Abstract

"From Luxury Marketing to Precarious Futurities: The Speculative Economies of North American Frequent Flyer Programs"

Jiakai Jeremy Chua, University of Southern California (jiakaijc@usc.edu)

In the wake of the all-out price wars between US carriers after the passage of the 1978 Airline Deregulation Act, the Frequent Flyer Program (FFP) emerged as a distinct competitive strategy for airlines to at once differentiate their brands and retain customer loyalty. The imperative of the FFP was simple if crude: a combination of elite benefits and “miles” as a rebate for present flying translated into enhanced creature comforts and gratis future flights. The FFPs captured the aspirational imaginations of their customers – a phenomenon deftly portrayed in the 2009 film, Up in the Air. Nevertheless, what was once purely a cost center in its earliest incarnations has developed into one of the most profitable revenue channels for all North American carriers – so much so that contemporary airline operations like American have mustered the incredible art of profit through FFPs even while losing money actually transporting passengers.

The FFP remains an essential but arcane component of airline companies – its economics is not well-understood by scholars, the currency of a mile is often shaped by whims and corporate fiat, and there is an accounting blackhole where the FFP stands within a firm. Due to the COVID-19 pandemic, public fillings have revealed that valuations of FFPs are outsized to the market cap of the airlines, which warrant both scrutiny and concern. This paper traces the beginnings and development of North American FFPs from 1978 to its present forms. I argue that while the original innovation of the FFP was to engineer a sustainable customer base based on luxury marketing and targeted discrimination, contemporary FFPs are predicated on dangerous speculation, delayed and oft-unfulfilled “futurities”, and a wholly unregulated market -- subjecting customers to one-sided capricious inflationary risks while also posing immense financial risks for airlines, their lenders, and their shareholders.