Making airline coalition frequent-flyer programs profitable: An analytical investigation

Xingchen Guo, Changmin Jiang, Siming Jiang and Huanxiu Guo

Transport Policy, 2023, vol. 141, issue C, 245-262

Abstract: This paper investigates the conditions for airline coalition frequent flyer program (FFP) to exist. A stylized economic model is proposed to analyze both stand-alone and coalition FFP. With the help of numerical analysis, we identify the profit-maximizing conditions for both types of FFP and recognize critical thresholds for a profitable coalition FFP. We find that a coalition FFP would not be profitable if the reward value were far less than the total price of airfare and partner product. In addition, the optimal reward of a coalition FFP will increase as the total price rise. Finally, coalition FFP is unlikely to be more socially efficient than stand-alone FFP. Based on the analytical results, we provide policy implications and highlight the importance of optimal rewards, partner price coordination and market supervision for the successful and profitable airline coalition FFP.

Keywords: Loyalty program; Coalition program; Frequent flyer program; Airlines (search for similar items in EconPapers)
JEL-codes: L11 L14 L22 L93 R48 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:trapol:v:141:y:2023:i:c:p:245-262

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DOI: 10.1016/j.tranpol.2023.07.008

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