New York — For most travelers, frequent flyer programs represent a way to accumulate points for future trips, but for airlines, these loyalty schemes are much more than that—they are a financial juggernaut. In recent years, frequent flyer programs have evolved into one of the most profitable aspects of the airline industry, surpassing traditional revenue streams such as ticket sales.
At the heart of this profitability is the symbiotic relationship between airlines and credit card companies. Through co-branded credit cards, banks purchase large quantities of airline miles to reward their cardholders for everyday purchases. These partnerships have turned frequent flyer miles into a form of currency, traded between airlines and financial institutions, creating a massive revenue stream for airlines.
In 2023, this relationship generated billions of dollars. Delta Air Lines, for example, earned $6.8 billion through its partnership with American Express. Similarly, American Airlines made $5.2 billion from its co-branded card partnerships, and United Airlines collected $3.2 billion. These figures are staggering when compared to the adjusted operating incomes of these airlines, with Delta earning $4 billion, American making $1.9 billion, and United pulling in $3.3 billion last year.
“Frequent flyer programs are the primary reason airlines are able to stay profitable,” explains Zach Griff, senior aviation reporter at The Points Guy, a site dedicated to travel rewards. “These programs generate massive amounts of revenue, far beyond what airlines could achieve through ticket sales alone.”
While selling miles to credit card companies is lucrative, airlines are ultimately responsible for honoring those miles with flights. However, the profit margin on these redemptions is astonishingly high. According to Tom Fitzgerald, an airline analyst at TD Cowen, airlines enjoy a 50% margin on miles sold, a figure almost unheard of in the low-margin airline industry.
“In an industry where a 7-9% profit margin is considered excellent, a 50% margin on miles is truly remarkable,” Fitzgerald notes.
Regulatory and Legislative Concerns
The growing profitability of frequent flyer programs has drawn the attention of regulators and lawmakers. This week, the U.S. Department of Transportation (DOT) announced it would launch a formal investigation into these programs. The inquiry, led by Transportation Secretary Pete Buttigieg, will focus on whether these programs offer the transparency and fairness that consumers expect.
“Frequent flyer miles and credit card rewards are now a meaningful part of the economy,” Buttigieg said in a statement. “Many Americans count on these rewards to fund vacations or family visits. But unlike savings accounts, these rewards can be devalued by companies at any time. Our investigation seeks to ensure that consumers are getting what they were promised.”
Congress, too, has taken an interest in the economics of frequent flyer programs. Proposed legislation that would cap the fees credit card companies charge merchants has the potential to disrupt the financial ecosystem that supports these programs. United Airlines CEO Scott Kirby has warned that such restrictions could “destroy rewards programs,” as credit card companies would no longer be able to pay airlines for miles at current levels.
Despite these concerns, the airline industry has remained relatively quiet about the inner workings of frequent flyer programs. Representatives of Airlines for America, the trade group for U.S. airlines, defended the programs in a public statement, emphasizing the value they bring to millions of travelers.
Consumer Benefits and Pitfalls
From the consumer perspective, frequent flyer programs can offer substantial savings and perks—if used correctly. As Zach Griff points out, frequent flyer miles are most valuable when consumers avoid carrying a credit card balance and paying interest on their purchases. Additionally, consumers need to be smart about how they redeem their miles.
On average, frequent flyer miles are worth between 1.2 and 1.3 cents each. This means that a $400 plane ticket should cost around 33,000 miles. However, airlines often adjust the required miles for flights, so consumers need to be vigilant. If a ticket is priced significantly higher in miles, it may be best to save those points for a more favorable deal.
Websites like The Points Guy offer tools to help consumers calculate the most cost-effective way to redeem their miles, helping them make informed decisions about when to use cash and when to use points.
A Lifeline During the Pandemic
The importance of frequent flyer programs became even more apparent during the COVID-19 pandemic when global air travel came to a virtual halt. As airlines faced financial disaster, many turned to their loyalty programs as a source of capital. Airlines sold bonds backed by the future revenue from these programs, raising billions of dollars in much-needed cash. In fact, the bonds placed a higher value on frequent flyer programs than on the airlines’ actual flight operations—underscoring just how vital these programs are to the industry’s financial health.
However, it would be inaccurate to say that loyalty programs are more valuable than the airlines themselves. As Andrew Didora, an airline analyst at Bank of America, explains, the two are inextricably linked.
“Frequent flyer programs cannot exist without airlines, and airlines rely on these programs to stay profitable,” Didora says. “The two work hand in hand to support the broader business model.”
In the post-pandemic world, frequent flyer programs continue to be a driving force for airlines, not just as a revenue source but also as a key strategy for building and maintaining customer loyalty. By offering travelers miles and rewards, airlines can foster long-term relationships with their customers, ensuring repeat business in an increasingly competitive market. As travel demand surges once again, frequent flyer programs will remain a central pillar of the airline industry, serving both as a financial powerhouse and a tool for customer engagement.
