How Airlines Quietly Became Banks

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!

"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.

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

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.

This guy single handedly keeps my interest in planes alive

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.

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.

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

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.

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.

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.

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 use of era-appropriate stock footage when talking about the past is such a nice touch. I miss the 727

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

Feels like wenderover just yet again, tapped into something extraordinary within airline industry

I didn’t think there was anything left to cover about airplanes😂

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.

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.