Airline loyalty programmes are fascinating.
Not just because we happen to have enough frequent flyer points with one airline to fly around the world, but instead because of how they completely changed the business model of airlines.
Essentially, many Airlines’ frequent flyer programmes have a valuation several times higher than the airline itself. Even though the Airlines own the frequent flyer programmes.
In many cases, the loyalty program is actually the only way that the airlines can make a profit.
Simply selling a ticket to someone, in order to transport them from Place A to Place B simply does not bring in enough revenue.
But by selling their loyalty program frequent flyer miles to banks, credit card companies, car rental firms, hotels and supermarkets, the airlines have found an almost guaranteed way to make a profit from their tickets.
In effect, most major airlines have a business model which is more like a bank than a transport company. And the way that they use the sunk cost fallacy is especially interesting.
This video does an excellent job explaining the whole process. If your company is ever thinking of new ways to make money, perhaps it will inspire you.
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