Frequent-flyer schemes provide airlines with a lifeline

WHEN EXECUTIVES at American Airlines unveiled the world’s first frequent-flyer programme 40 years ago, they probably didn’t imagine it would one day be worth more than the airline itself. Last year analysts valued the scheme at around $18bn-30bn, eclipsing the company’s current market capitalisation of $12.9bn. Such programmes have proved a boon to American carriers in the pandemic. Firms including American Airlines have raised $30bn in debt backed by the schemes.

Airlines once hoped simply to foster loyalty by offering customers freebies. Passengers collected miles as they travelled and were awarded a free flight once they racked up enough of them. But schemes today are far more sophisticated. Airlines profit by selling miles to credit-card firms at a price that exceeds the cost of providing reward flights and dishing out other perks, such as hotel stays. They also gain when miles expire unused or are cashed in for something of poor value. According to McKinsey, a consultancy, 15-30% of miles expired unused before the pandemic.