Frequent flyer programs: The most profitable part of the airline industry
CNN
Buying this week’s groceries or paying for a full tank of gas with a credit card might contribute more to the profits of the airline industry than buying a one-way ticket.
Buying this week’s groceries or paying for a full tank of gas with a credit card might contribute more to the profits of the airline industry than buying a one-way ticket. That’s because frequent flyer programs have become a crucial part of the airline industry’s profitability. And that’s due to the billions of dollars banks and credit card issuers pay to buy bulk miles from airlines to reward and entice cardholders to make purchases with their cards. The typical airline passenger probably never thinks about the economics of frequent flyer programs, but the programs have become crucial for airlines to generate the profits needed to stay afloat. And loyalty programs have also caught the attention of federal regulators because of the central role they play in air travel today. Last year, Delta Air Lines received $6.8 billion in revenue from American Express on its co-branded Delta Amex card. American Airlines reported revenue of $5.2 billion from co-branded cards and other partnerships. United reported a mere $3.2 billion on its other operating line that came primarily on payments to its frequent flyer program. And when considering the adjusted incomes of 2023 for Delta ($4 billion) American ($1.9 billion) and United ($3.3 billion), it’s easy to understand why the major carriers rely so heavily on frequent flyer programs. “The airlines’ frequent flyer programs are their lifeblood; they’re the reason the airlines are in business,” said Zach Griff, senior aviation reporter for The Points Guy, a travel site that closely follows the programs. Of course, the windfall from selling miles to credit card companies isn’t pure profit for the airlines. The airlines do end up providing flights for those miles. But the profit margin on that part of the business is about 50%, according to Tom Fitzgerald, airline analyst for TD Cowen.
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