Continental announced today (following both United and US Airways) that they were changing their frequent flier policy to credit frequent flier accounts with exact flown mileage – instead of decades old standard of 500 mile minimum per flight — I figured it was time to show some estimated stats of the impact or potential impact this has to frequent fliers on the legacy airlines:
My methodology was pretty simple:
- I picked a typical day (in this case Monday 8-Sep-2008) and pulled from our worldwide flights database (licensed from OAG) the number of flights, miles flown and seats for all flights less than 500 miles on the legacy airlines
- I then estimated that those flights would be about 3/4 full (load factors actually are higher recently) and about 1/3 of the passengers per flight belonged to the airlines frequent flier program
- The rest is a simple calculation of “miles lost per day” and then a yearly estimate with a value attached based on miles being worth about 1.5 cents
- The assumptions could obviously change but should be relatively close
- It should be noted these numbers won’t completely reflect many of the domestic capacity cuts that are rolling out in the coming weeks and months
Couple of things that caught my eye in the stats:
- The number of US Airways flights less than 500 miles was surprisingly more than I expected
- If yet to be merged Delta/Northwest follow United, US Airways and Continental the miles/value lost would combined be more than US Airways
Those that live and die by the frequent flier mile especially on short haul routes are losing or about to lose a pretty substantial perk.
This is a fantastic data dig!
However, your methodology has a huge flaw: miles don’t cost the airline anywhere close to 1.5c (that’s how much they charge credit card companies etc, but they wouldn’t be the huge moneymaker they are if that was the cost to them!). There’s a fair amount of breakage going on (miles that expire) but, more importantly, airlines give out only seats that they think will go unsold for the 25,000 mile ticket–and their marginal cost (reservation, ticketing, handling, extra fuel for extra 200 lbs, etc.) is minimal. Even using an excessive $100 in extra costs, and forgetting breakage, it would be 0.4c/mile so all your $$ figures in this post are about 4 times too high.
The other cost savings is that they will mint somewhat fewer elite passengers, and therefore a reduction in elite-level bonus miles handed out.
I picked 1.5 cents based on “wholesale cost/mile” as you noted credit card companies and hundreds of other buyers who redistribute miles.
I suspect mileage runners assume their miles are worth about 1.5 cents or so, but I am not married to that number.
Rick–thanks for the clarification, and see how you did it: I misinterpreted the “value lost” (to the flyer) and assumed it was “cost savings” to the airline–two completely different things!