19 Responses

  1. Gary Leff
    Gary Leff at |

    “PMs are a cost center, taking away from the internal accounting balances as the airlines pay themselves internally for the points being issued.”

    This is the most important sentence of a very good post.

    Another way of saying the same thing is that these ‘PMs’ are marketing expense. And airlines don’t think they need to spend on marketing right now to fill their planes. Delta, at least, is probably right.

    That situation will change, this is a very cyclical industry. I’m not suggesting that program structural changes will be undone, I don’t expect that. But overall “generosity” will swing back when the economy falters and airlines need to leverage their programs to try to fight for market share and put butts in seats.

    (And they’ll continue to do this in select markets.)

  2. Geoff
    Geoff at |

    Excellent post. It appears that there might be less competition among airlines but massive competition among credit card companies, for now.
    This will likely reverse itself at some point, but for now this slide seems like a tacit approval of manufactured spend and it’s quieter usual-spend cousin.
    Off to CVS…………..

  3. Darth Chocolate
    Darth Chocolate at |

    Thank you for an excellent post. I now have a better understanding of the financial incentives. This also can explain the cap DL and UA have instituted in 2015 of 75K miles per ticket, regardless of cost.

  4. unavaca
    unavaca at |

    This makes it very clear: if you don’t hold the program’s credit card or aren’t spending a ton on it, you’re going to get steamrolled by CC holders flooding the market with points.

  5. Gene
    Gene at |

    What I find most interesting are the numbers shown. Assuming these are real numbers, am I correct that airlines are selling miles to partners for 1.5cpm, and booking a liability of only 0.6 cpm? Gotta love that arbitrage!

  6. Nick
    Nick at |

    Maybe its not in my own best interest but when when I lose interest in the PM’s I also lose interest in the CM’s. Delta miles have been dirt to me for a while, I’m just starting to come around to think of UA miles in the same vein. I also wont be flying Lufthansa business class quite as much – thats OK.

  7. Jeff
    Jeff at |

    The danger though is consumers perceive the amount they earn from program miles higher than what they actually receive.

    So someone who flies twice a year doesn’t earn many miles under the current distance or the new revenue based programs.

    But when they hear their earning from flying will go down dramatically there is a risk they don’t want to participate on the commercial side, even though their total earn doesn’t decrease much.

    Don’t think the airlines have fully considered that second order effect on their co-brand products.

  8. Anh
    Anh at |

    What does APM stand for in this context?

    1. yuneeq
      yuneeq at |

      Seems to be Average Price per Mile.

  9. Why Skymiles and MileagePlus are Getting Out of the Airline Business and Why Partner Earning Matters More in 2015 - View from the Wing - View from the Wing

    […] were cost centers and miles earned from sales to third parties were much more profitable. (See Wandering Aramean on this as well) United’s director of partnerships David Oppenheimer explained at the same conference […]

  10. Feedly issues, Blog Networks, Sears Double Dip, PM and CP, Thailand, Saigon, World Cup 2014 in Brazil, Jokes, Gym etiquette, Blog Frontline Report | TravelBloggerBuzz

    […] The Two Types of Award Points. By the Wandering Aramean. We are finally hitting some new terminology that now makes so much sense: PM=Program Miles (from flying) and CM=Commercial Miles (Banks.etc). No Chase Ink Bold links to be ambushed with here, come in lol. […]

  11. Nancy
    Nancy at |

    Great post! Thanks! Helps to put the recent changes into perspective.

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  13. ffi
    ffi at |

    Seen in this context, you can see why DL loves someone who spends 220k on their cards
    220k miles + 100k bonus miles = 4500$ pure profit to them from CM sales.
    Add the annual fees (of which they get a cut) = 175+175+450+450 = 1250$ more of which they get 500$ at least so now they get 5000$ from this customer.
    If he does fly a bit, very little added cost to DL for the benefits (if upgraded, he pushes out a customer below him only)
    If he never flies and cashes out for gift cards at 0.1 c each = 3300$ out = still a profit of 1700$ to them for the customer
    If they flew to DC more as they used to and if they restore the AF relationship to wideopen availability, I would get back to DM, but for now, meh!
    That is the problem with CM from partners, the “reward” has to be attainable and “worth it”.

  14. On March 1, 2015 RDMs Will Be Calculated by Spend, Not Distance, for UA MileagePlus - Page 137 - FlyerTalk Forums

    […] aka Seth wrote what I think is the must-read post of them all on this topic. Here is the link: http://blog.wandr.me/2014/06/the-two…-award-points/ He explains how the industry looks at it and cites a recent presentation to that effect. […]

  15. Michael
    Michael at |

    “CMs are a revenue source for the programs; the partners are buying the points at a rate which is generally very beneficial to the airlines. PMs are a cost center, taking away from the internal accounting balances as the airlines pay themselves internally for the points being issued.”

    Good post that describes the current landscape well.

    The sentences I and others quoted above is the key, and the fallacy in the airlines’ thinking. Classic bean-counter mentality: it’s easy to see the revenue associated with miles that they sell to banks. But the benefit in awarding miles to flyers is indirect, long-term, hard to quantify: namely, increased incentives to fly more, purchasing of higher fare classes to earn more miles, an increased incentive to use the credit card in the first place, loyalty to the carrier, etc. Of course the ROI is much harder to calculate.

    As another poster analogized, these are like marketing expenses. By extension of the airlines’ logic, they could eliminate all marketing since it’s only a “cost center.” This type of thinking dooms many businesses (or further continues the death-spiral in which they find themselves when they have no choice but to cut direct expenses), and perfectly typifies UA management these days. Let’s hope, for the stockeholders’ sake, that their gamble is correct.

  16. The future of Elevate as told by Virgin America's S-1 filing | Wandering Aramean

    […] way to go for Virgin America to truly build up a strong membership base with the Elevate program, particularly one to which they can market points via third-party partners to drive non-flight […]

  17. Parker: "To try to change the program (to revenue based) right now would be foolish." - Page 6 - FlyerTalk Forums

    […] rather you got 100,000 RDM by using the co-branded credit card than actually flying the airline? Not kidding. The airlines really do think […]