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Frequent Flyer Programs Help Airfares Gain Altitude, Says New Study From University of Toronto’s Rotman School of Management. go to website delta frequent flyer

Ascribe Higher Education News Service April 7, 2008 Byline: Rotman School of Management TORONTO, April 7 (AScribe Newswire) — Loyalty has its rewards. But a recent study shows that it has its costs too, with frequent flyer programs driving airfares at key hub airports up by about 5 percent. The cost of more expensive tickets, such as business fares, are pushed even higher, by about 9 percent.

“With deregulation of the airline industry in the U.S. in 1978 and in Canada shortly after, people expected to see airfares drop. Yet, at some airports, airfares remained fairly high,” said the study’s author, Mara Lederman, a professor of strategic management at the University of Toronto’s Rotman School of Management.

For years, there was speculation that frequent flyer programs may be the culprit, but evidence was scarce. To fill this void, Prof. Lederman looked not at the fares of airlines that dominate flight schedules at major hub airports – because these could command higher fares for reasons other than their frequent flyer programs — but instead at their frequent flyer program partners. Partnerships formed in the late 1990s between American Airlines and US Airways; Delta Air Lines and United Airlines; and Continental Airlines and Northwest Airlines were examined. The study found that – after the partnerships took effect, airlines’ fares increased at specifically those airports where partners dominated the flight schedule. For example, United experienced higher fares on its flights from Atlanta – an airport at which its partner Delta operates the majority of flights and where most people collect Delta frequent flyer miles. This suggests that travelers were willing to pay more for an airline’s flights once they could earn their preferred airline’s frequent flyer points on that flight.

In dollar terms, the findings suggest that an airline’s frequent flyer program could hike the price of a one-way flight out of a major hub airport by about $7 to $10. At the high end, a one-way business fare could cost at least an extra $25. see here delta frequent flyer

“This gives some sense of how much people are willing to pay for frequent flyer points,” said Prof. Lederman, adding that government restrictions on frequent flyer programs could lower flight costs for consumers. While increased competition from low-cost carriers at airlines’ hub airports may somewhat reduce airlines’ abilities to use their frequent flyer program to extract higher fares from price-sensitive leisure travelers, Lederman suspects that these programs still have a big impact on the fares that business travelers pay.

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Ken McGuffin Manager, Media Relations Rotman School of Management University of Toronto (000)-000-0000 mcguffin@rotman.utoronto.ca