Amex buys $1Bn worth of DL tickets HOLY COW!

So American Express has announced a deal with Delta that allows for $2Billion worth of value to the Large American Airline. Big numbers sounds interesting right? Well it does get even more interesting when you try and put this into perspective. So bear with me and lets see if we can get this right.

Typically partners have been buying miles for 10 cents on the dollar value. So if I read the fine print of the announcement - Amex paid $1 Billion in "liquid" to Delta. That would translate (if we think of that as Cash) as $10 Billion in value. At $500 per ticket that would mean 20,000,000 TICKETS. The agreement is supposed to run through 2010 so that is 2 years or 10 million tickets a year.

That is one HECK OF A LOT.

So lets continue the analysis a little more. According to Airline Business/Flight's annual traffic study DL (109.2) and NW (53.7) are now the largest carrier. So that makes 163 Million passengers. if we assume that they have cut capacity by 15% and they run at an average of 80% revenue load factor. That means that annually they have SPARE capacity of 27.7 Million seats. So at 2.3 (the industry norm) segments per ticket, that makes an annual take up during the contract of 23 million passenger segments. So accounting for Non-Revenue passengers in the form of company business (Deadheading crew, marketing folks etc etc) and its own Frequent Flyer tickets and voila - this airline is going to be theoretically flying at 100% capacity.

I don't think that will work personally. That's theory. Of course assuming that people are able to be flexible in their FF choices etc etc.

Did Amex get a bargain? Can they use it all up in one go? I do hope someone ran the numbers right. At this point I am staying close to Amex's Skymiles program because it looks like they are going to have to give out some doozie deals to use them all up. On the other hand getting a DL FF ticket is going to be extra hard over the next few years.

What do I think will happen? check out Scott McCarthy's piece on the devaluation of the FF currency. I think you will agree with him and my prior piece on this way back earlier this year that in order for this deal to work - the 1 cent a mile value will actually have to be devalued even further.

Am I nuts? Are numbers totally off base?

well let me know what you think....

Cheers