Frequent flyer programs’ revenue streams A study of their sources, optimization potential and new ones

Abstract

Frequent flyer programs (FFPs) have been a crucial part of most airlines’ businesses for many years. They have evolved beyond their initial goal of customer loyalty and have now become a complex entity that generates revenue which supports airlines’ core business. During the pandemic, billions of dollars were raised through using FFPs as collateral. This shed light on the U.S.-based FFPs’ valuation and ability to generate revenue, prompting the interest behind this thesis. Most of previous reports on this topic have been done from purely a marketing perspective. However, this thesis provides a new angle beyond the traditional marketing viewpoint to gain insight into FFPs’ revenues. Further, this study was conducted using a qualitative method with a focus on literature review but also a complementing perspective from a respondent that works at Lufthansa Miles & More. This thesis aims to clarify where the revenue streams for FFPs come from, how revenue streams can be optimized and where new ones can be identified. It was concluded that the largest revenue stream comes from sale of miles connected to co-branded credit cards. Selling miles to partners and directly to customers are additional revenue streams for FFPs. Regarding optimization, data monetization, expiry of miles and breakage management are a few examples. Lastly, prepaid flights and flight subscription can be new potential revenue streams for FFPs.