The Economics and Accounting of Frequent Flyer Programs

Abstract

De Boer offers a compelling and insightful exploration of the how and why behind today’s frequent flyer programs (FFPs). De Boer links some of the most well-known economic theories to the core designs deployed in airline loyalty strategy, explaining how the programs are set up to achieve certain economic goals. He also demonstrates how FFPs from the start have embraced some of the more recent insights in behavioral economics. For each FFP model, De Boer identifies the key revenues and cost drivers, and explains the underlying dynamics. De Boer reviews breakage levels for leading FFPs, and provides insights into liability management. Lastly, De Boer provides a complete overview of the key accounting principles for FFPs, and establishes how management projections form a key input into the accounting model.