Purchasing everyday essentials or fueling up your vehicle with a credit card might inadvertently bolster the airline industry's financial gains more significantly than the cost of a single flight ticket. This phenomenon can be attributed to the pivotal role that frequent flyer programs play in the profitability of the airline sector. The substantial sums that banks and credit card companies invest to acquire large quantities of miles from airlines are intended to incentivize cardholders to make transactions with their cards. Despite the fact that the average air traveler might not contemplate the financial intricacies of these programs, they have become essential for airlines to generate the necessary profits to remain solvent. Moreover, these loyalty initiatives have garnered the attention of federal regulators due to their integral function in the realm of air travel today.

During the previous fiscal year, Delta Air Lines garnered a staggering $6.8 billion in revenue from American Express, attributed to its co-branded Delta Amex card. American Airlines reported a revenue influx of $5.2 billion from co-branded cards and additional partnerships. United Airlines, on the other hand, reported a comparatively modest $3.2 billion from its other operating revenue streams, primarily driven by payments to its frequent flyer program. When juxtaposed with the adjusted net incomes of 2023 for Delta ($4 billion), American ($1.9 billion), and United ($3.3 billion), it becomes evident why major carriers are so heavily reliant on frequent flyer programs. As Zach Griff, a senior aviation reporter for The Points Guy—a travel site that meticulously monitors these programs—articulated, "The airlines’ frequent flyer programs are their lifeblood; they’re the reason the airlines are in business."

While the substantial earnings from the sale of miles to credit card corporations do not translate to pure profit for the airlines, as they are ultimately required to provide flights for those miles, the profit margin for this segment of their operations is approximately 50%, as stated by Tom Fitzgerald, an airline analyst for TD Cowen. "In an industry where overall profit margins in the high single digits in a good year is considered a home run, it’s massive," Fitzgerald remarked. Frequent flyer programs also serve as a critical mechanism for airlines to stimulate travel and foster customer loyalty within an intensely competitive market.

However, these programs are now facing heightened scrutiny. On a recent Thursday, the Department of Transportation declared its intention to initiate an investigation into the programs to ensure equitable treatment of consumers. "Frequent flyer miles and credit card rewards have become such a meaningful part of our economy that many Americans view their rewards points balances as part of their savings," stated Transportation Secretary Pete Buttigieg in his announcement of the investigation. "These programs bring real value to consumers, with families often counting on airline rewards to fund a vacation or to pay for a trip to visit loved ones. But unlike a traditional savings account, these rewards are controlled by a company that can unilaterally change their value. Our goal is to ensure consumers are getting the value that was promised to them, which means validating that these programs are transparent and fair."

In addition to this, Congress has deliberated over legislation that could impose a cap on the fees that credit card companies levy on merchants who accept their cards. Such restrictions could potentially diminish the amount that credit card issuers are willing to pay for miles, thereby affecting the rewards they can offer. United CEO Scott Kirby prognosticated in an investor call last October that such legislation "would kill rewards programs. They would not exist anymore."

The major airlines have largely remained tight-lipped about the programs and their profitability, only making references to them in their financial filings and public statements. However, on the aforementioned Thursday, the industry trade group Airlines for America defended the programs. "Millions of people enjoy being a part of various loyalty programs," the group stated. "Policymakers should ensure that consumers can continue to be offered these important benefits."

According to Griff of The Points Guy, the programs are generally advantageous for consumers, even if they are more beneficial for the airlines themselves, provided that consumers settle their credit card balances and avoid incurring high interest rates on the purchases that enabled them to accumulate those miles. Consumers should also be vigilant about not being overcharged in terms of the number of miles when deciding between purchasing a ticket with cash or with miles. Griff noted that, for the most part, the value of a mile is only 1.2 cents or 1.3 cents, meaning that a $400 plane ticket should cost approximately 33,000 miles. If an airline is demanding significantly more miles for a ticket, it might be wiser to reserve the miles for a different flight. The Points Guy offers a calculator to compare the two purchasing options.

During the peak of the pandemic, when air travel came to a near standstill and airlines were in dire need of cash, the revenue derived from credit cards became a literal lifeline. Most US airlines sold bonds to raise funds, with the promise of repayment backed by payments from banks and credit cards for miles. The bonds placed an estimated value on the frequent flyer programs that far exceeded the value of the airlines themselves, suggesting that investors had assessed the airlines’ actual operations—planes, crews, gates, and flights—as being worth less than $0. However, it is likely inaccurate to claim that frequent flyer programs are more valuable than the airlines themselves, as the actual flights provide the programs with their inherent value, as noted by Andrew Didora, an airline analyst with Bank of America. "It’s very difficult to separate out the value of the programs and the value of the rest of the airline," he said. "They can’t exist without each other. They go hand in hand."

Nevertheless, Didora emphasized that it is evident that frequent flyer programs are crucial to the economic viability of operating an airline—not only for the direct profits they generate but also for their role in attracting and retaining customers. "They’re called ‘loyalty programs’ for a reason," Didora concluded.