[112012123]

At least on an accounting basis though, airlines do actually make remarkable profits on their frequent flyer programs. In 2015 or so United disclosed their FFP business was earning ~67% margins, as against ~2% for the rest of the airline. I don't think they have disclosed more recent numbers, but margins are probably higher now.

That said, these profits are in part an accounting artifact. This is because up until very recently airline accounting rules only required carriers to realize the marginal cost of carrying a passenger when frequent flyer miles were redeemed. Since the marginal cost of a passenger is only ~$20 or so, this yields great margins.

These days however the overwhelming majority of airline miles are awarded for credit card spending rather than actually flying, though. As your second article notes, for United the split is 70/30 or so.

[mcv]

Does that mean they would make more money if their planes were filled entirely with frequent flyers, and not with regular passengers? I don't see how that makes sense. Flying the planes still costs the same. I doubt those frequent flyers pay significantly more (isn't the whole point that they get a discount?), so it's weird that they make so much more profit there.

I feel like one of those numbers includes all the costs while the other doesn't.

[112012123]

Your read is exactly correct - the frequent flyer costs aren't 'fully loaded', and accounting rules in the US have changed to more fully account for these costs.

That said, the logic behind structuring the rules this way isn't completely crazy. Essentially, award seats are intended to be seats that the airline cannot sell to paying passengers. Since those seats would otherwise earn the airline nothing, accounting for them on a strictly 'found-money' basis makes some sense.

This sometimes creates amusing situations when new loyalty program managers look at their margins and conclude massive sales make sense. For one example, see below - Garuda selling ~$20,000 first class tickets for ~$200 worth of points. On an internal accounting basis, this was still profitable for the program!

https://onemileatatime.com/garuda-indonesia-first-class-awar...