An examination of the revenue generating capability of co-branded cards associated with Frequent Flyer Programmes

Celia Nadal Reales and John F. O'Connell

Journal of Air Transport Management, 2017, vol. 65, issue C, 63-75

Abstract: The Frequent Flyer Program (FFP) is fast changing the scope of ancillary revenues. The sale of miles to third-party partners has epitomised the revenue generating capability of FFPs, which has yielded co-branded credit cards as a prominent instrument in substantially boosting earning streams. This study triangulates the tripartite composition of airlines, banks and payment networks that formulate the sale of miles and the resulting value that accrues. A survey was conducted at a prominent commercial conference devoted to the subject area, along with secondary data to ascertain the financial impact of today's FFPs and to investigate the underpinning factors as to how they are producing such stellar incremental revenue streams. The findings indicate that there are a low number of active FFP members, while one-third of new members signup for a co-branded credit card. The hierarchical tier structure supporting the compositional framework of FFPs has a significant impact on membership levels and loyalty engagement. A large proportion of ancillaries now evolve from airline co-branded credit cards which have significantly contributed in propping up the overall value of FFPs. Banks are distributing record numbers of airline co-branded credit cards where the top tier segment spend heavily, while a substantial proportion of such rewards cards now propagate through the payment networks. The symbiotic commercial partnership that is being forged between airlines and banks is prodigious and the industry has engineered a tool that harnesses noticeable returns which can significantly assist in sustaining the financial future in an ever changing landscape.

Keywords: Frequent Flyer Program; Ancillary revenues; Co-branded credit cards; Airline partnerships (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaitra:v:65:y:2017:i:c:p:63-75

DOI: 10.1016/j.jairtraman.2017.08.001

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