Making airline coalition frequent-flyer programs profitable: An analytical investigation: Fid-Bau Portal

Making airline coalition frequent-flyer programs profitable: An analytical investigation

Guo, Xingchen / Jiang, Changmin / Jiang, Siming / Guo, Huanxiu

Abstract This paper investigates the conditions for airline coalition frequent flyer program (FFP) to exist. A stylized economic model is proposed to analyze both stand-alone and coalition FFP. With the help of numerical analysis, we identify the profit-maximizing conditions for both types of FFP and recognize critical thresholds for a profitable coalition FFP. We find that a coalition FFP would not be profitable if the reward value were far less than the total price of airfare and partner product. In addition, the optimal reward of a coalition FFP will increase as the total price rise. Finally, coalition FFP is unlikely to be more socially efficient than stand-alone FFP. Based on the analytical results, we provide policy implications and highlight the importance of optimal rewards, partner price coordination and market supervision for the successful and profitable airline coalition FFP.

Highlights • We investigate the conditions for the existence of coalition frequent flyer programs (FFP). • A stylized economic model is proposed to analyze both stand-alone and coalition FFPs. • A coalition FFP would not be profitable if the optimal reward value was too low. • The coalition FFP could be profitable when the commercial partner's price is at a median level. • Profitability of a coalition FFP hinges on aligning reward value with total costs.