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Seven Pillars of Wisdom for Bond Buyers from Dan Fuss

Seven Pillars of Wisdom for Bond Buyers from Dan Fuss

There are no totally safe places in the bond market. The threat of capital loss is nominal if you invest in short-term Treasuries, but you have supreme reinvestment risk.

Dan Fuss, Loomis, Sayles & Company The Loomis Sayles Bond Fund has returned more than 10 percent a year over the past 20-plus years—about 3 full percentage points beyond the return for the entire bond world all through this same period. At the helm of the fund since 1991 sits Dan Fuss, who is also vice chairman of the Boston-based Loomis, Sayles & Company. He has been handling investments for more than half a century. Dan Fuss was honored March 8 2012, as the beneficiary of The Lipper Award for Excellence in Fund Management at Lipper’s annual mutual fund awards ceremony in New York City. According to Jeff Tjornehoj, head of research for Lipper Americas, the Award for Excellence in Fund Management, “recognizes an outstanding asset manager who has delivered consistently strong risk-adjusted returns to their investors and, in the opinion of Lipper’s research analysts, represent the best of the funds industry.”

  • Don’t trade. Even institutional buyers get killed by bid-ask spreads. Only exception: coupon Treasurys.
  • Avoid junk. Especially the covenant-lite stuff that is coming out now.
  • Buy TIPS direct. If you must own inflation-protected bonds (yields are meager,) but at a Treasury auction to avoid the nasty spreads. Inflation insurance in the form of TIPS, or Treasury Inflation Protected Securities, has returned about 10% this year, according to Barclays Capital indexes.
  • Stay in North America. Japanese and European yields are ridiculous.
  • Beware ETFs. The liquidity of exchange-traded funds will evaporate in a crash if they own junk or emerging market bonds.
  • Hold some cash. Put it aside to use in the next financial crisis.
  • Look for discounts. A corporate bond trading at 90 cents on the dollar won’t be called away in the rebound.

As you head to work in the morning and look around you, you get a sense for what season it is. Just as the calendar has seasons, there are also seasons of the economy, what one can also refer to as “cycles.” These can greatly affect bond returns. One advantage I have is being older than the hills . . . I’ve seen a good number of seasons, and I can perhaps recognize them a little better or quicker than most.

Market Unpredictability in Bond Markets

Bond markets in many ways are like other financial markets, where market unpredictability can play an imperative role in determining whether an investment will be moneymaking. The main source of volatility in the bond market is a variable interest rate since this affects the coupon on the bond, which is where the profit is made. If an investor bought a bond with a fixed coupon rate, changes in the interest rate will not affect the bond. However, if the coupon rate is associated to a variable interest rate and that rate changes, it may be advantageous for the bondholder to sell the bond rather than keep it until the maturity date. Traders, institutions, and other actors in the bond market implement transactions like this every day; the sum of these actions is what makes up the bond market.

A significant theory of finance is that the evaluation of returns is only meaningful on a risk-adjusted basis. However, risk is often hard to measure. This creates a chief restriction in the delegation of investment decisions. Financial go-betweens and investment managers that are evaluated based on deficient risk metrics face an inducement to buy assets that comply with a set yardstick but are risky on other dimensions.

But since individual voters cannot change election outcomes, they will not carefully weigh benefits and costs of default. Instead, they will place massive weight on symbolism and status-group affiliation—they will allow their feelings to abuse the facts of the matter. It is quite unlikely that defaulting nations will be considered high-status, so voters will be reluctant to support politicians who support default. Politicians who support default will likely find themselves turned out of office, a fact that foresighted politicians will keep in mind.

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Buyback Binge and Financial Engineering

Boston-based asset management firm Grantham Mayo van Otterloo’s Jeremy Grantham scrutinizes the buyback binge and the financial engineering it entails:

Jeremy Grantham of Grantham Mayo van Otterloo Grantham argues that capitalism is failing for now. He blames the rise of “stock option culture” and a complicit U.S. fed for the problem. Up to 80% of executive compensation now flows from stock options, which are tied to short-term performance of a company’s stock rather than long-term performance of the company. People respond to the incentives they’re given, so managers tend toward those actions which increase the value of their stock options. Investing in the company is slow, uncertain and risky, and so capital expenditures (“capex”) by publicly-traded firms is falling. Buying back stock (overpriced or not) and issuing dividends is quick, clean and safe, and so that sort of financial engineering expands. Interest rates at or near zero even encourage the issuance of debt to fund buybacks (“Peter, meet Paul”). It would be possible to constrain the exercise of options, but we choose not to. And so firms are not moving capital into new ventures or into improving existing capabilities which, in the short run, continues to underwrite record profit margins.

Source: The Mutual Fund Observer’s report after Morningstar’s Annual Investor Conference in Chicago.

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Social Responsibility is a Business Imperative

Social Responsibility is a Business Imperative

Is your company and industry doing enough to fulfill its social responsibilities?

Obviously, we can all do more. It’s not just a responsibility—for us it’s a business imperative. When we work to make our communities more vibrant, beautiful and prosperous, we’re investing in making them more attractive to our visitors and giving them a reason to travel. Of course social responsibility is not just about investing in places—it’s also about investing in our people.

A guiding principle at our company is when we take care of our associates, they take care of our customers. When we provide a community’s young people with education and training, we enhance the quality of the labor pool. And when we do our part to make entire communities or countries more prosperous, we broaden and deepen a global middle class who can afford to buy the services we sell.

Community service initiatives are laboratories for leadership. They help identify and develop promising leaders, build teamwork, and improve loyalty. And obviously, when our companies demonstrate social responsibility, we add to our industry’s reservoir of goodwill from governments, customers, and the general public.

Real and effective social responsibility is shared by the entire company. Although we set policies for Marriott’s “Spirit to serve our communities” program, our leaders worldwide are strongly encouraged to get involved on a personal level in their communities.

Knowing what a community needs is critical to social responsibility. Just swooping in and offering some global cookie-cutter program and acting as though we know bestjust doesn’t work. Our communities know best what they need—and how to achieve it.

In 47 cities—worldwide, our general managers form business councils representing all of the brands in their market. One top priority is to pool their capital and human resources to serve the needs of their communities.

Of course, there are many needs, and we can’t meet them all. So, we try to leverage our core expertise. That might mean offering ballroom space for charitable fundraisers, or donating surplus furniture to housing programs.

It also means tapping the experience of our leaders. For instance, 50 percent of Marriott’s managers come from the hourly ranks, and those people personally know how rewarding it is to climb the economic ladder. And those same leaders have helped to bring thousands of chronically unemployed people into the work force. Our leaders are the spirit behind a program we call “pathways to independence” —where people learn to find and keep good jobs.

In our pathways program, we match participants with mentors, train them, and help them with solutions to problems that get in the way of work-like childcare and transportation. When they complete the program, they’re guaranteed a job offer.

Environmental protection is another example of social responsibility. In environmentally fragile areas, we might support the community and its tourism-reliant economy by protecting endangered species. For example, at the JW Marriott Phuket Resort nearly 2,500 guests and locals gathered at sunset to release 10,000 baby turtles into the ocean—helping to raise awareness about the plight of these creatures.

Sometimes meeting local needs means building a roof over someone’s head. At a recent Habitat for Humanity project in Costa Rica, associates and top executives from Marriott worked side by side to help build several homes for local families. We’re doing the same in Washington, D.C., and many other cities.

We also need to invest in our communities by investing in our people and improving their lives. Travel and tourism is a 24/7 business, so we help our people deal with this. Every parent knows childcare can be a challenge, but when you’re working the overnight shift at a hotel, it can be almost impossible. That’s why we offer several resources to help families. One example is our associate resource line, which provides access to local services for help with family, legal, and other issues. We also coordinate closely with our people to find flexible and creative solutions to childcare needs. At our Desert Springs resort in California, for instance, six housekeepers with 11 children formed a “childcare cooperative” where they take turns caring for each other’s kids. The property helps coordinate their work schedules—and it works!

Now, all of these ideas are fine, but meaningless if we don’t address our industry’s challenges. We need to work together to get people traveling again.

Travel and tourism’s “perfect storm” has created great challenges. Yet, in every dark cloud there is a silver lining. The events of the last three years have significantly raised awareness about the vital importance of travel and tourism.

Our industry has top-of-mind awareness among world leaders. We must continue to educate our leaders about the tremendous value of our industry. We need to be active champions for our industry and continually ask, “Are we doing enough to make travel and tourism work for everyone?” We are doing a lot, but I hope we never allow ourselves to believe it’s enough in social responsibility, as in leadership, success is never final.

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Koch Industries’s Three Key Criteria When Evaluating A Deal

Koch Industries

Koch Industries is one of the largest conglomerates in the United States. It is based in Wichita in the state of Kansas, USA. Koch Inc has been ranked second by Forbes list of largest private companies.

'The Science of Success: How Market-Based Management Built the World's Largest Private Company' by Charles G. Koch (ISBN 0470139889)The Koch brothers, Charles Koch and David Koch, own Koch Industries. The conglomerate began as an oil refining business. Fred C. Koch, the Koch brothers’ father, had developed a more efficient method for refining gasoline which allowed him to compete with established refineries. Koch Industries has since expanded into other manufacturing sectors. The Koch brothers are equally infamous primarily for their involvement in politics, including GOP fundraiser events, Super PAC spending in the hundreds of millions, and for their financial support of the Tea Party Movement.

Kochs Brothers: Charles Koch and David Koch

Here are the three key criteria when Koch Industries evaluates a deal:

  1. The business in question must be in trouble. When a company is teeming along, there’s not a lot of upside in any potential deal. If it has some sort of enormous problem, there is a better chance that Koch Industries can harvest profits from its revival.
  2. The deal must be a long-term play. Most public companies need to show good results on a quarterly basis. Even private equity funds need to show their senior investors that investments are paying off in at least a few years. Koch does not. Being privately held means the company has a long-term investing horizon and can think operationally and strategically in terms of decades.
  3. The target company must have key skills or “core capabilities” that will benefit the company over the long term. Koch doesn’t just bring money to the table. It bring expertise. And if Koch doesn’t already know something important about running the business in question, it will pass on the investment.
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Stay Ahead of Rising Costs

Stay Ahead of Rising Costs

Imposing accountability and awareness can go a long way to taming the bane of many businesses.

  • Share the Responsibility: You and your chief financial officer shouldn’t be the only ones trying to rein in spending. Grab your financial statements and make sure someone in the company is accountable for monitoring every line by listing an employee’s name next to each one. “If no one ‘owns’ a cost, very likely it will get out of control,” advises entrepreneur Jack Stack, author of “The Great Game of Business”.
  • Reveal the Price: Your office staff probably doesn’t know how much it costs the company to send a letter by overnight mail (ouch!). Similarly, a repair worker may not know the price of the parts he’s using to fix equipment. Telling them can save you a bundle. A maintenance coordinator at SRC Holdings, Stack’s Missouri-based vehicle components remanufacturing firm, was floored to learn that shrink-wrap was costing the company $2,500 a roll. She soon hunted down a vendor who would sell it for $1,800.
  • Monitor the Use of Items: Employees at Sandow who need pens, notebooks, and even Tylenol get them from a vending machine by inserting company cards that “pay” for the supplies and track their use in real time. The 350-person media business has saved thousands per year since installing the machines-made by Fastenal-at its corporate headquarters in Boca Raton, Fla., in 2012. “It has put our employees in the mindset of not being wasteful,” says Stephanie Brady, operations manager.
  • Spend Wisely to Win: By not chasing long-shot deals, you can slim your sales costs dramatically. “Market leaders are using the savings from pulling the plug on mediocre opportunities … to over-resource the business they want most,” says Neil Rackham, author of “Rethinking the Sales Force”. If you’re neck and neck with a rival and you both spend $50,000 to get a $2 million sale, the rival may beat you. Invest $100,000 and you’ll be likely to bag the client.
  • Raise Your Prices: When was the last time you took a course in pricing? For most entrepreneurs, the answer is “Never.” Get one on your agenda now so you know you’re not leaving money on the table. Meanwhile, read the Pricing With Confidence blog by Reed Holden, who has lectured at Columbia University and elsewhere. It’ll give you the courage you need to charge what your product or service is worth. A small price increase can have a giant impact on your bottom line over time.
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Critical Success Factors for Joint Ventures

Joint Venture Management

According to the Association of Strategic Alliance Professionals, there are 7 critical success factors for joint ventures:

  1. Well-defined shared objectives
  2. An appropriate scope for the partnership
  3. Support of senior management from both the JV partners
  4. Devoted champions on both sides of the joint venture partnership
  5. Strong relationship management at all levels
  6. Cultural compatibility / or respect for diversity
  7. A high level of trust
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Ideal Structure for a Successful Joint Ventures

Joint Venture Management

Joint ventures developed using familiar best practices can fail without a solid structure and a cross-process discipline for strategy, planning, operations, and implementation. Joint ventures that frequently struggle to sustain the continuity of vision as they develop and execute joint ventures.

  1. Balanced unique value added from shareholders to JV
  2. Business dependence between JV and shareholders
  3. Balanced returns from JV to shareholders
  4. Good mechanisms to manage support and involvement
  5. Balanced leverage between shareholders to ensure JV remains on the right path
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Brief Reviews of Recommended Books on Business History and Biographies

“Titan: The Life of John D. Rockefeller, Sr.”

'Titan: The Life of John D. Rockefeller, Sr.' by Ron Chernow (ISBN 1400077303) A biography of John D. Rockefeller traces his life the archetype of the American Dream. John D. Rockefeller began his life as threadbare country boy with nothing, remained an evangelical Baptist, and ended with the success and riches of royalty. As the Standard Oil magnate he controlled 90 percent of the oil market and went on to become the world’s richest man at the height of his active career. After the break-up of Standard Oil, Rockefeller became a legendary philanthropist and donated millions to medical research and education.

Buy ‘Titan: The Life of John D. Rockefeller, Sr.’ by Ron Chernow

Walter Isaacson’s Biography of Steve Jobs

'Steve Jobs' by Walter Isaacson (ISBN 1451648537) Drawn from three years of exclusive interviews with Apple co-founder Steve Jobs, established biographer Walter Isaacson offers a comprehensive portrait of the most prominent genius of our times. This thoroughly researched biography provides a fantastic insight into the process that made the Apple co-founder such a giant in computers. Jobs had an extraordinary obsession for creating “insanely great products” and had a vision of integrated architecture for Apple’s products and Apple’s processes for how engineers, designers, and marketers implemented a brilliant innovator’s ideas.

Buy ‘Steve Jobs’ by Walter Isaacson

“The Starbucks Experience: 5 Principles for Turning Ordinary Into Extraordinary”

'The Starbucks Experience: 5 Principles for Turning Ordinary Into Extraordinary' by Joseph Michelli (ISBN 0071477845) Joseph Michelli outlines that a huge share of the success of a trendy Seattle-based coffee shop that has turned into a lucrative international franchise comes from its creation of experience for customer and business culture. Michelli recognizes five fundamental values (‘make it your own,’ ‘everything matters,’ ‘surprise and delight,’ ‘embrace resistance,’ and ‘leave your mark’) that forms the success formula for the Starbucks culture and provides a number of anecdotes based on how the company and its employees have reinforced their connection with customers.

Buy ‘The Starbucks Experience: 5 Principles for Turning Ordinary Into Extraordinary’ by Joseph Michelli

“When Genius Failed: The Rise and Fall of Long-Term Capital Management”

'When Genius Failed: The Rise and Fall of Long-Term Capital Management' by Roger Lowenstein (ISBN 0375758259) Since the ’90s, practically every major investment house employed highly paid statisticians and mathematicians in their trading divisions. These “rocket scientists” developed and deployed complex, computer-aided trading strategies trying to beat the market. With two Nobel Prize winners among its partners, Long-Term Capital Management, a multibillion-dollar hedge fund, relied on computers to find historical relationships between related securities. If one security would trade out of line in comparison to historical patterns, the firm would place bets that prices would get back into the pattern predicted by their mathematical analysis. The combination of absolute-return trading strategies and high financial leverage employed by the hedge fund, ineffective regulations on hedge funds, imprudent banking, hubris led to a $4 billion- loss in investors’ capital and triggered the near collapse of the world’s financial system.

Buy ‘When Genius Failed: The Rise and Fall of Long-Term Capital Management’ by Roger Lowenstein

“The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance”

'The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance' by Ron Chernow (ISBN 0802144659) A 150-year multi-generation history of one of the greatest regal dynasties of American commerce and the banking empire that the Morgans built. Ron Chernow effectively captures the personalities and eccentricities of many of these key figures, Junius Spencer Morgan (who started merchant banking firm J.S. Morgan & Co.,) J. Pierpont Morgan (who lead a banking coalition that stopped the 1907 financial crisis and thus dominated the nation’s high finance) and John Pierpont ‘Jack’ Morgan, Jr. (who financed the Allies during World War I, the 1929 Crash of Wall Street.) An overarching theme is the long-term effects of regulation on the banking industry. In the second half of the 20th century, federal regulation made it progressively difficult for banks to make profits and financial institutions engaged in ever-increasing risk-taking in order to maintain revenue streams and profitability.

Buy ‘The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance’ by Ron Chernow

“Liar’s Poker: Rising Through the Wreckage on Wall Street”

'Liar's Poker: Rising Through the Wreckage on Wall Street' by Michael Lewis (ISBN 0393027503) Liar’s Poker is the very funny autobiographical account of Michael Lewis’s three-year, dog-eat-dog climb at Salomon Brothers. Salomon Brothers single-handedly invented a market for mortgage bonds that made the firm wealth. At Solomon, Liar’s Poker was a figure of speech for the Salomon culture of intense risk-taking with immediate payoffs. Lewis rose in the firm from a training program newbie to the highest paid salesman in his trading class. When Lewis made massive loss for clients by selling them bad investment; yet Lewis’s co-workers gave him kudos for his impressive sales maneuvers that profited Solomon, as was the nature of the culture of Salomon Brothers. The firm’s greedy and innovative bond-selling practices resulted in a Treasury bond scandal in the early ’90s.

Buy ‘Liar’s Poker: Rising Through the Wreckage on Wall Street’ by Michael Lewis

“Small Giants: Companies That Choose to Be Great Instead of Big”

'Small Giants: Companies That Choose to Be Great Instead of Big' by Bo Burlingham (ISBN 1591841496) Bo Burlingham profiles companies that resisted the temptation to grow for the sake of growing. The book contends that being small businesses may in fact be turned into a competitive advantage if we learn how to take advantage of nimbleness. The central thesis is that small businesses able to follow the leader’s intuition, gather information more quickly, act on ideas swiftly with less need for justification. Being small can also allow extraordinarily personal relationships amongst employees, and with customers and suppliers.

Buy ‘Small Giants: Companies That Choose to Be Great Instead of Big’ by Bo Burlingham

“The Big Short: Inside the Doomsday Machine”

'The Big Short: Inside the Doomsday Machine' by Michael Lewis (ISBN 0393338827) A succinct, clear, and compressed explanation of the build-up of the subprime mortgage crisis and credit bubble during the 2000s and the resulting banking crisis of 2008. In a quest for profits, lenders, no longer concerned about whether borrowers could pay them back, used deceitful tactics to convince Americans to give up the equity in their homes and take on mortgages they could not afford. The credit default swap market bet against the collateralized debt obligation (CDO) bubble. The credit-rating agencies gave top ratings to risky assets, which opened the door to a huge market of CDO buyers. Many of key players bet against the CDO bubble and thus ended up profiting from the financial crisis. Michael Lewis highlights the unconventional nature of the type of traders who think against the grain and bet against the market.

Buy ‘The Big Short: Inside the Doomsday Machine’ by Michael Lewis

“Barbarians at the Gate: The Fall of RJR Nabisco”

'Barbarians at the Gate: The Fall of RJR Nabisco' by Bryan Burrough and John Helyar (ISBN 0061655546) An excellent account of backgrounds of the key players, the bidding sequences, and the events that led up to the leveraged buy-out (LBO) of RJR Nabisco by Kohlberg Kravis Robert (KKR.) In the late ’80s, executive Ross Johnson who, through a series of cunning moves, became the head of RJR Nabisco. Discontented with the low valuations by Wall Street, Johnson launched management-led leveraged buyout (LBO) of RJR Nabisco. This led to a bidding war involving Johnson (aided by Salomon Brothers and Shearson Lehman Hutton), Kohlberg Kravis Roberts (KKR), and Forstmann Little & Co.

Buy ‘Barbarians at the Gate: The Fall of RJR Nabisco’ by Bryan Burrough and John Helyar

“Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron”

'Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron' by Bethany McLean and Peter Elkind (ISBN 1591840538) Kenneth Lay, the former chief executive officer of Houston Natural Gas founded Enron as an interstate pipeline company in 1985 by combining Houston Natural Gas with Omaha-based InterNorth. By 1999, 90 per cent of Enron’s income came from trades over Enron Online, the company’s website for trading energy-related commodities. Enron quickly rose to become America’s seventh largest corporation and constituted what was principally a Ponzi scheme that manipulated and gambled its energy-trading business. “The Smartest Guys in the Room” contends that Enron was a con game almost from the start and shows how the company used cunning accounting techniques to keep the momentum of earnings growth.

Buy ‘Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron’ by Bethany McLean and Peter Elkind

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Books Recommended by Morgan Stanley

Morgan Stanley

Morgan Stanley recommends the following books to young employees, interns, and job candidates for their continued education of the financial industry.

History Tidbit: The Founding of Morgan Stanley

In 1933, the Glass-Steagall Act, and the broader U.S. Banking Act of 1933, mandated that commercial banking and investment banking operations could not function under a single holding entity. In response, the partners at J.P. Morgan & Co. led by Henry S. Morgan (grandson of the legendary J.P. Morgan) and Harold Stanley opened Morgan Stanley for business on 16-September -1935. Morgan Stanley currently has 60,000 employees in 1300 offices and operates in 42 countries.

Recommended Books on Legendary Investors and Personalities

Recommended Books on “The Great Financial Houses”

Recommended Books on Capital Markets, Financial Industry, and History

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How Airline Frequent Flyer Programs Make Money

Singapore Airlines KrisFlyer Frequent Flyer Program

Airline frequent flyer programs were first launched in 1979 by Texas International Airlines, which in 1982 merged with Continental Airlines, which in turn purchased and merged with United Airlines. In 1981, lzmnyq American Airlines with it’s AAdvantage program became the second airline to start frequent flyer loyalty programs. Almost all the major airlines around the world, including the discount airlines, now have frequent flyer programs.

Frequent flyer programs were first introduced to foster brand loyalty among customers of the airlines, most importantly among high-yielding business travelers. Generally, frequent flyer incentives were based on miles or sectors flown.

For the most part, airlines are fixed-cost operations. The incremental cost of flying an additional passenger is relatively low if a flight is not full. Therefore, airlines allow customers to redeem their accumulated miles based on redemption charts decided by the revenue management departments at the airlines. Of course, there are blackout periods (customers cannot redeem their seats) during those times of the year when yields are likely to be higher and thus airlines could draw more revenue for higher demand seats from fare-paying passengers.

American Airlines AAdvantage Frequent Flyer Program

With the evolution of airline loyalty programs, airlines introduced the concept of elite tiers. American Airlines was also the first to introduce elite tiers as part of its AAdvantage program. For many elite travelers, access to lounges, priority check-in, fast track security lanes, and other benefits create enough incentives to entice them to stick with their favored airline. Thus, airlines increase the switching costs of using another airline for their customers.

Frequent Flyer Points: Cash Generation Machine

Over time, the bean counters at the airlines realized that the unsettled liability to provide award travel when customers might redeem in the future constitutes a very marginal cost compared to the commercial value of the earned frequent flyer miles for the customers. Airlines started selling miles to business partners and members of thier respective frequent flyer programs at prices significantly higher than their cost. These partners, typically car rental companies, cruise lines, and hotels, could then offer airline miles to incentivize their own customers. Under a co-branded airline credit card scheme, a member can earn miles not only directly with the airline, but also for purchasing the services or products of these business partners.

Co-branded airline credit cards that reward frequent flyer points for purchases

The most prominent of the business partners are credit card companies and banks. Airlines sell these miles to partners such as credit card companies who they offer them to customers to incentivize credit card signups and usage. Again, the AAdvantage program created the first co-branded credit card as a partnership between American Airlines and Citibank in 1987.

The business of frequent flyer programs has generated significant revenues for airlines through advance purchase of miles by business partners. Delta Airlines estimated that SkyMiles, its frequent flyer program, would rake in $1.6 billion in ancillary revenues in 2011.

Frequent flyer programs became such a lucrative business venture that some airlines spun off their frequent flyer programs to generate revenue. Air Canada’s Aeroplan is now a coalition loyalty program owned by Aimia. Aeroplan has evolved into loyalty marketing program with retail partners such as Esso, Home Hardware, Rona, Birks, Sobeys, Thrifty Foods, Nestle Canada and others. India’s Jet Airways recently announced that it is spinning off its JetPrivilege loyalty program.

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