Paying for Status? - The effect of frequent flier program member status on air fare choice

Frequent flier programs (FFPs) are said to affect airline customer behaviour such that revenue of sponsoring airlines increases. To this end prior research relies on assumptions of competition, lock-in effects and variations in scale and scope of FFPs. Whether a FFP by itself induces a price premium remains unanswered. In an effort to shine some light on this question, we apply discrete choice analysis to a new proprietary data set of actual frequent flier member flight behaviour (fares paid, FFP points received) over a 12-months period. We take advantage of the variations in the structure of FFPs (Gold, Silver and Bronze tier levels), to assess both the existence of a FFP price premium and the price premiums average monetary value in US$ per FFP member. Our findings suggest that FFP members are willing to pay a price premium of up to six percent, which is directly attributable to the FFP.