Illustrated Economics: Airline frequent flier programs

It's time for Howard's Illustrated Economics.

This morning, the role of Hawaii in airline frequent flier programs.

Mileage programs reward loyalty, but at some point you have to, you know, reward loyalty.

Nationwide, 6.8% of all fliers are flying free, burning up miles. But on routes to Hawaii, the percentage burning miles is higher, 11.4%. That's half again more passengers flying free.

Southwest Airlines is a special case. While the national average of passengers burning miles is almost 7%, on Southwest it's double that, almost 14% of passengers using points instead of cash. So if the average on Hawaii routes is more than 11%, half again more than the national average, on Southwest that would work out to 21%, better than one passenger in five, flying free.

But here's the interesting thing. If a Southwest customer flies to Hawaii on frequent flier miles, that means he's not burning off those miles on mainland routes. But the decision to burn here instead of there, is made in the customer's head. How will Southwest measure that as it works out the profitability of flying to Hawaii?

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