of payments to the point that they felt it necessary to start cutting off Lufthansa award space.
Airlines seem to be compensated for award seats on a per segment basis.
- When you book a paid ticket with connections, typically the fare is still only being charged between the origin and destination, and then revenue is being allocated per segment.
- Interestingly airlines seem to charge one another for award segments on a per segment basis.
- For example, on a paid ticket it might cost the same to fly Washington > Los Angeles > San Francisco as it would cost to fly Washington > San Francisco directly.
- On award tickets airlines are charging one another on a per segment basis, so the cost for such an award would be the cumulative total of the Washington > Los Angeles and Los Angeles > San Francisco tickets.
Reimbursements vary by carrier, even in the same regions.
- This raises a lot of questions as to how these prices are set, but it would appear that generally airlines don’t charge each other the same amounts for the same types of awards.
- They seem to mostly be in the same range, but for example Lufthansa isn’t charging the same for a business class award from Chicago to Frankfurt as LOT is charging for a business class award for Chicago to Warsaw.
Given all that, any guesses as to how much airlines compensate one another for award tickets?
I have some Star Alliance data points, which I’ll round a bit:
- Singapore > Bangkok in Singapore Airlines business class: ~$35
- Frankfurt > Vienna in Austrian business class: ~$50
- Istanbul > Tokyo in Turkish business class: ~$250
- Tokyo > Bangkok in Thai first class: ~$250
- Vienna > Bangkok in Austrian business class: ~$300
- Washington > Brussels in Brussels Airlines Business Class: ~$300
- Warsaw > New York in LOT business class: ~$350
- New York > Tokyo in ANA first class: ~$450
- Los Angeles > Frankfurt in Lufthansa first class: ~$1,000
Damn, those are low amounts!
Lufthansa’s reimbursement amounts seem in line with what I was expecting, but other than that the premium cabin reimbursement amounts are lower than what a coach fare would cost in virtually all markets.
$450 for first class on ANA between New York and Tokyo? No wonder they hardly release any award space!
And this raises an interesting question, in my opinion — why the hell would airlines release any award space to partner airlines, other than to “play nice?”
An ANA longhaul first class redemption is costing partners less than $500!