Wonderful write-up/long-read in the Financial Times today—though missing the necessary money element and snarkiness so happily provided by yours truly.
"The Lucrative Business of Airline Loyalty Schemes" gives us a lay of the land of the airline industry and its myriad of loyalty points—even to the point of interviewing a YouTube influencer (hashtag points chaser).
Airline points are shitcoins before shitcoins were cool:
- they print the points themselves,
- they custody the points for you,
- there are no directly associated liabilities,
Thus, they are non-interest-bearing, non-redeemable liabilities, (Yes, they can be redeemed in flights, which an airline can always supply on demand, but you can't "withdraw" your points in harder money), that end up financing a decent chunk of a company's balance sheet. @jimmysong was good on this a few years ago: "Airline Miles Are the Original Altcoins."
And just like shitcoins, these programs are superficially tempting. You can get goodies for free!
The dedication shows how much loyalty programmes mean to some flyers. These include both “air miles” schemes, which allow customers to earn points and then redeem them on flights, and separate “status” programmes, which offer airlines’ best customers a few perks to ease the strains of modern-day air travel, from lounge access to chauffeur-driven cars.
plenty of these influencer suckers around:
Jones, who documents his travels on a popular YouTube channel, is part of a global community of frequent flyers who research how to earn air miles and top frequent-flyer status as efficiently as possible. “You have to enjoy the plane side of travel more than the actual destination,” he admits.
Precisely right. Being a points guy gives you the occasional "free" perk, but you're certainly paying for it in other ways (inconvenience, spending too much time at airports etc).
Airline miles programs are the worst of consumer loyalty/brand capitalism meets the worst of financialized capitalism, in an effort to step closer to the monetary spigot—in a sense becoming the monetary spigot ("Everyone's a Scammer," Goldstein, Sept 2014)
things really changed in 1987, when American Airlines partnered with Citibank to launch a co-branded credit card offering users air miles for every dollar spent. This scheme of selling frequent-flyer points to financial institutions transformed mileage programmes into complex but highly profitable businesses in their own right.
I don’t even really blame people thinking that once banks get involved in things, thriving businesses go to shit (#867043). They just miss why that is—hint: it’s the money, stupid.
The structure of an airline shitcoin is a simple money-now-for-possible-benefits-later trade:
it seems like a near-perfect business model: airlines can create as many points as they like out of thin air, and then sell them on to banks and credit card companies. They can also sell miles to partner hotels, car rental companies or shops, in effect becoming the central banks of a lightly regulated financial ecosystem. While airlines can enjoy instant revenue from selling air miles to banks and other third parties, the cost of customers redeeming their points through booking seats is deferred into the future, says John Grant, an executive at airline data company OAG.”
It's the ultimate financialization of a business that doesn't need it (i.e., shitcoinery). You just need a sucker on the other end, willing to hold your irredeemable, non-interest-bearing liability for free/hopes of upgrades/lounge access.
put differently, it's the age-old story of monetary economics: MONEY DEMAND
Pull up any shitcoin whitepaper or "tokenomics" segment and you'll find elaborate descriptions for how exactly you'll get suckers to hold your worthless, inferior money (#793537). The Luna/Terra people a few years ago were pretty upfront with their bribery: deposit you stablecoin in our Anchor protocol and get yield of 18%. #747181
The U.S. government is less extreme, though no less persuasive: use our USD for paying the tributes (sorry, "taxes") we mandate. Oh, and it's the legal tender of the land. Oh, and if you're a gulf nation exporting oil, we hint hint have some warships around to ensure peaceful petro-transactions.
Point is: all money require some reason for consumers to hold it. As I put it for Bitcoin Magazine a few years ago: "Only Bitcoin Gets Its Value Organically"
Turns out the airline loyalty programs became too widespread. That is, they overdid the delicate balance between offering goodies/convenience to their bagholders and the allure of getting free financing for themselves. Same goes for ordinary fiat money printers: they need enough credibility not to rug you for you to hold their liabilities at all (#854062), but if they had zero ability to debase you or extract real goods and services, there'd be little purpose in them running their scheme.
Part of this is the inevitable zero-sum exclusivity of an airline loyalty program: If the value of extra perks like first class or better service or lounges are what's driving adoption, then the more people/plebs chase the airline points, the less valuable these schemes become to the top echelon. I pay extra/do your points game so that I can get exclusive benefits. But if every pleb gets exclusive benefits, there's no longer any reason for the guy forking over thousands of dollars for an Amex card or hopping through the world for extra points to go through that. And like all forgotten Starbucks and Amazon gift cards lying around, they earn their issuing company their worth in free financing/pre-paid revenue the longer they just sit around unused. Same with points: we all have them sitting in some customer loyalty account somewhere, hardly ever being used. CONGRATS, British Airways or Delta or whoever, here's my free financing for yah.
So now, of course, airlines have to default/inflate their "money" (i.e., make it no longer reach as far or be worth as much).
Ironically, the new generation has sort of understood what's up—and left the loosing game:
Perhaps the biggest challenge facing airline loyalty programmes is growing evidence that passengers themselves are becoming less loyal. [… ] the trend is even more pronounced for younger travellers, with those under the age of 40 typically spending with a greater number of brands than older people, whose spending is more concentrated.
Anyway, fascinating big read and great underlying theme of money demand
When the money doesn’t work, everything else tends to turn into money-like substitutes. #743123
That is today's money lesson
Peace,
/J
non paywalled here: https://archive.md/Tl1Jx