This Is the Sneaky Way Airlines Make a Lot of Their Money (It Isn’t Seat Sales or Baggage Fees)

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Absurdly Driven looks at the world of business with a skeptical eye and a firmly rooted tongue in cheek.

If you happen to only have two dimes, two nickels and an old gold watch, never put it past an airline to find a way to take them all off you.

The sheer ingenuity with which airlines have managed to change customers’ expectations — by charging for almost everything that used to be free — defies belief and, of course, tolerance.

Yet when airlines declare $39.4 billion in profits for 2016, it’s tempting to believe that most of its came from charging you for seats (more for those near a window) and those pesky baggage and change fees.

However, as Bloomberg this week revealed, many airlines make more money from selling miles to credit card companies, rental car companies, hotels and other concerns than from any seat sales.

Yes, your frequent flier miles, diligently collected on your credit card, aren’t given away for free.

The mechanism is simple.

You want a credit card branded with your favorite airline’s logo. That way, you earn miles every time you go to to the store to buy more beer and quinoa.

Those miles don’t descend from the sky, the product of devious chemtrails.

Instead, airlines sell them to those credit card companies. Which, in turn, use them as bait to hook you into a long-term commitment and, in the case of credit cards, lots and lots of indiscriminate spending.

The people who get one of those airline credit cards tend to be financially sound and relatively munificent.

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They feel they’re getting more every time they use the card. They’re getting miles toward their next trip to DC or Disneyland. (There’s not much difference between the two, of course.)

Please sit back, relax and enjoy the rest of this sentence, as I tell you that more than half the profits at American Airlines Group Inc. apparently come from the sale of miles.

This is a double-sneaky little side-business because airlines try their best to hide exactly how much money they make from it.

You might also enjoy this sentence from American Airlines CEO Doug Parker, as told to Stifel Financial Corp analyst Joseph DeNardi: “The credit-card revenues are tied to spending that’s separate from the ‘airline economy.'”

Might I offer a people’s translation? “In a recession, people still use credit cards, even if they don’t fly so often.” And earning miles for some bright tomorrow remains alluring.

Those of dry countenance might imagine that this miles business is one small reason why Warren Buffett has suddenly invested a lot of his hard-earned golden bucket of money in quite a few airlines.

It should also alert anyone who’s ever been moved by the airline’s plea that no, it just can’t get you to your destination before, well, we’re not really sure.

For airlines right now, it’s a joyride. They’re at the controls and you have to accept whichever directions they choose to take, without necessarily knowing all the ways in which they’re becoming rich.

It’s a little like corporate life in general, really.

via INC

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