Inside the Economics of IAG's Loyalty Program

The company wants investors to fairly value its frequent flyer scheme. It shared a lot of information last month about how it all works.

Dear readers,

Airlines outside the United States often salivate over the revenue American, Delta, and United capture from their loyalty programs — you’ve read that in this newsletter many times. Yet at an investor day last month, executives from International Airlines Group expressed no envy. In fact, they argued that by one important metric they’re doing better than the Big 3.

That metric is not absolute revenue, because of course, the Big 3 do make a lot of money from loyalty. Delta earned about $8.2 billion last year from its American Express relationship alone, and United and American likely aren’t that far behind. IAG Loyalty¹ — which says it has the world's fourth most valuable loyalty business —reported £2.64 billion in loyalty revenue (about $3.5 billion U.S.).

The metric isn’t percentage of total revenue either. On that, IAG earns about 9 percent of its revenue from loyalty, roughly 3 points less than the combined average of Big 3.²

So what is this mysterious metric, and why is IAG Loyalty so bullish?