The numbers are in and American Airlines has reported a profit for the first quarter of 2019. According to an official news release from the airline, the company made a profit of $185 million in Q1 after taxes. This figure also includes net special items. The report goes on to say that other revenue was up 1.9% to $708 million – $14 million more than Q1 of 2018. This, the report states, was due primarily to higher loyalty revenue. In this article we will take a look at how loyalty points are a source of profit for American Airlines.
How it works
For those who are unfamiliar with the world of airline loyalty programs, airlines earn income from co-branded cards. This is done by selling reward miles or points to the issuing bank. The bank/credit card will distribute the miles, either as enticing sign-up bonuses or as part of their rewards scheme for every dollar spent. The benefit to the banks, of course, is the annual fee their customers pay for the credit card as well as the fees taken from merchants every time they use that card. This amusing video below explains the whole system (and how airlines profit) quite well:
In the case of American Airlines within the United States, it works closely with CitiBank to offer a selection of credit cards that allow the cardholder to collect AAdvantage miles. Cardholders will receive 1-2 miles for every dollar spent, depending on the type of expense. From Argentina to Japan, American Airlines also has co-branded credit cards and/or point-conversion-programs in 38 other countries as well. This creates many opportunities for the company to sell points.
Almost pure profit
We know that certain percentage of credit card holders and loyalty program members will let their points expire. We also know that redeeming miles on some airlines for a flight usually requires paying fuel surcharges and other fees. Alternately, some reward mile holders may opt to spend their earnings on merchandise in the rewards catalog at an extremely unfavorable rate. All of this means that when airlines such as American sell points, it is an enormous source of profit. This source also requires very little expenditure and cost to the company. An article by Travel Weekly shows that for 2017, American Airlines brought in an astounding $3.1 billion from AAdvantage program points sales.
In the same article, American spokesman Josh Freed writes in an email response:
Certainly the credit card business is an important part of our revenue…Customers find it valuable because they can redeem miles for travel. You really can’t separate them.
Are you a member of a frequent flyer/loyalty program? How has your experience been? If you have any stories to share about how you beat the system, we would love to hear about it! Leave a comment and let us know.