LOYALTY MYTHS: IS BREAKAGE GOOD?

In our previous article exploring Loyalty Myths, we took a look at whether programs should be concerned about large points liabilities sitting on the balance sheet.

Lots of folks have reached out with questions around Breakage, and the role it plays (or should play) in loyalty program management.

Let’s take a look at breakage, how changes in points expiration affect program economics, and whether breakage is good or bad…

(Spoiler Alert: The results may surprise you…)

What is Breakage

Breakage is simply the technical term for points that expire and are never redeemed by members.

Breakage is one of the three primary sources of profit for a frequent flyer program (FFP), together with working capital, and spread (which is the margin between the price points are sold for, and the cost of redemption when members use those points).

Breakage is important to understand, as it’s a critical aspect of modeling the liability for your program.

Changes in breakage have a direct impact on both the costs of redemption, and also on revenue recognition.