Via Marginal Revolution, I thought this was fascinating: The profits from those airline frequent flyer Visa and Mastercards (like my Citibank Advantage Visa) dwarf those of the airline business itself. OK, so the profits of my tiny little company probably dwarfed the anemic profits of most airlines last year, just because they were positive. But the magnitude is staggering:
Juniper bank is contributing $455 million to the merger of America West and
USAirways in exchange for the right to issue its frequent flyer credit card. This was a
huge blow to Bank of America, which had been issuing cards for both airlines,
and BofA is taking the deal to court.
They have several more examples, with credit card companies providing much of the new financing in recent airline bankruptcies.
By the way, why is it that frequent-flyer miles holders, who are a creditor of the airlines after all, are the only major creditor consistently NOT asked to take a haircut in these bankruptcies. For god's sakes, there are retired workers losing a large portion of their pensions, but I still get to retain all my miles so I can go to Hawaii next year?
Update: The fact that mileage holders have not taken a hit in bankrupcy does not mean they have not ever taken a hit. Airlines from time to time devalue miles, by raising redemption rates, as Northwest did last year.