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Comparison of Airline Co-Branded Credit Card Programs Via Frequent Flyer Money Saver Analysis for Full-Service U.S

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Comparison of Airline Co-Branded Credit Card Programs Via Frequent Flyer Money Saver Analysis for Full-Service U.S PhD Dissertations and Master's Theses 6-2021 Comparison of Airline Co-Branded Credit Card Programs via Frequent Flyer Money Saver Analysis for Full-Service U.S. Carriers Bora Suavi Unsal Follow this and additional works at: https://commons.erau.edu/edt Part of the Business Administration, Management, and Operations Commons, and the Management and Operations Commons This Dissertation - Open Access is brought to you for free and open access by Scholarly Commons. It has been accepted for inclusion in PhD Dissertations and Master's Theses by an authorized administrator of Scholarly Commons. For more information, please contact [email protected]. Comparison of Airline Co-Branded Credit Card Programs via Frequent Flyer Money Saver Analysis for Full-Service U.S. Carriers By Bora Suavi Unsal A Dissertation Submitted to the College of Business in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy in Aviation Business Administration Embry-Riddle Aeronautical University Daytona Beach, Florida June 2021 © 2021 Bora Suavi Unsal All Rights Reserved. II This Dissertation was prepared under the direction of the candidate’s Dissertation Committee Chair and has been approved by the members of the dissertation committee. It was submitted to the College of Business and was accepted in partial fulfillment of the requirements for the Degree of Doctor of Philosophy in Aviation Business Administration Committee Chair Farshid Azadian, Ph.D. Committee Member Doctoral Program Coordinator, College of Business Shanan Gibson, Ph.D. Committee Member Dean, College of Business Lon Moeller, J.D. Committee Member (External) Senior Vice President for Academic Affairs & Provost ____________________ Date ABSTRACT Researcher: Bora Suavi Unsal Title: Comparison of Airline Co-Branded Credit Card Programs via Frequent Flyer Money Saver Analysis for Full-Service U.S. Carriers Institution: Embry-Riddle Aeronautical University Degree: Doctor of Philosophy in Aviation Business Administration Year: 2021 Although airline alliances work fairly effectively for paid flight segments, passengers who want to redeem frequent flyer miles often encounter difficulties. Sometimes airlines demand an extensive amount of air miles to book requests for award seats to not only their partner airline customers but also their own customers. Furthermore, while the airline co-branded credit card award mile earnings and redemption rates fluctuate significantly between different airlines, passengers are not well informed about which airline co-branded credit card requires the minimum amount of credit card expenditure to fly with an award ticket to their desired travel destination. A more useful and practical system is necessary to fulfill passenger’s expectations to overcome the problems associated with earning and redeeming frequent flyer miles on flights via airline co-branded credit cards. Grounded in consumerism theory, this research acknowledges that buyers, relative to sellers, often lack important information as they seek to make purchases. As such, efforts to help consumers make more informed choices benefit not only consumers but also the wider marketplace. IV In the first part of this research, a quantitative model called the frequent flyer money saver (FFMS) analysis was used to compare the official credit cards offered by the leading carriers’ loyalty programs operating in the United States via simulation. In the second part, an exploratory structural equation model (SEM) was used to determine the FFMS ratio’s factors based on the route characteristics. According to the results, United Airlines outperformed other airlines in terms of FFMS ratio distribution, whereas Hawaiian Airlines held the lowest position. Regarding the SEM results, the route characteristics including market share and number of passengers carried were negatively associated with the FFMS ratio. Based on this dissertation’s findings, when compared with Hawaiian and Alaska Airlines, the members of big three airlines (Delta, American and United) offer significantly higher savings in aggregate to their customers with respect to redeeming miles for an award ticket. Tentative findings also suggest a potential relationship between route characteristics and the FFMS ratio that should be further explored. Key Words: frequent flyer miles, aviation credit cards, award miles, frequent flyer credit cards, FFMS V DEDICATION I dedicate this dissertation effort to my family members, whose support helped me overcome every obstacle in my entire life. VI ACKNOWLEDGMENTS I am grateful to my Ph.D. advisors and Ph.D. committee members, Professors Massoud Bazargan and Professor Farshid Azadian, for supporting me during these past years. Professor Bazargan is someone you will instantly love and never forget once you meet him. He is the best advisor and one of the smartest people I know. I hope that I can be as lively, enthusiastic, and energetic as Professor Bazargan and, to someday, command an audience like him. His congress presentation regarding aircraft boarding strategy is the most inspiring presentation I have seen so far. Professor Azadian has been supportive and has given me the freedom to pursue various projects without objection. I appreciate his helpful advice and suggestions in general. He has also provided insightful discussions about the research. I am also very grateful to my dissertation advisor, Professor Scott Ambrose, for his scientific advice and knowledge and many insightful discussions and suggestions. He is my primary resource for answering my science questions and was instrumental in helping to complete this dissertation effectively. I thank all the present members of the Turkish Airlines Ankara Sales Headquarters. Their help regarding access to the Star Alliance reservation database enabled me to generate the mathematical model used in this dissertation in the first place. I first encored the frequent flyer award earning and redemption problem among Star Alliance Carriers with their help. I also thank Delta Air Lines, whose frequent flyer status match program enables me to use premium elite benefits of Sky Team Carriers while conducting research, although I was not a frequent flyer of this airline. VII Table of Contents Signature Page ............................................................................................................ iii Abstract ........................................................................................................................ iv Dedication .................................................................................................................... vi Acknowledgments .......................................................................................................vii List of Tables .............................................................................................................. xii List of Figures ........................................................................................................... xiv List of Acronyms ........................................................................................................ xvi CHAPTER I Introduction ........................................................................................... 14 Chapter II Airline Loyalty Programs .......................................................................... 21 2.1 The Concept of Airline Loyalty Programs ...................................................21 2.1.1 The Current Trend in Airline Loyalty Programs ..................................22 2.1.2 Frequent Flyer Rewards as a Share of Total Passenger Mile Revenue ........................................................................................................23 2.1.3 Revenue Generation Effect ...................................................................24 2.1.4 Financial Contribution ..........................................................................24 2.1.5 The Special Case for Airline Loyalty ...................................................25 2.1.6 Loyalty Programs and the Airline Industry ..........................................27 2.2 Different Types of Frequent Flyer Programs ...............................................29 2.2.1 Frequent Flyer Program Typology .......................................................29 2.2.2 Legacy frequent flyer programs ...........................................................31 2.2.3 The Advanced Frequent Flyer Programs .............................................32 2.2.4 Autonomous Frequent Flyer Programs ................................................33 2.2.5 Frequent Flyer Programs as a Global Perspective ...............................34 2.2.6 Differences Between Low-Cost and Full-Service Carrier Frequent Flyer Programs. ......................................................................................................36 2.3 The Structure of an Airline Loyalty Program ..............................................38 2.3.1 The Accrual of Miles ...........................................................................39 VIII 2.3.1.1 Earning Miles From Flights ..............................................................39 2.3.1.2 Earning Miles from Non-Airline Activities ......................................42 2.3.1.3 Exchanging Frequent Flyer Miles for Other Services ......................43 2.3.1.4 Purchasing Air Miles ........................................................................43 2.3.2 Redemption of Miles ...........................................................................44
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