New York — It’s not just the sale of tickets that keeps airlines in the air—it’s the hidden powerhouse of frequent flyer programs that truly fuels their profits. You might assume that airlines earn the bulk of their revenue from flights, but the reality is far more complex. These loyalty programs, designed to reward frequent travelers, have evolved into a major profit engine, driven by partnerships with banks and credit card companies.
Frequent flyer programs, which started as simple loyalty initiatives to encourage repeat customers, have now become integral to the financial health of airlines. By selling miles in bulk to banks and credit card issuers, airlines have created a parallel revenue stream. These financial institutions, in turn, use the miles to reward their customers for everyday purchases—like buying groceries or filling up the gas tank—through co-branded credit cards. The result is a multi-billion-dollar system where miles are essentially a currency traded between banks and airlines, benefiting both parties.
In 2023, the scope of these programs was staggering. Delta Air Lines received $6.8 billion from its co-branded Delta American Express credit card partnership, while American Airlines garnered $5.2 billion from its co-branded deals. Even United Airlines, which posted lower figures, still brought in $3.2 billion. When compared to their adjusted earnings—$4 billion for Delta, $1.9 billion for American, and $3.3 billion for United—it’s clear that frequent flyer programs play a vital role in keeping these airlines profitable.
“Frequent flyer programs are the reason airlines can stay afloat,” says Zach Griff, senior aviation reporter for The Points Guy, a website specializing in travel and loyalty programs. “These programs are the backbone of the airline industry.”
However, while frequent flyer programs are profitable, they are not without cost. Airlines must eventually honor the miles sold by providing free flights to customers. Yet even when accounting for this, the profit margin remains remarkably high. According to Tom Fitzgerald, an airline analyst at TD Cowen, the margin on frequent flyer miles hovers around 50%. This is a massive figure in an industry where overall profit margins rarely exceed single digits.
“In an industry where even a small profit margin is considered a win, getting a 50% margin on miles is huge,” Fitzgerald explains.
Increased Scrutiny from Regulators
As frequent flyer programs grow more lucrative, they have also caught the attention of regulators. On Thursday, the U.S. Department of Transportation (DOT) announced it would investigate these programs to ensure fairness and transparency for consumers. The probe, led by Transportation Secretary Pete Buttigieg, seeks to determine whether consumers are receiving the value promised to them by airlines and credit card companies.
“Frequent flyer miles and credit card rewards are now an integral part of the economy, and many Americans view these rewards as an extension of their savings,” Buttigieg stated. “But unlike traditional savings, these rewards can be devalued at any time by the companies that control them. Our goal is to ensure that these programs are transparent and deliver the value that consumers expect.”
Congress has also started examining the credit card fees that fund these loyalty programs. Proposed legislation aims to cap the fees that credit card companies charge merchants for accepting their cards, a move that could drastically reduce the funds available to purchase miles. United Airlines CEO Scott Kirby has warned that such legislation could “kill rewards programs altogether.”
Despite this, airlines remain largely silent about the internal workings of their frequent flyer programs. The few public statements from industry representatives, like the trade group Airlines for America, emphasize the positive aspects of these programs, noting that millions of people benefit from the rewards.
“Policymakers need to ensure that consumers can continue to enjoy these valuable benefits,” the group said in a statement.
What Consumers Should Know
While frequent flyer programs can be incredibly lucrative for airlines, they also offer real benefits to savvy consumers. According to Zach Griff, these programs provide excellent value—as long as cardholders avoid falling into debt and paying high-interest rates.
The key, Griff notes, is to understand the value of your miles. On average, airline miles are worth about 1.2 to 1.3 cents each. This means that a $400 plane ticket should cost around 33,000 miles. If airlines are charging significantly more, it may be better to hold onto your miles and look for a better deal later. Many travel websites, including The Points Guy, offer calculators to help consumers determine the most cost-effective way to redeem their miles.
A Pandemic Lifeline
The importance of frequent flyer programs became particularly evident during the COVID-19 pandemic. As air travel ground to a halt, airlines were desperate for cash. Many airlines turned to their frequent flyer programs as a lifeline, selling bonds backed by the future income from miles. These bonds, valued at billions of dollars, showed that the frequent flyer programs were worth more than the airlines’ actual flight operations—planes, crews, and gates.
Still, it’s overly simplistic to say that frequent flyer programs are more valuable than the airlines themselves. As Andrew Didora, an airline analyst at Bank of America, points out, the two are deeply intertwined.
“You can’t separate the programs from the airlines. They need each other to thrive,” Didora says. “Without the actual flights, the miles have no value. And without the miles, airlines lose a significant part of their revenue.” Frequent flyer programs are not just a source of revenue; they are also a key driver of customer loyalty. By offering miles and rewards, airlines encourage repeat business and ensure that travelers choose their brand over competitors. As the industry continues to evolve, these programs will remain an essential part of airlines’ financial and marketing strategies.
