Frequent Flyer Programmes Incentivise Climate Destruction
August 11, 2021

Let’s end them: Here’s why

Opposition to air travel is growing rapidly due to its climate and public health impacts. Frequent flyer programmes (FFPs)  – the most successful marketing scheme of all time[1] – have contributed to the airline industry’s growth and the harms it causes. In this age of climate breakdown, why is this marketing scheme which incentivises and normalises high carbon choices allowed to exist? We’re calling for a rapid phaseout of FFPs, beginning immediately. It is long past time to delve into who really pays for the “free” tickets and other perks that FFPs provide. Regardless of whether the “miles” are acquired through travel or through ordinary credit card use, this marketing scheme incentivises and rewards polluting travel habits that damage the climate.

The scale of FFPs globally

No common practice is more emblematic of privilege and global inequalities than flying. Only about 11% of the world population travels by air each year.[2]  In fact, 80% of humanity has never been on a plane.[3] Airlines aim for more people to fly, and to fly more often. Air travel has grown steadily at about 5.7% per year since 1995, up until Covid19.[4] Increasingly over recent decades, FFPs have been a primary marketing tool for boosting this growth.

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On a typical flight, about 8% of the passengers are flying on FFP tickets, as a global average.[5] The percentage is much higher for some airlines.[6]  Because ubiquitous use of airline-affiliated “reward” credit cards is spreading around the world for making ordinary purchases and paying monthly bills. With “miles” gained at no cost to the card user, that percentage is bound to increase. Card holders are lured in by “free” travel, yet an airline’s  frequent flyer program is often its major (if not only) profit generator, instead of its ordinary flying business.[7][8] We unravel the mystery behind this apparent contradiction later.

Currently, 318 frequent flyer programmes in 125 countries[9] reward their patrons with free or discounted tickets, first-class seat upgrades, access to private airport lounges, and deals on car rentals and hotels.[10] Fifteen years ago, an estimated 180 million people (120 million of them U.S. residents) were enrolled in the world’s frequent flyer programmes.[11] The programmes have spread since then, geographically and in the number of people enrolled.[12]

FFP marketing schemes create extra air travel that otherwise would not occur. This is a concern because flying causes far higher climate warming emissions per hour, per passenger than any other common activity, and its speed encourages long-distance travel. You can’t live a 1.5 degree lifestyle and fly.[13] The latest estimate is that aviation emissions cause 5.9% of human-caused global overheating (including the effects of both the CO2 and non-CO2 emissions).[14] That is a hefty share considering how few people in the world have the privilege to fly, and that there is no effective way to decarbonise flying or to offset its emissions.

It is nice to get something of value for free, but in the end everything comes at a cost to someone or something else. The problems with frequent flyer programmes are the following:

 

  1. Frequent flyer programmes normalise flying despite aviation’s climate and public health impacts. 
  2. Frequent flyer programmes lead to extra flights and consequent pollution and airport-vicinity noise. The programmes are effective at selling air travel.
  3. Frequent flyer programmes succeed only because they are structured to force the general public to pay for hidden, non-governmental subsidies of others’ flying and of the airline industry.

FFPs make EVERYONE pay for the elite to travel 

Most people are struggling to make ends meet, but frequent flyer programmes force everyone to pay to subsidize others’ air travel. Airlines sell miles to banks that issue credit cards. The banks then charge retailers both a transaction fee for the customer’s use of the card and a fee to cover the cost of the miles that are awarded. This system is enforced through a “merchant restraint” clause in a retailer’s contract with a credit card company,[15] requiring the retailer to accept any credit card offered for a purchase and prohibiting passing the transaction costs directly on to the customer. Because merchants have to pay the fees, they raise prices on their goods and services to cover the added cost. Similarly, FFPs bloat business travel costs because companies’ employees are incentivized to fly unnecessarily or on more expensive convoluted routes in order to gain extra personal “miles” on the company “dime”.[16][17] The bloated business travel costs get passed on through the supply chain and ripple through the economy.  FFPs are a scheme that would do the Mafia proud, by extracting money from the general public to subsidize a private industry that serves the world’s elite. 

Industry analyst Joseph DeNardi “estimated that in 2019, depending on the airline, the credit card arm of loyalty programmes contributed between 30 per cent and 50 percent of profits for US airlines. ‘They’re manufacturing these miles for about a penny, and they’re selling them to their credit card partners for two pennies,’ he said.”[18] A huge mark up! He also estimated that in 2017 American Airlines was selling points for three times their cost at redemption.[19]

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So, in both ways – through the airlines’ targeting of corporate travel and through the credit card system – society as a whole subsidises frequent flyer programme participants. The benefits go mostly to well-off people and hugely to the airlines, and cause inflated prices that amount to a tax on everyone regardless of if they fly or not. Research by the Federal Reserve Bank of Kansas City estimates that credit card use increases average prices in the U.S. by 1.4% and by 1.7% in Canada, and that the increases are regressive among income levels.[20] Phasing out FFPs would end the impact of this graft on those who can least afford higher prices. And there is low likelihood that ending FFPs would adversely affect disadvantaged people.[21]

For the Climate and Social Equity – Eliminate FFPs

Pressure is building to stop banks from financing climate-warming fossil fuel infrastructure. Similarly, it is time to end frequent flyer programmes for the sake of the climate and social equity.

This can be done directly in two steps with legislation that immediately bans further issuance of miles and elite status points, and  phases out the use of existing miles over a few years. Domestic FFPs were banned in Denmark and Norway for many years (since rescinded) for intra-industry competitive reasons, so there is precedent.[22][23] A ban would likely have to begin at the regional level (e.g. EU or North America), and can eventually be expanded internationally.

An indirect approach can be used additionally or instead of that direct approach. Legislation could bar merchant restraints regarding customer use of credit cards[24] and, most importantly, require that credit card companies make all charges associated with credit card use directly to the card holder, and none to the merchant. This way the card holder would be paying the full cost incurred for the convenience of using the card. If mileage points were still awarded for use of a card (though there would no longer be much reason for doing so), this would amount to the card holder paying in advance for future travel, in a sort of savings account at what (at least presently) is a highly marked up price. Together, these changes would make the actual costs of miles visible to those who acquire them and, more importantly, would remove the economic burden on society that FFPs impose.[24] No longer, at every cash register, would the dream of another flight entice today’s frequent flyers to use the credit card — breaking a powerful marketing linkage.

Summary: FFPs Accelerate the Climate Crisis – Let’s End Them

Frequent flyer programmes drive growth in aviation emissions and are funded by everyone regardless of whether they fly at all. Global inequality is staggering. The world’s wealthiest live the most carbon intensive, climate damaging lifestyles and the world’s poorest are most vulnerable to extreme weather patterns brought on by climate change. Nothing is more emblematic of global inequalities than flying. For example, some 76 million frequent-flying jet passengers, just 1% of the world’s population, are “super emitters” who caused half of air passenger emissions in 2018.[25] 

Frequent flyer programmes are a consumer-culture relic of our fossil fuel past, out of step with the societal and travel industry transformations necessary to stop the climate crisis and preserve a livable future. Ending frequent flyer programmes, which are the corrupt financial heart of most airlines’ business models, is a vital step in the necessary degrowth of the aviation industry.

 


 

References

[1] Tom Plaskett, senior VP-marketing, American Airlines, quoted in: Hoffman, K (1984), “An American Evolution”. Advertising Age, 10 May 1984, p.M-17. (“All we’ve done is replace the toasters [of trading stamp programmes] with the most sought after reward today: Travel. And it’s become the biggest and most successful marketing programme in the business.”)

[2] Gossling & Humpe (2020), “The global scale, distribution and growth of aviation: Implications for climate change”. Global Environmental Change 65 (2020) 102194. https://www.sciencedirect.com/science/article/pii/S0959378020307779

[3] Boeing CEO (2017). Interviewed on CNBC, 7 Dec 2017. https://www.cnbc.com/2017/12/07/boeing- ceo-80-percent-of-people-never-flown-for-us-that-means-growth.html

[4] Lee (2018). “International aviation and the Paris Agreement temperature goals”. Manch. Metro Univ.. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/813343/international-aviation-paris-agreement.pdf

[5] The Economist (2005). “Frequent-flyer miles – Funny money”. 20 Dec 2005. http://www.economist.com/node/5323615

[6] deBoer (2017). “Loyalty at the Forefront of the Transformation Curve”. Presentation in Moscow, 17 Oct 2017. http://onpointloyalty.com/wp-content/uploads/2019/07/Loyalty-at-the-Forefront-of-the-Transformation-Curve.pdf

[7] Hobart, B (2020). “Why the survival of airlines depends on frequent flyer programs.” Marker, 28 Sep 2020. https://marker.medium.com/why-the-survival-of-the-airlines-depends-on-frequent-flyer-programs-2509bd3f25d0

[8]  Genter, JT (2020). “How Airlines Make Billions From Monetizing Frequent Flyer Programs”. Forbes, 15 Jul 2020.  https://www.forbes.com/sites/advisor/2020/07/15/how-airlines-make-billions-from-monetizing-frequent-flyer-programs/

[9] Wikipedia ( ). “List of Frequent Flyer Programmes.” https://en.wikipedia.org/wiki/List_of_frequent_flyer_programs

[10]  Id.

[11] Petersen, R (undated). “Frequent Flyer Facts”. Webflyer webpage. (Petersen is publisher/editor of Inside Flyer mag.)  http://www.webflyer.com/company/press_room/facts_and_stats/frequent_flyer_facts.php

[12] IdeaWorks (2011). “Loyalty by the Billions: IdeaWorks analyzes how frequent flier programs pour cash into airline coffers”. http://www.ideaworkscompany.com/wp-content/uploads/2012/05/2011LoyaltybytheBillions-report.pdf

[13] Atler, L. (2020). “You can’t live a 1.5 degree  lifestyle and get on a plane.” Tree Hugger, 28 Feb 2020. https://www.treehugger.com/you-cannot-live-a-15-degree-lifestyle-and-fly-4847460

[14] Stay Grounded (2020). “It’s about more than CO2: Aviation must reduce its total impact on climate”. Factsheet. Sept. 2020. https://stay-grounded.org/fact-sheet-climate-impact/

[15]  Levitin, A (2008). “Priceless? The Economic Costs Of Credit Card Merchant Restraints”. UCLA Law Review. Univ. of Calif. Los Angeles. (See esp. the concise Conclusion.) https://www.sciencedirect.com/science/article/pii/S2214367X21000466?via%3Dihubw.uclalawreview.org/pdf/55-5-4.pdf

[16] Arnesen, DW et al. (1997), “The ethical dimensions of airline frequent flier programs”. Business Horizons, Jan-Feb. 1997. https://www.sciencedirect.com/science/article/abs/pii/S0007681397900252

[17] Kearney, TJ (1989). “Frequent flyer programs: A failure in competitive strategy, with lessons for management.” Jrnl of Services Marketing, Vol.  3 No. 4 Fall  1989.  http://dx.doi.org/10.1108/EUM0000000002499

[18] Bushey, C (2020).”US airlines reveal profitability of frequent flyer programmes”. Financial Times, via Biz Journals, 16 Sep 2020. https://www.bizjournals.com/charlotte/news/2020/09/16/us-airlines-reveal-profitability-of-frequent-flyer.html

[19] Bachman, J (2017). “U.S. Frequent Flyer Programs Are Far More Profitable Than Is Widely Known”. Justin Bachman, Bloomberg, via Skift,  1 Apr 2017. https://skift.com/2017/04/01/frequent-flyer-programs-profitablity/

[20] Felt, M-H et al. (2020). “Distributional Effects of Payment Card Pricing and Merchant Cost Pass-through in the United States and Canada”. RWP 20-18. Federal Reserve Bank of Kansas City. Dec. 2020. See p.17 & Fig. 5.  https://www.kansascityfed.org/documents/7595/rwp20-18.pdf

[21] Buchs, M & Mattioli, G (2021). “Trends in air travel in the UK: From the few to the many”. Trav. Behav.and Society. 25 (2021) 92-101. https://www.sciencedirect.com/science/article/pii/S2214367X21000466?via%3Dihub

[22] Storm, S (1999).  “Air transport policies and frequent flyer programmes in the European Community: a Scandinavian perspective.”  Unit of Tourism Research, Research Centre of Bornholm. http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.138.3305&rep=rep1&type=pdf

[23] European Competition Authority (2005). “Loyalty programmes in civil aviation”. http://www.bwb.gv.at/SiteCollectionDocuments/ECA_LoyaltyPaperCivilAviation.pdf

[24] Levitin, A (2008). “Priceless? The Economic Costs Of Credit Card Merchant Restraints”. UCLA Law Review. Univ. of Calif. Los Angeles. (See esp. the concise Conclusion.) https://www.sciencedirect.com/science/article/pii/S2214367X21000466?via%3Dihubw.uclalawreview.org/pdf/55-5-4.pdf

[25] Gossling, S & Humpe, A (2020). “The global scale, distribution and growth of aviation: Implications for climate change”. Global Env. Change 65 (2020) 102194. ttps://www.sciencedirect.com/science/article/pii/S0959378020307779

 

 

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