How Airlines Quietly Became Banks
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- čas přidán 13. 12. 2021
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Writing by Sam Denby
Editing by Alexander Williard
Animation by Josh Sherrington
Sound by Graham Haerther
Thumbnail by Simon Buckmaster
References:
[1] americanairlines.gcs-web.com/...
[2] ir.united.com/static-files/1c...
[3] www.researchgate.net/publicat...
Select footage courtesy Getty and AP; Select imagery courtesy Geolayers; Select music courtesy Epidemic sound
"Airlines are credit card companies that fly planes as a side hustle"
I heard this saying over a decade ago and it has only become more true over time.
Kind of like how Mc Donald's is the world's 7th largest real estate business (as of 2020), with burgers as a side hustle, which btw, is the largest fast food company. It's madness.
That's true of many stores that offer credit cards as well.
@@akshatsharma8787 Or Starbucks also being a weird pseudo-bank
Same with car companies, they're just banks that sell cars on the side. Honda Financial, etc.
@@nathanlevesque7812 The crazy part is it's all cash, they are basically holding it without having to pay out interest.
I work for one of the big three airlines. During our last bankruptcy they liquidated our pension. They said they had no assets of value to keep it funded. Our union pointed out that the loyalty program was worth billions. They disagreed saying it had no value that they could use to leverage any money from. Flash forward to 2020 and it is somehow now worth enough to secure billions in loans!
Go figure...
Sounds worthy of a lawsuit.
@@smileychess we did do a lawsuit. As you could imagine we lost.
Ah, good ol "fraud where no one actually has standing to sue"
@@enugomontoya6050 You did a lawsuit *after* the rewards valuation was made public this past year?
I love to live in a normal economic system in which every major company providing an essential services turns into a bank, a police force, a lobbying business or a subcontracting pyramid scheme
Or all at once!!
and become publicly traded so their goal has a total disconnect from all human being in the system :-)
@@brosephstallin9931
That's really truer than you might think. All large corporations are run at the higher levels by high-degree psychopaths, that is by individuals with zero feeling, care, or empathy for their fellow man and willing to do almost anything to obtain the wealth and power these monsters crave. The various legal advantages of the modern corporate system just call out to those types of people. Mega Corporations almost invariably make a system (capitalism) that has real societal risks but also very great societal benefits in to a system that is made to be exploited by human monsters and that will sooner or later verge on the demonic. End limited liability corporations and the world will be better.
For the airlines industry though, it benefits the travellers like me who don't care about fidelity programs. I still get to fly for much cheaper than I would if these programs didn't exist. Otherwise I agree with the general sentiment of the poster.
@@charleselkins4546 what specifically is the reason for llc’s?
Ages ago I had the AA CEO talk at one of my MBA classes. He made this point more than 20 years ago. He pointed out that they pretty much lost money on the airline and made money in the loyalty programme and reservation systems. The only reason he gave for running the airline was that their credibility on the more lucrative parts of their business wouldn't exist unless they linked it to something they held ownership.
Interesting that it has been around for so long, but the last point doesn't maje sense to me. Isn't the essential part of the equation the value consumers put on points precisely because they can redeem them for flights?
@@silembochum3120 You're right, but that already seems to be implied with "the only reason he gave for running the airline was that their credibility on the more lucrative parts of their business wouldn't exist..."
This guy single handedly keeps my interest in planes alive
it's not single handed, behind all these videos there is an entire team, animator, narrator, editor, social media expert, etc.
You should also check out DJ's aviation and Coby Explanes
Yeah it makes my 10 year old self happy
Same here
My interest in planes cuz of him 📈📈
Airline industry is crazy, extremely complicated, no direct source of profit and easily vulnerable to loss.
Videos like these really help in getting insight into the industry.
It's incredible what competition does. Think of the hundreds of millions of people that can afford air travel now because of how it's been structured.
Yeah but think of the million of people who can’t afford it because of the way that it’s structured
No direct source of income? I don’t know where you live but here in the US, it costs me actual dollars when I purchase a ticket.
@@Aqabal Air travel prices (and costs) vary wildly around the world. Airline ticket prices in the USA can be pretty steep compared to other places. At the same time, the cost of flight training in the USA can be some of the cheapest due to the FAA's very friendly attitude towards aviation. Britain's CAA is just the opposite.
@@EliF-ge5bu I think he meant no direct source of profit. e.g. sell $1 of seat revenue, keep $0.20 of profit etc..
I’ve flown a ridiculous number of business miles over the past 10 years, and I’ve only had a vague sense of why things have changed how and when they have. This explanation lines up with ALL of the changes I have personally dealt with.
It’s not just airlines, the situation is very similar with hotels having various credit cards and reward tiers driving their business. Hotels have an average margin of -2% with a handful of big tourist markets sustaining the rest.
WOW! I am 79 years old. I spent my entire life in the airline industry.. First as a mechanic and then as. pilot. I HAD NO IDEA this is what the point program was all about. What an eye opener.
The secret sauce is the secret source
Infact many many industries work like this
@@cedriceric9730 yup. everyone should hire an accountant. keep receipts for EVERYTHING!
Imagine you voted all your life and your choices were similarly blindfolded. Picking a 0 or a 1 based on what they showed you and not what really happening.
Interesting isnt Captain. Respect Sir. One pilot to another
Hence why as a young pilot - I refuse to fly for a pyramid scheme. Cheers, sir! Good bless your efforts.
You forgot the other thing about all gift cards or rewards programs: the points don't always get redeemed. Points can often expire if you stop using earning rewards for a set period of time, usually less than two years. Any time a customer leaves the program for any reason, such as death- their remaining points will probably expire before anyone can use them. Since the airline has already earned the monetary value of the points before they ever get used, that's money in their account which might never need to pay for a plane to fly. I wonder what percentage of points will never get redeemed, but I suspect it's significant.
Working for an airline atm i can say the amount of customers who registers in he program and doesnt even have a clue about it, not inserting his frequent flyer number on their flights or not even being aware that he has those miles is also pretty high
This type of phenomena is what gyms live on
Good point. I forgot about the time limit for points before they expire. You also have people that don’t fly as often as some business travellers do. So they accumulate points but before they can use them the points expire or they travel so infrequently that they never accumulate enough points to do anything with them. I wonder how many credit cards are out there racking up points that will never get redeemed for any of those reasons.
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HE IS A LOVING GOD BUT HE IS A JUST GOD SO HE HAS TO PUNISH SIN!
ITS NOT A GAME PEOPLE, YOU COULD DIE TOMORROW, QUIT PLAYING AROUND, THESE
ARE END TIMES!!! TURN TO JESUS NOW! ASK HIM TO FORGIVE YOUR SINS
STOP PUTTING YOUR HOPE IN THE GOVERNMENT, IN RELIGION, IN SCIENCE, IN
WEALTH, IN CELEBS, IN SPORTS, IN THE WORLD (IT WILL PERISH!)
YOU CAN STAND ON YOUR OWN AGAINST GOD AND TRY TO JUSTIFY YOUR SIN WHEN
YOU WONT EVEN BE ABLE TO LOOK UP YOU WILL BE WEEPING IN TERROR REALIZING YOU
MADE A BIG MISTAKE. YOU WONT WIN AN ARGUMENT WITH GOD, HE CREATED
EVERYTHING!!!
GOD SEES EVERYTHING YOUVE EVER DONE; YOU WONT FOOL HIM!!!
OR
PUT YOUR TRUST IN JESUS WHO DIED ON THE CROSS AND TOOK THE WRATH OF GOD IN OUR PLACE FOR OUR SINS. IT'S A FREE GIFT BUT HE CANT FORCE YOU TO TAKE IT. WILL YOU CALL UPON HIM NOW AND SURRENDER TO HIM. TALK TO HIM LIKE ABEST FRIEND, HE'S WAITING AND HE LOVES YOU.
Turn back to God
Our Creator, not religion. Religion creates bondage, in Christ there is
freedom. Im not talking church, im not talking religion, im talking
relationship with your Creator. Call upon Jesus now and ask Him into
your life and to forgive your sins.
hell is the absence of God Almighty who gives us the breath in our lungs, water, food, sunshine,
love, kindness, patience, faithfulness, hope, rest, help etc.
hell is real and its a place of torment:
you will have to live with all your mistakes, regrets, you will feel all
the pain you caused others...
you be hungry but not be able to eat
you will be thirsty but wont be able to drink
you will be tired but cant sleep
you will have no hope
you will have no rest
you will feel pure hatred towards you (satan and the fallen
angels/demons hate you and want to drag you to hell)
“For the wages of sin is death (hell), but the gift of God is eternal
life in Christ Jesus our Lord” -Romans 6:23
Jesus answered, “I am the way and the truth and the life. No one comes
to the Father except through me." -John 14:6
"But whosoever shall deny me before men, him will I also deny before my
Father which is in heaven." -Matthew 10:33
Good point. Since the pandemic I have noticed, by paying much more attention to my incoming billings many other companies do much the same.The subplots and characters are different but the game is the same.Offer something for nothing, a gift redemption of any sort as a very small increment and it passes beneath the average person's radar.It is human nature really.
Man. Could you imagine being the corporate financiers and economists or whatever the terms are, who sat in offices discussing these things and figuring out in real time that they were about to make absolute massive amounts of money by making small changes like partnering with Hertz
Math majors! They get snatched up all the big industries
@@Robertking1996 Sociopaths! They get snatched up by all the big industries.
@@Robertking1996really math majors??? Why not economics ir bussiness¿
@@aditsaini5094 math majors get taken up at major quant, private equity firms.
@@aditsaini5094 You need to make a math model for every data point (sale, season, stc). So more math and less econ
I swear the way business has evolved is so interesting. I would have never expected things to reach levels this complicated
It's always a great day whenever Wendover posts videos while also carrying the airline industry on its shoulders.
The airline industry needs to die, unless they are willing to convert to all electric within the next couple of years
@@MrJakson112 Lmao
Nickolai The airline industry cant go electric with current battery technology. At best, small short ( < 1.5 hour ) commuter flights are all that is possible. They could use more carbon neutral fuel but won’t without legislation.
@@MrJakson112 ratio then
@@MrJakson112 how will people travel?
The use of era-appropriate stock footage when talking about the past is such a nice touch. I miss the 727
And I think it's Stapleton at 4:45 fitting the theme of working Colorado into a video whenever possible.
I miss the days of editorial gatekeepers who could stop a self-infantalized, corner-cutting little prick from telling the general public over and over again that the job of controlling the US money supply has anything to do with the US Treasury, instead of correctly ascribing it to the US Federal Reserve.
@@CinemaDemocratica
What the fuck are you talking about over and over ?
@@CertifiedSlamboy Strip away CD's insults and the one point s/he is making is correct. The Treasury does not issue dollars; the Federal Reserve does.
@@charlesheld3082
But how is it relevant and why do they keep posting it repeatedly?
What is missing is the Cargo/parcel business which is how they cover the cost of flying.
You deserve more credit for your efforts on making us aware of things most of us easily ignores.
Thank you
I didn’t think there was anything left to cover about airplanes😂
How to make videos on airplanes
You may be right, but luckily there are plenty of things to cover about banks!
Wendover: Hold my beer!
All topics are fractals
Fairly certain if he runs out he'll invent more of these nuisance financial systems to explain them
Feels like wenderover just yet again, tapped into something extraordinary within airline industry
basically his natural habitat isn't it?
And his own, willful, self-infantalized stupidity in once again asserting that the job of controlling the size of the US money supply has anything to do with the US Treasury, when it's actually the job of the US Federal Reserve.
@@CinemaDemocratica it should be the US treasury.. Federal reserve is a private bank... freaking scam
@@CinemaDemocratica why are you so rude
Nope, just illogical arguments. Honestly have you really paid attention to the video??? He's saying airline is losing money just becuase the loyalty program value higher then the market cap. He also conclude that Airline are "owned" by banks because of mile program without showing how much revenue comes from paid tickets.
Very well organized video - subbed!
One minor quibble: Boston can handle a widebody; Nantucket can just *barely* handle a 737-200 on dry pavement so the marginal cost will advantage Boston.
God I forgot how people used to take longer flights for the miles. Wow.
The problem is that this is how the model works for airlines that are in America.
If you apply your miles to a FF program in a foreign country (OW: JL, SA: OS [until they move to OW with the KE merger] or TK) then you aren't bothered with a minimum spend requirement and are incentivized for distance based flights. If you have to go with an airline that is based in North America I would probably go with Air Canada as the minimum dollar spend is valued in CDN rather than USD, thus you typically earn a 30% discount on the status requirements for dollar spend. Foreign airlines also don't *typically* have dynamic pricing in terms of points redemption (see, TK, EK, KL/AF, the list goes on). You can also access domestic flights with AeroPlan, Miles and Smiles, and others. I just started the points game a year or so ago and researched the rules for each alliance (SkyTeam is just pretty awful, especially after the Delta announcement where they basically succumbed to the Amex Plat contract and decided to f*ck over their Frequent Flyers for credit card holders that fly basic economy a few times a year). I also looked at the benefits of the typical "Gold Status" for each alliance. OW and SA are much better than ST, but the benefits and valuation of points for domestic airlines compared to international airlines in those alliances are significantly better, even more so if you are based in the USA and have FF status with a foreign airline. You can often book a flight on a foreign airlines FF program for a fraction of say what United or AA will charge with their own points. Since CCs basically partner with a foreign airline for each alliance, you realize how worthless those United, AA and Delta points are to redeem and are better off redeeming from international partner airlines.
You can also see the difference in service between an US airline versus an international airline. I believe it probably comes down to US based airlines really treating their actual metal service as secondary to the credit card partnership revenue being generated, thus considering actual airline service as a downstream paring down basics of necessity, rather than a primary element of their airline image. This isn't to say that I don't think they're performing their duties adequately, but rather you can tell it's become categorized as something akin to, "how many bottles of water are required for this flight?" and FAs/Pursers being reduced to the bare minimum of function and trying to maximize revenue generation with their announcements of "sign up for this credit card and earn a bonus!".
When I fly internationally, I try to have only *one leg at max* on a US based carrier since it's just so lackluster and medieval. I will gladly spend an extra $200 to $400 a ticket to fly an international airline as they haven't been turned into a subsidiary airline of a credit card, not to mention the food and service being of significantly better quality. I think the *only reason* why airlines have been so successful at this is maybe because people don't actually know how the alliance/benefits work for frequent flyer mile accrual and redemptions. If people basically abandon domestic programs, then the power of co-branded credit cards will no longer make sense for the airlines and the credit cards won't want to keep paying for the point access as they'll be nearly worthless, as they are already.
I traveled for work several times per month for 6 years on Southwest before I left my job... It's been 4 years since I've left and I have been flying all over to visit family and friends, and I am still redeeming those points. By my math I'll be able to attend my nieces and nephews birthdays for at least another 3 years before I run out. Quite the tax free benefit indeed.
I was thinking about that, when Wendover was explaining how they patched their system to avoid exploits for the user, the next nerf could be on points having an expiration date
@@paule.2687 There already is points expiry on some of them.. Aeroplan for example had expiry after 1 year of no activity.. Good thing you can just keep 1 credit card open and you are set..
You must really love flying.
@@paule.2687 Air France & KLM miles , flyingblue program, do expire after a couple of years. Pretty lame. I've lost many for that reason.
@@BisZwo A bank with currency that expires is quite the grift
2018: "Frequent flyer programs are genius financial instruments because its nearly impossible for the airline to lose"
2020: "can i haz bailout plz?"
I genuinely read it as in Ron Swanson's voice 😂
what he should have said its nearly impossible to lose as long as people are actually flying on airplanes. when people stopped flying it nearly destroyed the industry. i work for a major airline and indeed the last few years have been VERY scary and dark but things are slowly getting better
@@killerkram1337 Hang on a second - the Federal Reserve has barely even started tapering their $120B/month asset purchase program. What happens when they start lifting interest rates? Turning an airline into a financial company solely reliant on the expansion of credit makes it very vulnerable when the cost of credit rises and its availability is curtailed. In that case, the liability of all the outstanding points on their miles balance sheets could become crippling to their own operations, so they could take the step of debasing the value of those miles, but then you would see a run on redemptions. Paraphrasing Milton Friedman, inflation is a monetary and flyer miles phenomenon.
@@killerkram1337 Higher oil prices are likely to cause the airline to go belly up. Be prepared for $10/gallon gas.
0:22 The warm fuzzy feeling when you're an aviation geek and you see a stock video clip of your home airport in a wendover production video X3
I have always wondered about the economics of frequent flyer miles and points and so on. Now I know a bit more about how these things work- many thanks for this video! 👏🏿👏🏿👏🏿👏🏿👏🏿
If you saw what goes on in maintaining aircraft, you would think that any airline airfare would be at least $500 per passenger minimum to anywhere.
Add flight diversions, insane passengers, FAA regulations, certifications, fuel contracts, and weather, you will begin to see the monster of this industry.
I don't think anyone wakes up in the morning and says: "I want to run an airline."
There's a pretty classic joke that captures this spirit: "What to you call a billionaire with an airline? A millionaire."
and this low cost of flying will make it harder to sell high speed rail as an alternative.
Funny that you mentioned McDonalds, because the franchise really makes their money from real estate. Franchisees are required to lease property(real estate) owned by McDonalds.
@@terraltheible I guess that would explain why they haven’t gone bankrupt after so long.
@@terraltheible who mentioned McDonald's other than you? Confused.
So the moral of the story is:
If you can turn your business into a bank, be a bank!
Yeah Starbucks already did that. Business is weird.
Better to be a bank than bank-rupt, I always say.
Reminds me of a saying that goes along the lines of idiots rob banks, smart people run one
There's downsides, too, though.
GM thought they were now a financing company (GMAC) that sold cars as a side hustle to give GMAC something to finance. Worked real well, until the '08 crisis, with everybody defaulting on debt. Woulda gone tits up without Uncle Sugar.
At some point, and I'm not even being facetious...The US Department of Education will end up being the largest bank on planet earth due to student loans. They already have like 1.5 trillion.
Great video. I had the feeling that the overall cost of the flight vs profit did not "add up".
This reminds me of Starbucks, which main source of profit is also their loyalty program.
Moral of the story: to beat the bank, you have to become the bank.
Is that roughly to like a gym membership where 50 people actively use the gym but they have 2,000 paying members?
To beat the casino, you need to buy the casino
Starbucks is charging $8 for a $0.50 cup of coffee. Entirely different.
@@penguin12902 taking in account 99% of coffee (At least black coffee) is water. 0.50 seems like a lot
I found your DC to Nantucket vs DC to Boston analogy funny.
Last summer, I was one of the pilots operating the season opening flight from DC to Nantucket for American Eagle.
Aaaaand due to bad weather, we diverted to Boston 😅
I heard those planes practically fly themselves these days. Is that true? Like autopilot for vehicles?
Minor note: the US treasury is not a central bank. The central bank in the US is the federal reserve. The treasury manages the federal government’s finances-the flow of funds in and out-while the Fed manages the monetary policy (supply, interest rates, etc.)
Well spotted. On that point, it occurs to me that while actual central banks have monopolies on their own currencies, airlines operate in an intensely competitive environment for their "currencies". This limits their "power" quite severely.
Had to scroll too far down to find this. This sort of casual disinformation about the Federal Reserve is the reason there is no middle class.
mismanages*
@@reizig no, there is a middle class, it is just smaller than say, 40 years ago, because of austerity. Everyone knowing more about what you say they dont know would not realyl change anything given the emotional aspect of why people vote along certain lines (left vs right, "socialism" is a dirty word applied to think not all that socialistic, etc.).
But sure - the reason is some blah blah blah that you will claim to know better about.
@@xBINARYGODx Took a bit to decipher your point, but I don't think we disagree.
Monetary policy is the actual solution to all the problems people think are unavoidable consequences of our capitalistic society.
You are saying that this knowledge wouldn't change anything, because people are locked up in the artificial left/right divide.
I agree with the overall result, but I see situation as the opposite. People don't know or think about monetary policy as something that we control BECAUSE they are caught up in the left/right divide.
In the same way knowing how a fire is *supposed* to be put out doesn't technically help you if your house is on fire right NOW and there's no water around.
But that's a vicious cycle. If we don't put emphasis on the knowledge just because "shit is crazy right now" and we have too much other shit to worry about, then we're doomed to forever treat symptoms instead of the root cause.
In other words, we are too busy getting angry at each other to realize we all have a common enemy and there are actual solutions to the problem.
Also, I know the middle class isn't *completely* gone from a technical standpoint, but you know what I meant. The dollar is worth less and the wealth gap is increasing.
And the wealthy don't USE their money. It sits in accounts so they can measure their value against other rich people.
It's unfortunate that the yardstick the .01% uses to measure their dicks is the same currency the rest of us need for food and rent.
This channel is the greatest asset to the aviation industry right now.
Idk, seems like he just informed the public that it's silly for them to do the only thing that makes airlines money
This video is literally exposing their financial practices and why that might be problematic
Literally the opposite of what you just said is true. Pretty much all this dude does is roast the airline industry
I think you don’t know what “asset” means
Then you need to learn what aviation is.
Well explained from a interesting angle. The point system between airline and partners, the earning miles form business travel, and the dynamics pricing, make a center bank free of tax and control. This is what I leaned.
I absolutely love these Wendover Productions videos. They are so interesting and insightful. I can't think of another CZcams channel I like more. Keep up the great work!
Love the vintage airport b-rolls. A different era!
So lets say the airline goes bankrupt, can't pay back the loans, the bank gets the loyalty program of a bankrupt airline instead. What exactly is the bank going to do with the loyalty program to turn it into $20 billion?
Exactly why this video is misleading
Could they sell the program enrollees to another airline?
Bank defaults, gets bailed out by the government.
"What exactly is the bank going to do with the loyalty program to turn it into $20 billion?"
I suppose they can still be paid of any outstanding points that are spent (even if no one could earn any more points)?
Exactly the same thing they do when they get a house I guess. Sell it.
Wow. Cheating the IRS and the customer at the same time. Incredible.
This is an excellent explanation of the evolvement and economics of frequent flier miles. Well done!
Jesus. I FLY for the airlines and I learn more from here than I know about how they actually work. They teach me how to fly the Airbus, I fly the Airbus well and follow their rules, they continue to employ me. And given we all have flight benefits and therefor often rarely touch the real customer side of things, it's useless to try to ask most pilots about this. At least me.
Are airlines outside the US really like this too?
why would the company teach crew about the business lol pls just be really good at flying airbuses
As an accountant that did a valuation of public companies for my capstone, I don't think the valuations for these companies are accurate. In short, I think these loyalty divisions are overvalued with the methods that I can see used here. Here's why:
1. Multiplying EBITDA by the P/E ratio is a very seat of the pants valuation. It's the kind of thing you use to see if doing a full valuation is worthwhile by getting yourself a number that would be in the ballpark of the actual value, but it's going to miss a lot of intricacies in the business. A full valuation takes days, if not weeks, of highly paid labor to pull off. So before finding out exactly how much the division is worth, it's worthwhile to know if it would even be near enough collateral for the loan in question.
2. In this case, we don't have the P/E ratio for this business segment - American Airlines just says it's 12, but I checked your source and a quick text search didn't bring up any mentions of MPH that would take me to the section of the document that discusses this valuation. Nor do we have any insight as to how the P/E ratio of 12 was arrived at. Are they just using the whole company P/E ratio? Doubtful as they're rounding up rather charitably from 10.9 for the whole company to 12 for this segment. How are they arriving at a share price for an LLC that isn't publicly traded?
3. For a non-public division owned by a large corporation, it would be rather easy to inflate EBITDA by having only a minimum of employees, using corporate assets, etc - for example, an accountant could be in charge of tracking airline miles redemptions but be employed by American and using a computer with software paid for by American rather than MPH. This might not even be intentional, it's an easy enough mistake to make if you don't normally have to report your business. My employment situation is that I'm employed by an umbrella corporation, but I do accounting for several child organizations. None of those child organizations have an accountant on the payroll, yet all benefit from my services. If you look at their books, it just looks like they're very well kept by some very generous accountant.
So in summary, the method is what I would use for an estimate, but not reporting purposes. And I have questions about both the P/E ratio and the EBITDA used to arrive at the valuations that the airlines aren't legally obligated to answer. That's a recipe for numbers I am not going to take at face value. Doesn't invalidate the rest of the video, but perhaps the degree to which it is valid.
You're expecting an awful lot of attention-to-detail from a self-infantalized, corner-cutting little prick who *CONTINUES* to insist that the job of controlling the US money supply has anything to do with the US Treasury, when it's actually the domain of the US Federal Reserve.
Thank you so much for sharing your valuation. I am also from the same major and really appreciate your quantitative insight.
The other alternative explanation would be that the airlines who put up these programs as security have it in their interest to inflate the value of said programs?
What's the function of these non-public companies, like an in-house financial service for the company and the customers?
What a time to be alive!!
Such a detailed comment on an already niche channel
@@SusCalvin It's possible these values are inflated specifically to get a loan, yes. However, I don't have any proof of that and I wouldn't accuse any of the airlines of doing such based solely upon what I've seen. Also, I would expect that the people calling the shots on these loans should know about company valuation and have the same questions I do, so I'm not convinced they took these numbers at face value when making their decisions either. This is just what actually got publicly reported - the actual number arrived at while negotiating a loan could be different. Hence why the loan reported was 5.5 billion and not 20 billion, perhaps.
absolutely brilliant. Thank you for sharing.
Outstanding breakdown. Nice work.
Time for another dose of airline content from Wendover.
We all must agree that, Airplanes were invented, so that Wendover Production can make videos about them.
This was awesome. Thank you.
I love how at 0:24 there is a clip of a United plane at CVG (a Delta hub). I remember when I worked at CVG and UA operated out of T2 with 3 flights a day.
It feels like this turns everything on it's head when it comes to analyzing airlines. I know that all the usual important numbers like passanger numbers, costs and everything else are inherently tied to money earned this way, but it's weird that this is the actually important part.
The part where a good or service is exchanged for money hasn’t been the important part since at least the 80’s for anything.
Most avgeeks/points and miles enthusiasts have known all this for years. This video, or last year's reports, doesn't change anything for them.
*its head
Well, the other stuff is important too.
It's just that they can take _some_ losses there to maximize this area.
But they cannot go all out either, and offer plane rides for free as long as you stop using dollars for everything and only use their currency and their affiliates.
Oh crap, I just gave Facebook yet another evil idea, didn't I 😜
I wish this channel would post a document describing the sources for everything he says like Kurzgesagt does. Sometimes he says something, and it sounds wrong, so it would be nice to know where a specific fact comes from.
It looks too professional for people to argue it I guess
Exactly. I work for a Loyalty program of an airline company and the moment he didn't explain why the loyalty programs are valued billions, I knew he was only trying to make a fuss out of it and didn't do a research that much.
It is still the commercial tickets that makes the company profitable.
The billions mentioned here are the:
1.) points - which are worth nothing unless they are used by members or paid by partners
2.) data - sold to marketing companies (i.e. Facebook Biz/Google Ads)
@@michaelcaling Yea, its odd that nobody is asking why and how the EBITDA is multipled by a factor of 12. Why is everyone operating on the assumption that the EBITDA calculations are not dodgy in the first place?
@@randomyoutubebrowser5217 because EBITDA is a very specific number that should be difficult or impossible to manipulate?
The D and A portions would be ripe for fraud though.
@@randomyoutubebrowser5217 also multiplying by 12 is valuing the company by assuming it makes roughly an 8% annual return. Which seems like a basic but reasonable method
This was actually incredibly interesting. Thank you for the video!
As a former reservations agent, I have seen some shocking ways to game the system. Many of which still work. Until airlines stop overselling flights, making your flights free forever is easily done if you live in a location that has consistently overbooked flights leaving out of it. Once you know the game, rich can be arranged.
Right
I am listening.... how do you go about it?
Elaborate, please.
I'm sure that's why you're a FORMER employee on CZcams instead of rolling in that bankroll you claim to know how to make. 🤡🤡🤡
@@k3iler05 If you live near JFK airport for example and you know from experience that every flight leaving to Boston on Sunday is consistently overbooked with American Airlines, you can book that very flight and volunteer to be bumped to a next flight. Airlines offer generous compensation to passengers who offer to skip an overbooked flight. American Airlines offers a $500 certificate in this case (+ reimbursement if you want to). Do it twice and you've got yourself a free Europe trip. That's what he is talking about.
I personally wouldn't do it unless I actually have plans to go to Boston but some people don't mind the risk and hassle.
Hi Wendover, I love your videos. I wanted to point out that the market cap being lower than the value of the frequent flyers business is not the right way to look at it. The market cap is the value of the equity in the business, not the actual business's value. Though a debt holder does not own the business, they have the underlying claim to the assets and cash flow before the equity holder does. The right metric is the enterprise value, which for simplicity is the value of the equity (market cap) + debt - cash. Since airlines have a lot of debt, this figure is very different than the market cap. United has an enterprise value of $30B, American is $40B, and Delta is $42B. So the frequent flyer business is worth more than the main business for each airline, but investors are willing to pay for the airline business despite it losing money in the hope it recovers.
"airlines have a lot of debt"
This is a fair point but the market cap figures still imply that the markets value all the assets of the airlines other than the loyalty programs billions of dollars below their liabilities. I still find that surprising.
The market cap is the equity investor claim on the assets, not the value of the assets. Debt holders have first claim. Enterprise value is the definition of asset value.
@@nicholaspalmer5957 I wasn't talking about enterprise value because I was talking about assets *minus* liabilities.
@@seneca983 I think you are comparing Enterprise Value of the Mile+ Programme versus Equity Value of the entire company (which includes the Mile+ Programme). You would need to apply leverage ratio pro-rata to figure out equity value of the Mile+ Programme.
I also think the statement that airlines are hardly transportation companies nowadays is a stretch. Transportation / flight is what ultimately drives the value of the mileage programme. Had United stopped operating flights for example, the value that passengers attach to the programme would fall quickly. Comparing per seat Revs vs per seat OpCosts is also wrong and is a very simple accounting-like approach. Airlines only tolerate losses because associated activity (ie, mileage programme) kind of subsidises the seat sales. Again if flights do not operate, the mileage programme is worthless.
@@lugovoiarena "I think you are comparing Enterprise Value of the Mile+ Programme..."
If that $21.9 billion is the enterprise value, then yes, sort of.
"You would need to apply leverage ratio pro-rata to figure out equity value of the Mile+ Programme."
But I wasn't interested in that figure here. I just stated that to me it's striking that United's all other assets are worth over $10 billion less than all their liabilities. Yes, here I'm including any debt by Mileage Plus Holdings in United's liabilities but the figure is still quite surprising IMHO.
Great video. Loyalty program and credit card rewards is the main topics of my business, and the info presented in this video is quite accurate.
Wooooow. That took some serious work to create. Thank you!
Speaking of loses - you should make a video about the airport of Łódź, Poland that was denied public financial covid aid, because during the lockdown it made less loss than during the normal operation time.
That sounds exactly _Half as Interesting_ to be honest. czcams.com/video/iPDcUGwfxak/video.html I want to see it, either way.
Every sentence ends in three. Distinct. Words. When you hear it you cant unheard it and it drives you crazy.
Super informative, thank you
Excellent piece.
This seems to be also true case for hotels. One of the main reasons Marriott bought Starwood Hotels was because of the size of the SPG portafolio, this is Starwood’s loyalty program.
So they wanted the books.
I remember that it was said of the Big Three automakers (pre-2009 bankruptcy) that they were banks that made cars as a hobby, dependent on their finance arms for operating funds. I guess I shouldn't be surprised that this is true of airlines too.
Watch how that plays out when everyone wants an electric vehicle ;)
The correct term for all car companies is "Automotive Banks". Or banks that own car assembly lines.
@@MacGuyver85 The change is occurring gradually enough for traditional car makers to be able to transition at their own pace. Nothing fundamental will change here. Eventually Tesla too will become a bank with a side hustle in making cars.
@@mlc4495 That’s what the car companies like to think too but wait and see what happens ;)
@@MacGuyver85 I mean teslas are already mining crypto
At 2:22 you are comparing two different financial concepts. The delta loyalty program is valued at 26B of enterprise value (equity + debt). The market cap you compare against of 20B is just the equity value of the whole company. True enterprise value of delta today is like 50B so the airline would be worth 24B incrementally over the loyalty program, not some negative value.
Thank you. I’m not a finance guy and I kept listening somewhat confused. This clears up what I couldn’t seem to figure in my head.
EXACTLY! And, He also conclude that Airline are "owned" by banks because of mile program without showing how much revenue comes from paid tickets. This video is literally garbage.
I wasted almost 6 minutes watching this; after reading this I’ve chosen to stop. If you are reading this comment, and watching this still, just stop. The people above me are right.
That is correct and easy to check as well. The balance sheet needs to balance. Assets are massive...aircraft and real estate they own, slots, gates, maintenance stuff...etc. Some people make a connection between shares and corporate value that is not there. The risk involved keeps the share prices lower too.
During the pandemic my wife was flying to help care for a sick relative. At least once a month.
There were many flights where she was the only person or one of a half dozen people on a flight at $300 for a round trip ticket on a Boeing 737 or airbus A320 with a stop at a major hub. About 4 hrs total flight 1 way costs a little under $40k. It was insane.
I flew my son from Portland Maine, to fort Myers Florida during COVID, and it only cost $68 on his way south, and $79 for the trip back up north.
Alaska Airlines still rewards one mile of miles for each mile flown. That is why I pretty much exclusively fly Alaska- that and superior customer service! Alaska mileage program is by far the best
As a soon to be minted 100k when they launch that tier, I couldn't agree more. Unfortunately now that they joined OneWorld there is a lot of speculation they will convert to an RDM model just like big brother AA.
Good luck taking that regional airline to Prague or Beijing.
@@dingodango1 That’s literally why they are part of OneWorld…
@@neillthornton1149 well you're going to have to take a real airline then. With real airplanes and real international destinations. Bone of this bullshit 737 garbage.
@@dingodango1 why would I want to go there? However since they are a member of one world, I probably coukd
Man, I had zero interest in how airline rewards programs work 20 minutes ago. That's the power of Wendover, I guess. Great video as always!
Me too haha
Thank you for sharing.
That was incredibly insightful.
The first bit about 8Ks and valuation is a misunderstanding of corporate finance. First off, the loyalty program valuations were based off a theoretical M&A comp set of 12x EBITDA that banks were willing to ascribe to the loyalty programs, not anyone actually willing to buy those programs. Second, they were using FY19 EBITDA, not LTM as of mid-2020 / during COVID. Finally, market caps also take into account sentiment and future expectations while the 12x valuation is purely historical. Big lag between those valuations - I guarantee that nobody would've been willing to pay 12x FY19 EBITDA for those loyalty programs during COVID and market cap would've dramatically shrunk as wel
Yea isn't the Market Cap comparison a bit misleading? Market Cap doesn't take into account any debt they have on their balance sheets. EV, the total value of the companies operations, would be a lot more interesting to look at in comparison.
@@kirillkuznetsov2322 yea this. Need to add net debt to get to EV
I have NO idea what any of those abbreviations mean...
But what you wrote probably makes sense to people who picked a better-paying career path than I did 😆
I’m sure “we’ll get back to FY19 levels and further growth” must have been part of the shared understanding on the deal, no?
@@MrNicoJac @Patrick Joesph Fallon all he is saying is that banks paper valuation =/= actual marketable valuation. For e.g the paper valuation of the entire US housing market (i.e all properties) is about 34 trillion. However, no one will actually pay this price. Many reasons for this (e.g because its based on about 5-10% of properties exchanging hands every year etc etc). What they're also saying is that the calculations were based on financial year 19 EBITDA (pre COVID) which obviously has quite a different market sentiment for airlines in 2020.
Good piece. The value of the parts is more than the value of the whole. That's why conglomerates usually get broken up.
Would like to see how Southwest's miles program stacks up, seeing how it's the largest domestic carrier.
Great video, thanks for the info!
Very very interesting!!! Thanks for this!
I was able to take advantage of the mileage cheat by flying from LA to Salt Lake City to San Francisco to Hawaii, versus the direct flight. I spent the day in the air, but since I had reports to review, I would have spent the day in the hotel room anyways. Those days were sweet.
congrats on ruining the whole planet
This time of year many frequent flyers are taking unnecessary flights in order to keep their status on airline frequent flyer programs.
One time in December I was taking several flights back and forth between Los Angeles and Las Vegas (45 minute flights) to accumulate the necessary legs required to keep my status. I met other people doing the same thing. Some of the people were accumulating miles rather than legs. So they were flying to Las Vegas by way of layovers on the east coast or mid west like Minneapolis. Of course this was 15 years ago and the requirements as the video has shown has tightened up the requirements and made this more difficult.
These days this is mainly done when people are close to status, but not quite there. It's pretty wasteful. I wish airlines would just let folks buy the ticket, but choose to void it, at least up to a certain limit. Would increase their profits if they can resell the seat, and reduce effective CO2 emissions.
I always get a kick out of the wide array of (ostensibly) irrational behavior that mileage programs induce people to engage in. Especially the people who do some serious, big value manufactured spending (5-6 figures/day). Some of the lengths they go to to generate that spend... pure comedic gold.
And today, it's people forced to spend money on their Amex Platinum to hit the minimum spending limit to keep the card.
Genuinely fascinating and very well explained.
The monetary nature of airline points goes even further in some places. Air New Zealand, the country's national carrier, just flat-out calls its points "Air Points Dollars", and they have an assigned monetary value for which they can be used to "purchase" flights. On the one hand, it's such a scam, but on the other hand, Air New Zealand is actually a really great airline with the friendliest and most accomodating staff you'll ever meet. And epic LotR flight safety videos.
In Mexico you can even buy computers or consoles like PS5 with airline points. Tbh it's a really good program.
Air New Zealand ripped off everyone to the tune of half a billion dollars when they cancelled flights at Covid shutdown, they are operating a ponzu scheme, using the money you pay for your flight in advance to fund the flights of today. Using customers for a cheap overdraft, when they offered credits,many are in redeemable. The greedy shareholders profited the last 2 years. This system was set up by the now leader of the national party…he’s a crook
They also just got a big loan / bailout from the government!
Most national carriers did during Covid, what's your point, how is this relevant to the comment or video?@@rnb250
Minus the part where they might throw you out the window for not getting 20 jabs as told to do so by uncle pfizer.
As someone who hit the sweet spot of airline travel (1976 - 1996), I now find the experience dehumanizing and demeaning. (I would love to seen an in-depth video on that!) Luckily, being fully retired allows me to circumvent this.
This was literally a video about that. They don’t make any money actually flying you. So your experience doesn’t matter, especially if your being forced to travel through your job, because then you aren’t even the customer.
"I now find the experience dehumanizing and demeaning"
However, being less luxurious allows flying to be cheaper. A lot of people prefer to better afford flying over receiving a better experience at a higher price.
@@seneca983 Well said! It kind of sounds like and airline lobbyist. “Price is just what you pay, value is what you get.”. Warren Buffett
@@mzaite That is the lens I saw it through, as well.
@@chancerobinson5112 We can observe that a lot of people choose to travel in economy class even though business class and first class are available. Clearly, the extra comfort isn't worth the extra cost for many (though for some it is).
This video secretly has a perfect explanation of how a company's worth is reflected within the stock market.
💯💯💯
How so?
@@cryptochris247 shows how/much invested others are in said company.
Whether it be cosumer interest via profits.
Or investor interest via the price of the stock going up (or down during sell offs to make other moves).
The stock market is basically alive, and things go up or down due to a lot of things. A few I realized are by how easy (or difficult) it is to borrow money (a lot of money is just inflated debt used to take money out of consumers/buyers hands when the interest rates are low, it's like the reserve is setting up to pump & dump a market.. stock, housing, etc)
If consumers stop liking your company sales/profits go down
If investors stop believing in your company, your stock drops
Not sure it’s a secret
Love the shot at 14:55, miss working at the Delta hq
This is fascinating!
It amazes me you still have plane topics. I LOVE it😍😂 plssss do more cargo aircraft;)
Enjoyed seeing this vintage airplane footage. 727s, DC10s, and MD11s! Great content as always!
WYSI
This is very fascinating!
I appreciate how easy to digest you made this. Excellent video - thank you!
Let's go boys, another plane video from wendover
Is the reason Southwest isn’t mentioned often in these videos because of their relatively small international market, or are their economics just different enough from the “big 3” that it doesn’t make sense to mention them along With the other three?
Thank you for this video. Very interesting information.
Wow, that was awesome. Thank you
I'd love to see an episode on the airline Norwegian's economy based on this, they literally started their own bank + their frequent flyer bonus is tied to the norwegian krone
Yeah, the bank quickly became waaaaaay more worth than the airliner. And i think they separated due to this a few years ago.
I remember scratching my head, as to why this happened. Now they are more like a regular bank, offering high interest credit loans as their main income source
my relief as an airline employee that this wasn’t a video about how we became “too big to fail” 👀
thanks for all this delicious airline stock footage too. sincerely, a giant airline business nerd
Dunno about the airlines, but that's definitely the attitude taken about BOEING.
If you're passionate about business then get a CPA or a professional certification. That way, you won't evade taxes from taking advice from a qualified opinion without any legal disclaimer from a kid with 0 licenses or professional experience besides CZcams and Adobe Suite.
Nerd out on how much tax you pay on a personal airlines points cards that isn't a company credit card for legitimate travel.
Your business model generates negative cash flow from operating activities, which is why airlines need to rely on cash flow from investing activities from our taxes then give "cash back" credit cards. Fun fact - you owe taxes on those airline points, if it's your personal credit card instead of a corporate credit card for legitimate travel expenses.
The super ability of a good youtuber is that he can lecture you anything you thought you do not intrest in as long as he wish. And at the end, you'll see yourself, amazed, like "Well I didn't know I was interested in these".
mind blow - thanks for the great content!
This was fascinating. I am a frequent flier. Prior to Covid I did about 40 round trips a year. So I have a ton of frequent flyer miles that we use all the time. Plus I have a credit card for another airline that we use to fly overseas. I’ve cashed in on a huge number of free flights. They work great.
Truly insane value if you fly that frequently
@@EdmundSia Typical American thinking, just pure consumerism, doesn't matter what , just fly fly fly as long as it's cheap.
There's some really flawed premises in this, and I'm not suggesting it's the creator's fault. 12x EBITDA is a ridiculous multiple to put on these businesses for starters. That's essentially valuing it as a high-growth, capital-light business, which it's not. While the loyalty program itself doesn't require much capital, it can't operate without the airline, which is incredibly capital intensive. Secondly, and more importantly, EBITDA should be measured against enterprise value, not market cap. Ignoring liabilities in heavily indebted companies like airlines is a huge mistake.
This video is misleading as a result.
@@kirillkuznetsov2322 yeah it does. Though mainly just the bit at the start. The rest of the information was all useful and interesting, but to suggest that the airlines are worth less than nothing, while the frequent flyer programs are worth multiples of the market cap... That's clearly wrong. That being said, I would estimate the frequent flyer programs would probably still make up the majority of the companies' value.
@@patfase What is it in practice then? Like an in-house financial institute that does nothing but serve the internal need of the company and its customers?
The airline doesn't need to operate to sell miles. Yes, it needs to return to operation in order for miles to be redeemed. However, if the airline were to temporarily cease or reduce operation, they would still sell miles to stay in business, likely at a discount and not necessarily by much.
Yeah the other thing that doesn’t make sense to me is surely all those miles are a liability not an asset.
That was a really interesting video! I had no idea the airline companies worked like that!
Fascinating! First time I've seen this channel.
>airlines
>businesses that are actually banks
This feels like a crossover between Wendover and Polymatter
Fantastic insight, I haven’t “paid” for a flight in over 10yrs due to credit card points and I have seen all of these changes in programs first hand. Interesting that banks would give a loan based on a program that, at least for earned miles (points now days) from travel, is actually a liability.
Same as you.
To explain for everyone else. Getting points loyalty programs via credit cards seems to be the cheapest way to fly. Lets say you know at least once per year you spend $100 to fly return to see some family members. That $100 is better spent on a membership fee on a frequent flyer credit card. The number of points given as a sign up bonus is usually enough for 2-4 flights. Sometimes then that comes with a bonus flight, and you still get all the points you accumulate on the card paying for life's necessities (food, insurance policies, etc) for that year which typically ends up accumulating points for another flight. So suddenly that card membership has given you 3-5 flights for the year for $100, because you're rewarded for putting your life expenses on the card and then you pay it off on time to avoid penalty.
Do this for a number of years, and the cumulative effect is that suddenly you end up with a fair few points. Flying business on points certainly is the most value for the points because to pay cash on those seats are usually pretty expensive, while it's only a marginal difference with points. You don't need to be rich or flying frequently to do this, it's just a little know how on how to make $100 - $200 each year you were going to spend on flights go a little further.
You should consider calling a CPA and telling them you admitted to evading paying taxes owed from "cash back" or "airline miles" credit cards on CZcams.
This is why every legitimate video with financial advice has a legal disclaimer, especially when it's a person giving tax advice without any license or certification to do so.
Can you explain more? Whenever I’ve looked to use points I still have to pay the taxes so the airline simply overinflates the ticket price to the point where it’s cheaper to book via an agent
You might not have paid for those points personally, but someone who didn't pay their credit card off in full every month did - at about 22% interest rate or even higher.
@@Diode5 It sounds too good to be true... And for europe, from what I see it isn't true. I checked my Flying Blue account (Air France, KLM).
First of all, there is no frequent flyer membership fee. Your membership evolves as you earn miles.
So you have to either buy a seat with cash (earning more or less 1000 miles per standard european flight) or through a partner program (stuff like "earn 40 miles every 10€ spent on that online store").
Now when it comes to redeeming points with flights, the cheapest intra-european round trip flights starts at about 10K for the most random flights connecting random cities. Between capitals (let's say Paris-Helsinki) it is at costs around 25K miles.
In order to get enough miles for the cheapest of those flights, you have to either spend a few thousand on those very specific partners... I don't see how would that be possible. Unless you decide to eat uber eats every day of the year while using europcar for your daily commute. Other option is to fly a dozen of flights paid cash.
In any case, I don't see how it can be profitable for the joe who flies once a year (or twice or 3 times).
I love your videos dude! Keep it up
The points thing sounds like what happened in Canada with our movie theatres, when they teamed up with a bank and a chain of casual restaurants. Eventually more stores joined, including the Expedia, Apple store (online only), and most recently, a major grocery chain. So you can get points from buying a MacBook, and then use them to get groceries, which my dad did. You can also get credit cards that give you up to 6 points per dollar spent depending on the thing (groceries, restaurants, and gas stations give you more points), and 100 points is equal to one Canadian dollar. I have no idea how they're making anything with that, as I'm sure the points redeemed equal way more than the credit card fees. Like, they can't just make money by people getting $100 off groceries. People who use these cards for business expenses get tons of points, but I wonder where it comes from. I even got enough points for a week's worth of groceries by paying for a couple windows in my house to be replaced. And that company isn't part of the group that's partnered in.
they get money from credit card fee that they charged the merchant. Whenever you swipe your credit card to pay for something; the seller don't receive the full amount ; they got to pay some fee ( said 30 cents + 2% of whatever the amount) ( for example: $100 swipe, the seller will get back around $97.7) . That's also the reason why some merchant don't accept American Express card because Amex have the highest fee amount of major credit card company.
Whatever points you get, it's more often than not less than the fee the bank/credit card company get from the merchant/seller.
Would like an explanation of how points work in groups, e.g., how Star Alliance points transfer from one airline to another that have considerably different cost structures (is there $ transferred between the airlines).
I believe they do have internal exchange rates and quotas for different programs. When you transfer 1 point from A to B, it's then compensated when B sends one point back to A. Points are not money redeemable and, if they did, taxes would apply to them, thus, bringing down the entire logic behind the system which is, in the end, not to pay taxes :D
Points are not transferred between airlines when making an alliance award booking. In *A for instance, each airline makes a certain amount of seats available to the others through a clearinghouse. When booked the airlines pay each other in real currency. As each airline has different redemption tables and prices, a flight that would cost you 175000 SAS Eurobonus points may cost 300000 United MilagePlus points. They don’t really care about the points of the other programs, they mostly care about which program any given ticket is credited to, your alliance status level, and getting paid by the other airlines for codeshare and award bookings. Also the reason you cannot spend points onboard from any other program.
When I was a kid in the seventies I used to fly with my brother alone from St. Pete fla to Asheville NC. We would have attendants waiting at the gate to take us to a connection flight and excort us. We got wings pins and My brother even got to help out once handing out drinks. I think we had to fly first class but I don't remember it being like the first class of today. So, imagine being in grade school flying on your own with your brother. It was an interesting experience. Thanks Eastern RIP.
I'm guessing you didn't pay for your tickets, but what DID each cost? What food did you get?
From 12-15 I flew solo with southwest from Dallas to San Antonio and back once a month, it was awesome. Oddly enough, a couple years ago I moved to a little island close to St Pete’s. Funny coincidences
I flew on Eastern as an unaccompanied minor once. I found that the air-sickness bag had vomit in it. I informed the flight attendant, and he said, "That's what you get for looking through everything." They went bankrupt shortly after.
@@MRCKify My parents paid I have no idea I don't remember but it was like regular airplane food nothing fancy
My brother and I used to fly from Asheville to Chicago alone in the 70´s (parents divorced). Piedmont airlines...old 737´s with open overhead bins and in the front a black table with two seats facing backwards. I remember we got Pins also.
A slight update/ correction bout that statement that airline miles are an untaxable currency: You can open an account at Bask Bank that accrues interest in the form of AAdvantage miles. If you do, they report that interest to the IRS as an equivalent dollar amount, and you are then required to report it with your other taxes.
As a european the fact that the flight to a smaller city costs more is mind-boggling to me. Here we sometimes book flights to smaller cities (even if they might be good resorts) just because they are cheaper.
Took me a couple of tries to wrap my head around how the incentives work between the airline, the third party retailer and the customer.
That's how all big business works, make it so complicated the average person can't understand it.
I guess they sell their "point system" to other more profitable companies.
So hertz will give you airline points for renting through them, so the airline will push hertz to their clients.
Hertz makes a profit of $500 per rental for example. For the airline pushing to hertz and hertz then offering "points" to the customer foe that airline, hertz will give a cut to the airline of $250.
So now hertz makes 250 instead of 500 profit, but volume increases, and the airline makes $250 instead of losing money on selling a customer a plane ticket.
Shit makes no sense lmao and sounds like a scheme 🤣