How much does your award cost the airline? It does, after all require fuel, service and food (sometimes) to get you from point A to point B.
As of April 1, all publicly traded companies, including the airlines, were required to submit annual reports to the Securities and Exchange Commission. Frequent flyers should be particularly interested in the accompanying 10-K forms, which provide an overview of the company’s business, and lay down some facts about the loyalty programs, including the nitty-gritty on the number of awards used and how much they cost.
American seems to be the most efficient, recording 9.3 million outstanding awards, and setting aside $1.2 billion to pay for them.
In simple terms, American thus estimates that a domestic roundtrip will cost them about $12.90. This is in fairly stark contrast to Delta and Northwest, which estimate their costs at $16.01 and $16.57, respectively. On average, it seems the cost of your free ticket is about $14.74. That’s a three-dollar drop from 2002.
To illustrate just how profitable a frequent flyer program can be, then, let’s play with that $14.74 figure. If an airline sells miles to partners for 1.5 cents each, and a domestic ticket is 25,000 miles, the airline takes in $375. Subtract out the $14.74, and you’re looking at a tidy little profit of $360.26.
Of course, this is by no means a scientific approach. These numbers don’t factor in all the things you usually pay for with a revenue ticket — airport fees, crew, ground support, maintenance, etc. But they do illustrate the point that loyalty programs are a source of income, not a drain on the airlines.
Overall, award usage was down or remained steady with all carriers except Southwest. Rapid Rewards usage continued to climb steadily, from 1.7 million in 2001 to 2.2 million in 2002 to 2.5 million in 2003.
Surprisingly, award usage on both American and US Airways dropped a full 100,000 in 2003.
While the number of awards redeemed on United stayed constant at 2 million, the percentage of seats those awards took up jumped a full 1.2 percent, from 7.8 in 2002 to 9 in 2003. This makes sense given that the airline cut back its routes in the wake of bankruptcy.
United also appears to be capping its award travel. Though the 10-K doesn’t specifically admit to it, it would explain why exactly 2 million awards were used for three years running.
One unusual fact was that award travel on America West hovered around 2.1 percent of revenue passenger miles (essentially passengers boarded), while the other programs hovered around 7-9 percent. Keep in mind that this number does not necessarily represent the number of seats allocated for award travel, but rather the actual number of award travelers on board.
The full text of the 10-K filings can be found online at http://www.sec.gov.