Why airlines go too far to earn your loyalty
Delta Air Lines is joining the “buy now, pay later” craze, a new ripple in a wave of airline marketing programs designed to build customer loyalty before what experts say could be the busiest travel season ever.
Why is this important: Frequent flyer programs are huge revenue streams for airlines, and this year’s pent-up travel demand gives them a rare opportunity, when habits are up for grabs, to boost their brands’ “visibility” and diversify. their income.
What is happening: Delta’s new “buy now, pay later” option allows customers to create a fixed, interest-free monthly payment plan if they book their flight using Delta’s co-branded American Express credit card.
- The payment option follows Alaska Airlines’ recently announced subscription service, which allows customers to pay as little as $49 per month for six flights per year to select West Coast destinations.
- Both are examples of how airlines are looking to increase their alternative sources of revenue while tightening their grip on consumer wallets.
How it works: Airlines make money by selling frequent flyer points to banks, which then award them to credit cardholders as rewards for purchases such as at hotels and restaurants or for groceries.
- Airlines are paid 1 to 1.5 cents per mile by banks, plus a bonus when new customers sign up for their branded credit card.
- Banks collect the annual fee, but take most of their reduction in the form of “swipe fees” when customers use the cards for purchases.
- The more consumers spend, the more miles they earn for free vacations, upgrades and other perks, prompting them to use the airline’s credit card.
Loyalty programs today go far beyond theft. Delta SkyMiles members, for example, can now earn a Instacart Express Trial up to 12 months and earn miles with every grocery delivery.
- Aeroplan, Air Canada’s loyalty program, allows members to earn points on Uber Eats and Uber Rides through a six month trial from Uber Pass.
- American Airlines now even determines customers frequent flyer status by how much they spend on daily activities, not just how often they fly.
- “Airlines have realized there are a lot more opportunities to make money from these programs than just building loyalty,” David Slotnick, senior aviation reporter at The Airline, told Axios. Points Guy.
The big picture: Loyalty programs, especially branded credit cards, have become increasingly lucrative for airlines.
- Delta said its long-term deal with American Express should pay as much as $7 billion in revenue annually by 2023.
- Some analysts argue that loyalty programs are the most profitable part airline activity, but it is difficult to confirm because few airlines reveal the details of their programs.
An exception to this rule is United Airlines, which has rated its MileagePlus loyalty program at nearly $22 billion in 2020, when he pledged the program as collateral for a debt deal to help weather the pandemic.
- MileagePlus made nearly $2 billion in profit on sales of $5.3 billion in 2019, United said as part of its presentation to bond investors at the time.
- Now United is explore a potential sale of a minority stake in the program, according to Bloomberg.