Rewards programs are good business models to keep consumers loyal to a brand. Airlines use frequent flyer programs to deliver additional value to customers without having to incur additional costs. However, many passengers might be wondering why frequent flyer programs frequently change the rules of their benefits. A couple of business professors gives us the down and dirty about frequent flyer programs.
Essentially, airlines don't make much profit from ticket sales, they say. Instead, they get the most value from baggage fees, ticket change fees, and frequent flyer programs. You may wonder, how do airlines make profit from frequent flyer programs?
For one, the annual fees in maintaining a rewards credit card gives them extra revenues for a very low cost. Another is the interest that accumulates from unpaid balances when using the rewards card. So, the best way to maximize profit is to induce people to keep using these rewards programs.
However, they keep changing the rules depending on economic conditions. Airlines companies need to find the right balance on when to apply stricter rules for their frequent flyer programs and when to relax them. That's why during the pandemic era, they changed the rules to reward people based on the miles they've traveled versus dollars spent, since there were fewer people traveling anyway.
But now, since the world has returned to a more normal state, they have tightened the rules again. So, the business professors suggest that if you plan on getting a rewards card, get one that gives cash back, instead of airplane miles. At least you can use the cash for something else.
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