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Loyalty Programs Are Keeping America's Airlines Aloft (economist.com) 104

Posted by msmash from the changing-times dept.
American airlines have transformed into financial services companies that happen to fly planes as loyalty programs now constitute their primary profit engine rather than passenger transport. Delta, American, Southwest, and United all operated their passenger services at a loss in 2024 while generating $14 billion in combined operating profits from credit card partnerships.

Delta received $2.1 billion from American Express in Q2 2025 -- exactly matching its total operating profit -- while the airline's passenger operations alone would have posted a loss. These loyalty programs command valuations in the tens of billions, sometimes exceeding the airlines' total equity value, with Delta reporting 1% of U.S. GDP flows through its co-branded cards. Customers can now reach American Airlines' top loyalty tier without boarding a single flight.
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Loyalty Programs Are Keeping America's Airlines Aloft

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  • It's about to get a lot worse (Score:3, Interesting)

    by rsilvergun ( 571051 ) on Friday August 08, 2025 @10:45AM (#65575160)
    Tourism is collapsing. The Evo fighting game tournament saw a 20% drop in entrants and that's pretty much because people don't feel safe coming to America.

    From what I can tell the damage done to tourism is going to hit the tourist industry about 30%. And those are big international flights that are high profit.

    We haven't really seen the effects yet but they are coming very soon and it's going to be a bloodbath. But hey how about those cheaper eggs right?
    • Canadians used to drive hours to an American airport to fly anywhere. These days I expect not so much, since any reason they don't like you in the US can get you arrested. Also I don't belong to any loyalty plans because they are clearly an effort to control me and I don't like being controlled.

    • Tourism is collapsing. The Evo fighting game tournament saw a 20% drop in entrants and that's pretty much because people don't feel safe coming to America.

      Why would that be?

      I just saw the latest stats...violent crime in the US is down....in pretty much all categories...

      I mean, unless you're trying to come here illegally I can't think of a reason to sweat it.

      Right now with all the illegal immigrant problems in parts of EU....seems to be mostly Muslim...with stabbing, rape squad problems, etc....I'd be w

      • Re:It's about to get a lot worse (Score:4)

        by ArchieBunker ( 132337 ) on Friday August 08, 2025 @12:41PM (#65575450)

        Why would that be?

        Are you being snarky or simply not paying attention?

        Trump shits on Canada and calls it the 51st state and you're bewildered that tourism is down?

        I feel quite safe when I go out and about here in the US.

        You're probably not doing prep work in a restaurant. https://www.wtae.com/article/e... [wtae.com]

        I was told only criminals would be rounded up.

        • His whole thing is not paying attention. He's constantly telling us he doesn't see something he's not looking for, or doesn't know about something he hasn't tried to learn about, as if his particular ignorance were relevant.

        • I was told only criminals would be rounded up.

          Err...if you are in the US illegally, as in your crossed the border illegally, which is a crime...you are by definition a criminal.

          And it does appear ICE is targeting higher level criminals, BUT if they are doing that and come across other illegals, are you suggesting they just let them go for some reason?

          Seriously ?

          We voted to get them ALL out.

          • Have you ever hired someone who was illegally in the US? For example giving someone money to mow your lawn.

            Well I don't know if you have, but I know that many have done so quite often. I know it's commonplace in some states (Texas for example).

            What do you think the penalty should be for employing someone who is in the US illegally? Surely it should be worse than just being in the US illegally: by employing illegal immigrants you are creating the need for illegal immigrants.

            And yes, it is on the employer to

            • Re: (Score:2)

              by djinn6 ( 1868030 )

              Surely it should be worse than just being in the US illegally: by employing illegal immigrants you are creating the need for illegal immigrants.

              Why? We jail drug dealers much longer than their clients. We jail senders and receivers of bribes equally. We jail prostitutes longer than johns in some jurisdictions and shorter in others.

              • For me morally speaking it's about the power dynamic and the profiting. Someone mowing lawns for a bit of cash is not gaming the system to live luxuriously, rather trying to make ends meet. In the examples you cite, except for the sex worker, we penalise the person who has the upper hand in the power dynamic more harshly. I also believe that any decent person with enough knowledge and understanding of illegal sex work would want to punish the pimp rather than the sex worker.

            • Have you ever hired someone who was illegally in the US? For example giving someone money to mow your lawn.

              Not that I know of ....I've never had Hispanics doing my yard work, so that increases my odds of not breaking the law and hiring illegals....

      • Re: (Score:2)

        by Dan667 ( 564390 )
        Violent crime plunged in the 90s and if anything trump is going to start pushing it in the wrong direction. https://www.pewresearch.org/sh... [pewresearch.org] Oh, and that was mostly a plunge in stats during Democratic Presidencies.

      • I mean, unless you're trying to come here illegally I can't think of a reason to sweat it.

        And I can't think of a reason that is good enough to come to the US at the moment. Many good reasons, none good enough.

        Maybe we read different news and you have missed the stories of people being detained several days or not allowed in the country. In some cases it's because of a small technical mistake or misunderstanding, in other cases because they have been critical of Donald Trump on social media [nytimes.com].

        There's also many stories of ICE showing no accountability, hiding who they are and arresting people who sh

        • There's also many stories of ICE showing no accountability, hiding who they are and arresting people who should not be arrested even by the current over-the-top rules and mission of ICE.

          Yeah, you're news isn't showing what's actually happenings...

          These ICE agents, usually accompanied by local and state cops too....all have markings on their clothes they're wearing, usually the tactical vests that clearly identify them as law enforcement agents with their departments identified....ICE, PD, etc....

          Most of

          • Yeah, you're news isn't showing what's actually happenings...

            You are saying that you are better informed than me. What makes you think that? I might also be better informed than you, right? I cite sources and you do not, it is a bit strange, you act as if you know better and we have to take your word for it. Note that I make no such claim of being better informed. But you do, which indicates that you are approaching this topic with bias.

            I have heard some folks, citizens, and those legally here have been detained , but they are released later without much hassle from what I read.

            Have you heard of Kilmar Abrego Garcia [wikipedia.org]?
            There are many other cases, here are a few [blockclubchicago.org].
            But your argument is bad anyway: you are basically

  • enshitification (Score:3)

    by Comboman ( 895500 ) on Friday August 08, 2025 @10:53AM (#65575188)

    Does this mean more than half of all flights are bought with credit card points rather than paid tickets? Kinda explains why fewer people are complaining about the continually diminishing customer service (smaller seats, worse/no food, longer waits, shrinking luggage sizes, etc) if they think that they are getting the flight for "free".

    • Re:enshitification (Score:5, Informative)

      by Nebulo ( 29412 ) on Friday August 08, 2025 @11:29AM (#65575282)

      Not quite. It's more that the airlines' business model is, oddly, no longer centered on actually providing travel: the loyalty partnerships they have with credit card companies are now more profitable than the airline operations.

      Airlines have for many years operated on extremely slim margins. That's why you've seen reductions in service and lots of market consolidation. The thing is, people still want to fly in the United States because it's faster than anything else for long hauls, so there's a market, just not a very profitable one - until you tie in with a credit card loyalty system that incentivizes people to use these cards (which often carry membership fees). Then, the kickbacks from that partnership make the "airline" actually make money. Essentially the airline's ability to fly you becomes a perk of the credit card and can be safely operated at slim margins or a slight loss. Ticket still cost money, so they're not giving it away for free, but the combination of the ticket price and the kickback makes the business model stay in the black.

      This seems to me to be a pretty odd situation for a major market, and one that isn't ultimately sustainable. Businesses suffer when their primary product or service isn't tightly coupled to their profitability, because they become too focussed on the side hustle and neglect what should be their primary focus.

      • This seems to be a trend for once significant private infrastructure companies to become banks or bank-like institutions. Examples would be: Wells Fargo, Western Union, and whatever the remains of Penn Central (itself the merger of the Pennsylvania Railroad and New York Central) is part of today.

        Wonder if Delta will actually shut down the airline side, or whether it treats it as a loss leader to boost its name?

        • Re: (Score:3)

          by ceoyoyo ( 59147 )

          None of the credit card issuers would throw Delta their scraps if Delta weren't an airline. Just like {PICK FAVOURITE SPORT} isn't going to stop having games/races/matches and just show ads.

        • Re: (Score:2)

          by sconeu ( 64226 )

          Uh... Wells Fargo is already a bank, and has been for decades.

          • Yes. That was my point. That's why it was listed in list of examples of major infrastructure providers becoming a bank or a bank-like institution.

            • Re: (Score:2)

              by aitikin ( 909209 )

              Yes. That was my point. That's why it was listed in list of examples of major infrastructure providers becoming a bank or a bank-like institution.

              Wells Fargo has always been a bank.

              • No, it started as an express mail service.

                • Re: (Score:2)

                  by Zak3056 ( 69287 )

                  No, it started as an express mail service.

                  And bank [wf.com].

                  On March 18, 1852, Wells Fargo started as a bank and express company to address demand for secure payment tools at a time of technological revolution. Trains, canals, and stagecoaches created more interconnected communities and developed new industries.

      • Not quite. It's more that the airlines' business model is, oddly, no longer centered on actually providing travel: the loyalty partnerships they have with credit card companies are now more profitable than the airline operations.
        A similar trend happened with the big 3 just before the '08 banking crisis. They made more money financing vehicles rather than building them. Same problem GE had, they started chasing profits by becoming a bank instead of a manufacturing company. It's like the old adage of "all so

      • No personal comment other than to include this very informative NY Times interview with The Points Guy [nytimes.com] during Covid.

      • This seems to me to be a pretty odd situation for a major market, and one that isn't ultimately sustainable

        This seems common to me in lots of industries. Casinos run hotels to keep gamblers close to the slot machines. Google provides search, email, etc. as a means to get you to look at advertisements. Same with TV networks who produce content to keep you watching advertisements. Same with sports leagues, who make a huge portion of their revenue from the advertising that is sold during their broadcast games. Theme parks and department stores and hotel chains and etc. etc. all also have their own branded credit ca

        • >> It's an industry ripe for innovation, and I suspect we will see a new player come along (probably self-driving cars?)

          I have a great idea for an alternative to airlines. Imagine a self-driving car but with room to stretch out, sleep, eat, etc. To speed them up and get out of traffic, you link a bunch together and run them on their own system of tracks. Innovation!

          • To speed them up and get out of traffic, you link a bunch together and run them on their own system of tracks. Innovation!

            Haha, yes. But I don't see it happening in the U.S. Building new train routes for passenger traffic, just don't see it happening right now.

        • Re: (Score:2)

          by Zak3056 ( 69287 )

          It's an industry ripe for innovation, and I suspect we will see a new player come along (probably self-driving cars?) that will be better and wipe them all out

          For short routes (something like Nashville to Atlanta) you'd win on time but almost certainly lose on cost.

          For long routes, for example New York to Los Angeles, you'll lose on both cost and time. I also suspect that, say, New York to London might have some additional challenges for a self driving car... how do you suppose a Tesla Model 3 handles in 40' seas in the North Atlantic?

    • There is no diminishing customer service, there's only people who are voting with their wallet for the worst customer service possible. You still get the full service, full luggage, no wait, and excellent food if you want to pay for it. But you don't. People prefer to actively work against their own self interest and then complain about it. Inflation adjusted a business class ticket costs about the same as an economy class ticket from 20 years ago and you get much more bang for your buck.

      Consider lodging a

    • Not at all. Those "free" flights aren't what make the airlines money, those are a cost. What they earn money on, is annual fees, plus a portion of swipe fees and interest when people use the cards.

      It's a racket. It's kind of like how arcades give out tickets that you can use to buy trinkets at the arcade's store. If you just wanted the trinket, you could have bought it for far less by getting it on Amazon.

  • That's not sustainable (Score:3)

    by sabbede ( 2678435 ) on Friday August 08, 2025 @10:57AM (#65575196)
    Do we all remember what happened with GMAC?

    Something is going to destabilize the profitable side of the business and send the airlines into another period of tumult. Airlines won't go away, we need to travel, but the ones we have now might. It could get messy, and we may even make the mistake of federal intervention again.

  • Not the company mission (Score:3)

    by sanf780 ( 4055211 ) on Friday August 08, 2025 @11:00AM (#65575206)
    It looks like the air travel companies cannot just give the service of transporting people around the globe anymore and be profitable at the same time. They have become a financial institution that profiteers when you get into unrelated debt; it does not sound sane to me. I know that car dealers also have become like that too, pushing buy on credit schemes (with the extra insurance that only benefit them).

    • Re:Not the company mission (Score:4, Insightful)

      by fluffernutter ( 1411889 ) on Friday August 08, 2025 @11:10AM (#65575230)
      No they can be profitable. But the problem is that it never seems to be enough profit. They need more year over year without any cap based in reality.

    • It's true that, in inflation-adjusted dollars, flights today are far cheaper than they were even 30 years ago. A typical flight back then was $300-500, same as today. But those dollars are worth a lot less today. So it's not surprising that airlines are having a hard time making ends meet.

  • Interesting human behavior (Score:5, Insightful)

    by Faizdog ( 243703 ) on Friday August 08, 2025 @11:01AM (#65575208)

    This is very interesting. Now one would be mistaken to think that the airline operations don't matter. They actually do very much.

    The only reason to use airline affiliated cards is to make air travel easier, smoother. Through free checked bags, priority access, lounges, earlier boarding, etc.

    If Delta for example decided to shut down airplane operations and operate solely as a credit card company, people would immediately stop using their cards. So while the cards may generate profits, it's because the actual flight operations have cut things to the bone so much that people are seeking ways to make things better.

    And hey, if I can just do my daily routine life spending/shopping and rack up points/access/tiers to make my travel easier, that's great.

    That's one element of human psychology. There's another though, not fully understanding opportunity cost. One may think, oh I just do my normal purchases and rack up airline status for free. But if one was using a different credit card, say one of many that give 2% cash back, then one would get actual cash in hand.

    Sure you're not paying for the airline status, but you are also not getting money you would have otherwise, so are indirectly paying. I wonder how many have actually done that comparative financial analysis.

    • We have a Delta credit card. We do the bare minimum to keep it active - I think it's only a couple of purchases a year. It gets us free checked bags when we fly Detla, which saves us around $60. When my wife has to fly for work she uses it to pay for those tickets, which gets us enough flyer miles for a free ticket or two every couple of years. All in all it's worth it. Most of our purchases are on a different card that give us better returns on stuff we usually buy anyways.

    • This is very interesting. Now one would be mistaken to think that the airline operations don't matter. They actually do very much.

      We see this for many companies. Costco earns most, and in some years all, of its profits from its membership fees, but those fees would disappear without the low margin retail business. Amazon earns half its profits from AWS, and although AWS might be able to exist on its own now, it was motivated by the low margin retail business.

    • Re:Interesting human behavior (Score:5, Interesting)

      by BetterSense ( 1398915 ) on Friday August 08, 2025 @11:43AM (#65575316)
      The planes drive customers to their financial services.

      This is exactly how Japanese train companies, which are all private companies, work. They are actually real estate companies that operate billions of dollars worth of high-value space in all of their stations that brings in megadollars in leases every year. The trains are important, but they aren't making their money selling tickets. Ticket revenue could never keep them afloat and if they increased ticket costs they would lose money, because they really make their money on real estate. Without without the trains, they wouldn't have millions of people per day walking through their properties. This is actually how US train companies worked during the private era as well. They would build train lines specifically to drive up the value of their real estate holdings, which is where they actually made money. Sun Valley Resort is a good example.

    • Re: (Score:2)

      by tlhIngan ( 30335 )

      Exactly. The whole point of the airline credit card is affiliate services. That's why your status often depends on your spending - the more you spend, the higher the status you have which enables you accessing more exclusive stuff.

      While the low end is trivial stuff like free checked bags and such, spending more can get you higher status level things like lounge access or upgrades.

      The airlines get a cut of all the spending, and it helps fund operations. In fact, for the big 3 airlines, it was the credit card

  • Bad deal (Score:5, Informative)

    by ebonum ( 830686 ) on Friday August 08, 2025 @11:10AM (#65575228)

    Everything we buy is more expensive to fund the fees that feed these very profitable loyalty programs. Even if you don't participate, it is baked into the credit card fees which are in turn baked into the price at the store.

    Simplifying. You over pay by 2% to get 1% back. This is dumb.

    • Re: (Score:3)

      by Nkwe ( 604125 )

      Everything we buy is more expensive to fund the fees that feed these very profitable loyalty programs. Even if you don't participate, it is baked into the credit card fees which are in turn baked into the price at the store.

      Simplifying. You over pay by 2% to get 1% back. This is dumb.

      It is a bad deal and it's dumb, but if you don't take it, then you are over paying by 2% and getting nothing back. The figure is likely higher than 2%, but the point is the same.

    • Good deal for me: Everyone really pays +3% or more, but my family gets more than 3% of everything we spend back in air travel and card benefits. However, this entire business model is falling apart in near real time. We have things like UPI https://en.wikipedia.org/wiki/... [wikipedia.org] that started in India and is spreading around the world because it is so inexpensive. We have all of the apps like Venmo and if you believe crypto bros, crypto is going to cut into Point Of Sale (POS) transactions. And then there is

    • Then if these loyalty programs went away we would see cheaper air fares?

      Did you learn arithmetic when you were young, or are you old enough to have yet ?

    • If you know how to work it, it's very profitable for you.

      I routinely get back quite a bit more than 1 or 2 percent by taking advantage of points to save shitloads on dates or hotel fees, get free nights, free flights, free entry into airport lounges, etc.

      I've also used other card features to save on rental car insurance, extended warranty coverage, replacement for lost or damaged items, etc. in a typical year, it amounts to thousands of dollars.

      FWIW, Apple Card (just one of my cards) gives 3% back at many

    • Re: (Score:2)

      by caseih ( 160668 )

      For small business owners it's a way of getting money out of the company without an income tax penalty. Theoretically you need to report the cash value of of all credit card rewards to the IRS, but in practice the IRS has stated they simply don't care about it and it would be too expensive to track.

      So for many years (at least back when air miles actually got you places), we traveled business class using the rewards for running all company expenses through the credit card.

    • It is dumb, but it's the world we live in, so might as well play the game.

      If you're not using a cash back card (or a rewards card of some kind) you're forfeiting money you could otherwise have. And the going cashback rate these days is 2%, not just 1%.

  • Credit Card Competition Act (Score:5, Informative)

    by Pascoea ( 968200 ) on Friday August 08, 2025 @11:23AM (#65575264)
    It's no wonder the airlines have lobbied heavily to kill the Credit Card Competition Act [nerdwallet.com] it would absolutely gut their profits. $80M dollars spent so far lobbying against the bill.

  • Airline travel prices are too high, reducing demand for air travel.

    But they can sell these overpriced travel for 'miles' at a profit, to banks, who give them away to people to encourage them to get and use over priced credit cards.

    Basic credit card operations:

    1) Credit card demand 2% reduced prices to join their network.
    2) The credit card company keeps 1% and gives the other to the banks that issue the cards.
    3) The banks either give away that 1% to their customers or keep it and make money off of it, instea

    • You must not have looked very hard.

      The Citi Double Cash card has no annual fee and gives you 2% cash back, 1% at purchase and 1% when you pay the bill.

  • Since airlines know exactly how much revenue each mile generated, they can control how much money they make on each redemption and easily change the price of a ticket at any time. High demand routes as well as high load factors allow them to bump up the miles they demand for a seat; and let them have sales where there is excess capacity. In addition, many never get redeemed so they get essentially free money for them; plus they can also sell thngs like lounge access, drinks on flights and in the lounge, e

  • Put away your conspiracy theory hats for just a second and look at the big picture-- Credit card loyalty programs are helping to subsidize the price of airline travel by providing private transportation profits a source OTHER THAN airline tickets. This is a good thing for travelers (if still a bad thing for people who don't know how to manage a credit card).

    If airlines weren't getting their profits from loyalty programs, they would need to increase the cost of economy airline travel because they're still pu

  • What I'm taking away is credit card users are subsidizing my flights. I - for one - appreciate that there's finally a credit card dynamic that benefits the correct people. Unlike retail where we're all paying a tax for people to use credit cards.

    • Indeed. For those of us who pay off our cards every month and pay no interest or annual fees, it's all upside. And I'll bet that 2% cash back I get from my credit cards, beats the "perks" you get from the airline cards.

      It is how the financial game is played in general. Those who make poor financial decisions, tend to subsidize those who make good decisions.

  • Delta, American, Southwest, and United all operated their passenger services at a loss in 2024 while generating $14 billion in combined operating profits from credit card partnerships.

    Why are the credit card companies paying airlines for "partnerships"? Is this people turning points into flights? if so, those are paid flying miles, AKA paying customers...

    • I'm sure it's all about the money. Someone could get a credit card that gives 2% cash back. If the credit card company can get a partnership with an airline and convince people to get a card that gives 0% cash back instead (and could even include an annual fee on top of that),and the money they spend on the partnership is less than what they would payout for the 2% cashback card, then it's a win.

      Really, all this does is tell me that on the average, the value of the perks from one of these airline credit c

  • My first flight was in '94 going to Brazil and it cost $1800. I have a trip overseas later this year that is also going to cost $1800.

    Of course there are far fewer amenities now and they cram more folks in each plane these days but I find it fascinating how little prices have changed in 3 decades compared to everything else.

  • Last year I flew Delta airlines and I felt like I was trapped in a metal prison being blasted with unavoidable ads for credit cards. I have *NEVER* been forced to listen to a financial advert before, it was truly disgusting. Nothing was worse than someone saying, strap in, sit down, turn off your devices, and pay attention to this advert. At least with TV ads I can walk away. And OH MY GOD WAS THE ANNOUCNEMENT LONG. I actively felt sorry for the flight attendant forced to read it.

    That said it was par for th

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