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How can airlines afford award tickets?
So I’m looking at booking a first class flight from Abu Dhabi to Sydney on Etihad Airways with AAdvantage miles. A one way ticket for this journey would normally cost over $20.000. By going through AAdvantage, I’m going to save $18.000. Cheering!!
How is this possible?
Who benefits a part from me?
And how do the people paying $20K feel about this lol
Well, as long as seats are available, you can pay cash for a ticket. Award seats are controlled – the airline has to make the seat available for an award before you can book it. An airline can choose to make zero seats available for awards if they wish.
Furthermore, airlines have agreement with a predetermined amount of compensation when an award seat is booked. It’s a fraction of the cost but it’s not free.
As David noted, the airlines control the release of award seats. When an airline releases an award seat, they are essentially presuming that the seat will not be sold to a paying customer. By offering it as an award, they are able to maintain the value proposition of their (immensely profitable) frequent flyer programs.
To expand upon this a bit, award seats are essentially the ‘prize’ which induces participation in an airline’s loyalty program (such as AAdvantage or Qantas Frequent Flyer). These programs are a massive revenue centre for airlines. For instance, it was recently reported that Qantas had a market cap of approximately AUD $9B, $5B of which was attributable to Qantas Frequent Flyer.
Essentially, by sacrificing the variable cost of transporting someone on a commercial flight (and even that sacrifice is sometimes not made, considering fuel surcharges), the airlines are able to reap in massive amounts of revenue for their frequent flyer programs, especially from partners like credit cards and supermarkets.
Further, full redemption for award seats is only one part of the equation. For many programs, when an award seat is available on a flight, that same seat is eligible for an upgrade. Programs like Qantas FF and Virgin Velocity limit the types of fares which are able to be upgraded. Therefore, by making award seats available, they are inducing more people to book higher-cost, flexible fares for the shot at obtaining an upgrade.