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How do British Airways profit from Avios?

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  • byronlewis

    Hello, fairly new member to BA’s Club and doing my first Avios flight today. Its cost me £1 plus Avios for Club Europe LHR to Bologna.

    How can Ba make anything out of me? I’ve had Fast Track security, free seat selection, free baggage, a breakfast, orange juice, tea, coffee, some beers and champagne. Plus the food and drinks onboard.

    And i’ll have the same on the return leg.

    How is this possible?!

    BJ

    Loyalty schemes can be hugely profitable. Large numbers of partners from amex to Sainsburys pay for them to reward customers. Many customers who end up with them then use them unwisely or not at all to the benefit of airlines selling them. Despite the vast number of page views HfP gets, it remains only a fraction of the numbers holding and using loyalty points so most are not as clued in as HfP readers.

    ChrisC

    It may not have made anything from you on this flight but you’ve paid for in other ways from other flights you’ve bought where you’ve earned avios.

    If you have an AMEX card that gives you avios for your spend then AMEX have paid IAG Loyalty (the IAG entity that runs the avios side) for those avios so there is cash in the system.

    Ditto any other non BA avios earning opportunity you may have benefitted from those avios will have been bought by the company giving you them.

    And of course if you’ve bought avios then that’s part of the pot that eventually makes its way between BA and IAG loyalty.

    VinZ

    Well said BJ. Savvy readers exploit the system to their own advantage.

    It’s like asking the question: how do credit cards make money? With those who use them unwisely (paying interest rather than the bill in full every single month for example). There’s a Netflix doc series about all sorts of things including one on credit cards.

    ed_fly

    Typically £1 redemptions are not the best value anyway. Now Avios can be converted to nectar, you need really carefully assess whether you’re getting value from redemptions. Depending on how you acquire your Avios, this becomes even more relevant.

    Londonsteve

    BA actually made a fair amount of money from you on that flight, especially since you chose the £1 plus Avios option which isn’t an efficient use of your Avios. It suits ‘Avios rich’ people who receive large amounts of miles through no expense to themselves, for example, from business travel and aren’t tempted to exchange them for better value redemptions. The Avios you used will have resulted in a cash payment from IAG loyalty to BA. True, it’s probably far less than some people paid to fly in the CE cabin that day, but generally reward seats booked with Avios are seats that the airline algos are predicting will fly empty if they don’t quietly flog them cheap to One World loyalty scheme members. It saves them the embarrassment of dropping the price with a few days to go in order to get rid of the last remaining sets, a tactic that low cost airlines are not shy to do as their only goal is to fly completely full, no matter how much they got for individual seats (the more the better, obviously!).

    Next time look at the other cash and Avios combos before you book a £1 option. You’ll get a much better return per Avios with those. Flying to zone 2 with CE the best value is usually the option that requires you to pay £25 in cash but if you’re not Avios rich, there is sense in choosing the largest cash component and the smallest Avios amount, as usually it’s still way cheaper than booking the flight for cash at the public fare and you save Avios to repeat the experience in the near future.

    byronlewis

    Thanks for the replies all. Will take a look at the netflix doc too! I’ve got another flight coming up next month, that ws £1 as well but got 1/2 price avios redemption as solo traveller on a 2 for 1 voucher. I’m learning slowly…and enjoying the experience thus far!!

    hugog

    What is the Netflix doc called please?

    Lady London

    Welcome @byronlewis, it seems Headforpoints will be a good ongoing source of inspiration and information for you.

    Happy travels.

    WaynedP

    Probably referring to Netflix five part documentary “Money, Explained”

    CarpalTravel

    Loyalty schemes can be hugely profitable. Large numbers of partners from amex to Sainsburys pay for them to reward customers. Many customers who end up with them then use them unwisely or not at all to the benefit of airlines selling them. Despite the vast number of page views HfP gets, it remains only a fraction of the numbers holding and using loyalty points so most are not as clued in as HfP readers.

    I know others have already confirmed this, but in my experience it is so entirely true that I want to repeat on it. This site can be a bit of an echo chamber for avios earning; it is easy to think that everyone, everywhere, are doing the same and really optimising their usage.

    The truth is though that despite my best efforts, none of the people I have ever tried to help have come anywhere close to making good use of their opportunities. An Amex Plat here (never using any of the Amex offers), a Capital on Tap card there (using it for no more than the odd purchase), these businesses are benefitting from the enticements they are “giving” away. The card firms win and BA wins as ultimately, the Avios they sold don’t get taken advantage of. I even know someone who has almost 160k Avios and it is almost certain they will never, ever use them.

    Beyond signup bonuses, it seems very few people can be bothered to max out their earning opportunities or simply make good use of them.

    Of course that all said, maybe I am just a very poor teacher!

    NorthernLass

    @CarpalTravel, no I just think most will never really appreciate what can actually be achieved in this hobby. Despite knowing that we fly in F and J regularly, my in-laws collected a stash of avios and then used them to reduce the price of economy long haul flights. I gave up on them after that! They are educated retired professionals so clearly there are many people out there just throwing their avios down the drain as we HFPers would see it, while pouring actual cash into BA’s coffers.

    BJ

    @CarpalTravel, don’t think it’s a question of being a poor teacher. There has been many stories in the comnents over the years of reluctant other halves who still cannot be persuaded even with their bottoms planted firmly on First class seats and champers in hand. We also see a lot of player 1 this and player 2 that, the reality hehind those posts is often player 1 = player 2 🙂 Beside, sometimes we all make silly mistakes ourselves, even when we know better, it just happens.

    CarpalTravel

    @NorthernLass as painful as that is to read I weirdly find it comforting, thanks for sharing. Even recent compelling deals (Amex Plat @ 70k points, Barc Avios @ 50k points) which can be readily turned into Nectar are dismissed almost immediately. Be it due to the upfront cost of the card or general apathy. Explanations around Pro-rata refunds, Amex offers, insurance cover etc. don’t seem to register.

    I wouldn’t mind but people like my sister consider themselves to be super frugal and me, extravagant.

    “The cynic knows the price of everything and the value of nothing.” 😊


    @BJ
    – 100%. Could not agree more (and I do speak from experience!).

    Sorry, gone a bit off topic!

    Gavin454

    Even recent compelling deals (Amex Plat @ 70k points, Barc Avios @ 50k points) which can be readily turned into Nectar are dismissed almost immediately. Be it due to the upfront cost of the card or general apathy. Explanations around Pro-rata refunds, Amex offers, insurance cover etc. don’t seem to register.

    Indeed, a friend said I was flash and extravagant for using an Amex, I tried to explain I could refer him and it would be profitable for us both, and that I make quite a bit of profit out of the Amex/points game. He wasn’t interested at all, more than happy to continue putting all his spend on his debit card instead (with no benefits).

    Out of the few people I do know who are into it, most of them waste their points by reducing the cost of cash flights, or making long-haul economy redemptions when they could have just paid cash for not much more than the fees/taxes. The problem is that people often see Avios as “free” and so consider the fees/taxes component to be the only cost. However, even if they come via flights booked by your employer, you still have to consider the opportunity cost of not converting them to Nectar @ 0.8p

    AJA

    I have had the BAPP card for 15 years and have earned vouchers every year. I have had some great long haul trips using them but my first booking in First using a 2-4-2 in Jul 2020 was cancelled due to the pandemic and I have burned the last 2 on trips in CE to Europe rather than lose them. Still great value. I have not flown economy since holding the BAPP thanks to Avios used either in conjunction with a 2-4-1 or to upgrade from WTP to Club which is one of the best value uses other than with a 2-4-1.

    BA have profited from the Avios purchased by Amex to reward me plus they’ve made decent money selling me seats in CE and CW using the vouchers or plain cash bookings needed to earn TP to earn or retain status. I fly BA more than any other airline which is a result of BAEC membership. Other than that I fly OW airlines if I can because of status benefits across the alliance. I make it work for me but I have no illusions that BA is profiting from me and thousands like me.

    Rob
    HfP Staff

    To get back to the point 🙂

    IAG Loyalty sells points for 0.8p to 1p-ish to businesses

    BA accepts around 0.55p for an Avios when redeemed. If these seats would otherwise go unsold then BA is still up.

    Rest is profit – IAG Loyalty is astoundingly profitable in terms of margin

    Lady London

    Airline loyalty programs can be worth more than the airline themselves. That means someone thinks money is being made, or at worst case, can be made from them. Why do you think avios has been made a separate company and is no longer part of BA?

    Air Canada did something similar when they sold their Maple Leaf program a few years ago for a huge valuation. However whoever bought it needed to understand all the dependencies in order for the program to continue making money in ways it had done previously IIRC and to make sure any dependencies that were within the gift of Air Canada, would also remain assured after the sale. I am not sure what happened but recently apparently Air Canada purchased the ptogram back again at a fraction of its valuation they sold it for

    Ori

    I always assumed that the points companies make money out of wastage more than anything else.
    My friends dad have 300,000 avios when he died and the mum refused to transfer them so they just got wasted.

    I wasted points on a flight to Sofia this coming Xmas.
    I had to book fully flexible fares as I didn’t know if my son could make it. Avios booking gave me that flexibility.
    My mistake was booking economy, but I used a 241 as I don’t want them going to waste and my logic was better to use it on something than nothing.

    Saying that, economy flights were £300 each so for me using 27,000 avios saved me £600.
    Most efficient use? Nope, but it worked for me because of flexibility.

    Reality is, you can send your mind into a twist constantly trying to maximise the return from avios points, but what ends up happening to a lot of people is that just end up accumulating them. I have friends with millions of avios points. They can never use them due to not knowing exactly where family holidays are going and can’t book that far in advance!

    Couple of years ago, I had no avios points, but thanks to websites like this, I have been carefully accumulating points to do a dream trip long haul with my son.

    John

    So how’s the Avios/Nectar partnership working out for the bottom line of those companies?

    Techonista

    Why do you think avios has been made a separate company and is no longer part of BA?

    Avios has always been a separate company, originally it was a subsidiary of BA (well it was founded a standalone company which BA subsequently acquired IIRC). When IAG was formed and BA and IB adopted Avios as their shared loyalty currency Avios was moved to be a subsidiary of IAG.

    You’re not wrong that the loyalty part is extremely valuable, this video covers it for some US airlines: https://www.youtube.com/watch?v=ggUduBmvQ_4

    Rob
    HfP Staff

    What Air Canada did with Aeroplan was genius 🙂

    They sold off the business for a fortune, with a 20 (?) year contract with Air Canada to run its loyalty scheme.

    After 20 years, Air Canada refused to renew. The owner, AIMIA, was forced to sell it back to Air Canada for virtually nothing, because virtually nothing was more than the zero they would have otherwise.

    slidey

    Are ba not making a profit everytime anyone books a flight from london? The lol fees are getting close to the cash fares that you can/could get exEU?

    memesweeper

    So how’s the Avios/Nectar partnership working out for the bottom line of those companies?

    That will be a closely guarded secret.

    What’s not a closely guarded secret is this: most firms sign up to Nectar loyalty believing they will net benefit from rewards; they then leave a few years later as their loyal customers redeem in droves in Sainsburys/elsewhere. It will be interesting if BA buck the trend.

    What’s interesting to me is how many people push bank/Amex rewards into Avios and then redeem through Nectar: I’m assuming that’s a profitable transaction flow for IAG, and might make a large net outflow of Avios to Nectar commercially acceptable for BA/IAG.

    polly

    Our daughter and family x 3 tkts, on avios, l shamefully paid max avios 29k one way and £1.50. Were selling at between £350 and £400 pp this weekend from Bergerac to LCY. I only bought avios tkts for them, as l could cancel if ness, as they have a 4yo. So how on earth did BA make anything there….
    When she couldn’t check in last night, l guessed they were going to offload them as they could sell those tkts for so much more. Folks needing to get back to the city. No BA flt tomorrow either. So, very very valuable tkts to BA today…
    They had to do an airport check in, it turns out. Staff had nothing to do, so we guess they made everyone check in at the airport. Annoying.

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