New York — When you swipe your credit card for everyday purchases like groceries or gasoline, you might be contributing more to airline profits than purchasing an actual flight. This is the surprising reality of the modern airline industry, where frequent flyer programs have become the most lucrative aspect of their business model.
Frequent flyer programs are no longer just perks for loyal travelers. They have transformed into a multi-billion-dollar revenue stream for airlines, fueled by lucrative deals with banks and credit card companies. These financial institutions purchase airline miles in bulk to reward their cardholders, creating a thriving ecosystem that supports airline profitability.
For airlines, these programs offer a vital source of income. In fact, frequent flyer miles, which are bought and sold as a form of currency, have become so crucial that they now overshadow the revenue generated from ticket sales. In 2023 alone, Delta Air Lines received a staggering $6.8 billion from its co-branded Delta American Express card. American Airlines followed closely with $5.2 billion in revenue from its co-branded credit card programs and partnerships, while United Airlines generated $3.2 billion in similar deals.
These numbers highlight a simple fact: airlines today rely heavily on their frequent flyer programs to remain profitable. The adjusted earnings for major carriers like Delta, American, and United were $4 billion, $1.9 billion, and $3.3 billion, respectively, last year. With such figures, it becomes clear why these loyalty programs are indispensable to the survival of the industry.
“Frequent flyer programs are the lifeblood of the airlines,” says Zach Griff, senior aviation reporter at The Points Guy. “Without them, airlines would struggle to stay in business.”
However, the revenue airlines earn from selling miles to credit card companies is not pure profit. Eventually, airlines must fulfill those miles by offering flights to customers, though the profit margin on this is remarkably high—about 50%, according to Tom Fitzgerald, an airline analyst at TD Cowen.
“In an industry where profit margins in the high single digits are considered exceptional, a 50% margin is massive,” Fitzgerald explained.
Government Scrutiny and Legislative Action The growing significance of frequent flyer programs hasn’t gone unnoticed by regulators. On Thursday, the Department of Transportation (DOT) announced an investigation into these programs, with the goal of ensuring fair treatment for consumers. Transportation Secretary Pete Buttigieg stated that frequent flyer miles and credit card rewards have become a significant part of the U.S. economy, with many Americans viewing their rewards points as an extension of their savings.
“These programs bring real value to consumers,” Buttigieg said. “But unlike traditional savings accounts, these rewards are controlled by companies that can change their value at any time. Our goal is to ensure transparency and fairness.”
Congress has also taken note. Lawmakers have considered imposing caps on the fees that credit card companies charge merchants for processing payments. Such legislation could significantly impact the rewards ecosystem, as it would limit how much credit card issuers can pay airlines for miles. United CEO Scott Kirby has warned that if such legislation passes, it “would kill rewards programs. They would not exist anymore.”
Despite these potential changes, major airlines remain largely silent about the profitability of their frequent flyer programs. Industry trade group Airlines for America defended the programs, emphasizing their value for millions of passengers. “Policymakers should ensure that consumers continue to enjoy these important benefits,” the group said in a statement.
The Consumer Perspective From a consumer standpoint, frequent flyer programs can be a great deal—if managed wisely. As Zach Griff points out, the programs offer significant value, provided consumers avoid the pitfalls of high-interest credit card debt. To get the most out of the programs, consumers should pay close attention to the value of their miles when redeeming them for flights.
The Points Guy estimates that airline miles are typically worth about 1.2 to 1.3 cents each. A $400 ticket, for example, should cost around 33,000 miles. If airlines charge significantly more, passengers are better off saving their miles for a future trip.
A Lifeline During the Pandemic During the height of the COVID-19 pandemic, frequent flyer programs became a crucial financial lifeline for airlines as air travel came to a near halt. Several airlines sold bonds backed by their frequent flyer programs, securing billions in much-needed cash. These bonds placed a higher value on the loyalty programs than the airlines themselves, underscoring the programs’ economic importance.
Although some argue that frequent flyer programs are more valuable than the airlines’ actual operations, Andrew Didora, an airline analyst with Bank of America, cautions against this perspective.
“The programs and the airlines are inseparable,” Didora says. “They go hand in hand, and neither can exist without the other.”
Ultimately, frequent flyer programs play a pivotal role in both generating profits and fostering customer loyalty, underscoring their importance to the airline industry’s long-term success.
