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Short Summary
Main recommendation: Airlines' frequent flyer programs (loyalty programs) have become the real profit engine, so airlines now function more like banks that issue a proprietary currency than transportation companies. The video argues that loyalty programs are worth more than the airlines themselves, and shows how airlines are willing to lose money on flying itself to prop up these programs.
Key Points
- In 2020, United sought a $5 billion loan and offered its MileagePlus loyalty program as collateral, rather than a stake in the airline itself, because the airline was losing money.
- United's SEC Form 8-K valued MileagePlus at about $21.9 billion, while Delta's and American's loyalty programs were pegged at $26.5 billion and $31.5 billion, far above each airline's market cap at the time.
- In 2018, American earned about 14.42 cents of passenger revenue per seat-mile against 14.85 cents of cost, losing roughly half a cent per mile, yet made $1.9 billion pre-tax thanks to $4.2 billion in frequent flyer revenue.
- Loyalty programs grew from a 1981 American Advantage launch into a profit center after American partnered with Hertz and Holland America in 1982 and with Citibank on a co-branded credit card in 1987.
- Airlines repeatedly changed the rules when programs were exploited, moving from mileage-based earning to spend-based earning and from fixed award prices to dynamic award charts that track cash prices, over roughly the past decade.
Details Worth Noting
- Concrete instructions: The video gives no step-by-step instructions for a viewer to follow. Its only actionable-style point is a general observation for travelers: co-branded credit cards, lounges, and priority lanes are designed to push sign-ups, and before this change, travelers could exploit mileage-based earning by choosing long, multi-stop itineraries, which airlines have since closed off.
- Under the old one-mile, one-point system, a Nantucket flight and a Boston flight of the same distance earned the same 400 points, even though the Nantucket fare was $98 versus $49 for Boston.
- Governments generally do not tax points because they are treated as a rebate on purchases, and business travelers often earn points on employer-paid trips, a benefit that favors airlines.
- Estimated point values were 1.218 cents for Delta SkyMiles, 1.226 cents for United MileagePlus, and 1.416 cents for American AAdvantage, based on five aggregated estimates.
- Power is concentrated: there are only three major U.S. long-haul airlines but many credit card companies, so an airline can switch partners if a card issuer refuses a higher mile purchase price.
Bottom Line
Airlines now earn most of their profit from selling and managing points, so their control over a currency that only they can redeem makes loyalty programs more valuable than the flying business behind them.
