Why the Survival of the Airlines Depends on Frequent Flyer Programs
It turns out frequent flyer programs are worth more than the airlines themselves
More than six months after the World Health Organization first declared Covid-19 a pandemic, airlines are barely limping along. The TSA’s daily passenger count tracker currently shows that air travel is down about a staggering 70% from last year. Demand for air travel is better than it was during the depths of the crisis in mid-April, when travel was down 95%, but it’s still far from a level that would keep airlines operating sustainably. Thanks to the federal government, airlines received a $25 billion bailout in April, which allowed them to keep employees on staff at current pay rates through the end of September. And major airline CEOs have been in talks with the White House and policymakers to discuss passing another coronavirus relief package that would extend payroll assistance and avert job cuts.
September 30 seemed impossibly distant back in April, but now that bailout money is quickly running out, and airline executives have a critical decision to make, with some 35,000 jobs hanging in the balance: Do they take an additional round of financial aid from the government, giving up more equity but keeping their labor-heavy, high-scale cost structure in place for longer? Or do they radically scale back their business and accept that it will take several years or longer for travel volume to recover and for prices to stabilize and return to pre-pandemic levels? The latter could prove extremely difficult for airlines, especially considering how heavily they have been relying on their frequent flyer programs to prop up their businesses — and make the economics work.
Airlines Are Hemorrhaging Money—Here’s What That Means for Travelers
To convince us to fly, carriers may actually have to work to woo customers again.
To remain solvent during the pandemic, airlines have raised cash by putting up for collateral typical aviation assets, including aircraft and landing slots or the rights to use a particular flight route (for example, Delta could borrow against a given route and, if it defaulted, the lender could sell that…