Many of the routes of airlines such as the U.S. run

Many of the routes of airlines such as the U.S. run into a deficit every time they fly with passengers on board. Fuel is expensive, competition is severe, and labor costs continue to rise, so it is best to manage the deficit not to grow. Then why not go bankrupt.

Most airlines run mileage programs. Usually, it is established as a subsidiary and operated there. What is interesting is that the larger the airline, the greater the value of the mileage subsidiary than the parent airline. Although the airline owns 100% of the mileage company, the parent company’s value is less than that of the mileage company. This means that mileage is the only real money in the airline industry. In particular, the mileage program holds out even if airlines are hit by rising crude oil prices and the pandemic.

Here’s why. Selling directly to passengers is a seat for every flight. It moves a huge amount of passengers every day, and it’s hard to make a profit here. Mileage points are issued by the airline itself. Since it is issued without real assets, the issuance cost is very low. It promises future value like a bill.

The mileage is sold to banks, telecommunications companies, department stores, gas stations, hotels, rental car companies, especially credit card companies. You don’t know when to use the points, but the airline immediately secures cash when selling them. It leaves a margin by selling them at a price higher than the issuing cost. Since mileage is not consumed even if issued, a fairly high percentage of mileage points expire and it is still the airline’s profit.

Even when using it, it is not possible to use it as freely as when buying a ticket, but it consumes the remaining seats of the plane, which could not be sold out even if the airline sold it hard, and the empty seats that were almost wasted in the off-season. For airlines, it is unconditionally advantageous to sell it as mileage points rather than receiving cash.

Korean airlines are making a lot of money from mileage programs as well. Just as Sony Insurance and banks once made the majority of the group’s assets and Starbucks had the highest gift certificate returns, airlines make the majority of their profits from financial instruments called mileage programs, just as GE did in manufacturing. They are financial institutions that deal with special financial products that do not require interest payments, such as gift certificates, mileage, and insurance.