Why Your Airline Award Flight Is (Often) Not Exactly Free
Photo Credit: Southwest has added many tropical destinations in part to persuade more customers to sign-up for its credit cards. Pictured is an artist working on a painting at a celebration last year to mark new international service from Fort Lauderdale. Southwest Airlines
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Southwest doesn't care if you pay with points or cash. That's for good reason. Even if you pay with points, the airline often gets paid.
If you book an award ticket on an airline, is it really free?
That question is more complicated than it may seem. If you earn miles and points the old-fashioned way, by flying, the answer is probably yes. You'll fly free sometimes as an airline thanks you for your loyalty.
But if you generate miles via credit cards, as many travel-savvy spenders do, your flights aren't exactly free. Your credit card company is buying miles from the airline, and using them to reward you. How much the card companies pay is a trade secret, but analysts say it's probably around 1.25 cents per mile.
Let's do some back-of-the-napkin math. You can buy a one-way ticket next month on Southwest from Chicago to Orlando for about 4,100 points. At 1.25 cents per mile, J.P. Morgan Chase would pay Southwest about $52 for a segment that costs $77 in cash. Since cards have other benefits for airlines as well, Southwest is "really ambivalent whether it's a cash paying customer or a reward customer," Andrew Watt
