Why Airline Miles Keep Losing Value – And What It Means for You

While it's ubiquitous, air travel It remains one of the most extraordinary technological accomplishments in human history. Apart from the scientific challenge of ensuring takeoffs, airlines have to manage tens of thousands of baggage items, staff members, and passengers to ensure everybody reaches their destination. Even though this process requires immense efforts, shuttling individuals between locations does not significantly boost profits for the aviation industry nowadays. Rather, leading companies generate billions annually due to sophisticated financial strategies. dedication and expenditure with loyalty cards .

Launched in the 1980s, airline loyalty benefits transformed the sector, building a devoted customer base keen on flying with particular carriers or using their credit cards to gain advantages such as complimentary checked bags, upgraded seating, and priority boarding. ever-popular airport lounge access , along with “free” flights. An analysis conducted by OAG in 2024 revealed that globally, 82% of travellers were part of at least one airline loyalty programme. Delta SkyMiles stands as the biggest such scheme, boasting more than 120 million participants. By 2023, U.S. airlines had distributed approximately 31 million airline credit cards, per data from Airlines for America, and an impressive 57% of reward points came from purchases made using these cards.

The combination of people flying And with customers using their credit cards extensively, airline loyalty programs have grown into a massive force and a key driver of revenue for airlines—so significant that these carriers would find it challenging to turn a profit without them. According to federal aviation documents, these loyalty schemes account for more than $25 billion in annual earnings. For the Big Four airlines in 2024, The Southwest loyalty program generated approximately $2.2 billion in earnings. , which constitutes approximately 8% of their total revenue. For instance, United reported $2.9 billion (5%), American disclosed $6.1 billion (11.3%), and Delta stated $7.4 billion (12%).

Airlines reap numerous advantages apart from having a devoted clientele, a robust brand image, and organic advertising through cards being used frequently across various locations. Loyalty programs boost an airline’s overall worth and create steady income flows. When managed effectively, these initiatives can also prove beneficial. Customers aiming to maximize their rewards for holidays However, there are certain risks associated with loyalty programs from a customer viewpoint. Carriers have the ability to modify the worth of their rewards arbitrarily, which often leads to increased profits for them but comes at the cost to the consumers.

The airline industry has transformed itself into small-scale central banks, essentially printing loyalty points as money, frequently making higher profits from selling these points than from their actual flight operations. As TJ Dunn, a seasoned points expert and Editor-in-Chief at The Prince of Travel, explained to me, “Many people refer to airlines as credit card companies equipped with planes.”

In 1981, American Airlines introduced the first contemporary major airline loyalty program with AAdvantage. Later that same year, United's MileagePlus and Delta Air Lines' SkyMiles were established as well, though in 1987 was when Southwest Airlines initiated its Rapid Rewards programme. During this period, airlines moved past merely compensating regular travellers; they started developing what would turn into one of their most lucrative revenue streams. co-branded credit cards By collaborating with banks, airlines can convert their loyalty miles and points into revenue streams, providing additional income to support their core flight operations.

In essence, airline points are akin to IOUs generated from nothing. Airlines subsequently sell these points and miles to banks for U.S. currency, which funds their operations such as purchasing aircraft and compensating pilots. The banks then award these points to individuals who hold co-branded credit cards whenever they make regular purchases—this includes spending on things unrelated to flying. Consequently, customers end up with these accumulated points. cash in those IOUs for aviation services . Put another way, you're turning the money you spent on groceries, gas, clothes, and that $500 VR headset you barely use into jet fuel for your next flight.

Financial institutions appreciate this arrangement since it encourages substantial expenditures and fosters brand allegiance. Meanwhile, airlines are fond of it due to the steady stream of returning clients and ongoing income generated from their shopping activities. As cardholders increase their spending, so do their reward points accumulate, along with the payments made by banks to the airlines. From the consumers' perspective, it seems as though they are receiving additional benefits. earn extra cashback upon redemption of your reward points On paper, everybody comes out ahead.

Despite everyone emerging satisfied, this arrangement particularly benefits the airlines. According to a March report from the travel firm, Point.me Each airline loyalty point typically holds an approximate worth of around one cent based on what consumers get upon redemption; however, banks purchase these points for between 1.5 to 2.5 cents per point without considering volume discounts. These transactions yield profit margins ranging from 39% to 53%. To attract new credit card holders, airlines often offer attractive welcome bonuses along with additional benefits such as travel credits and complimentary baggage checks. Southwest collaborates with JPMorgan Chase, American teams up with Citibank, and Delta joins forces with American Express. Different levels exist within every airline program, and yearly membership fees—through which airlines earn commissions—can vary widely from zero dollars all the way up to $695 annually.

Holding an airline credit card often makes you a more loyal client.

Smart travellers have several strategies to get ahead. Consumers can reserve reward trips through airline sites, covering just the taxes and fees, which frequently offer significant savings over purchasing the equivalent flight for cash. As an illustration, a one-way United Business Class journey from Los Angeles to Sydney on June 4th would require 100,000 points along with $33. mean exchange rate for United miles The cost is 1.3 cents per point, which means you'd need approximately 1,300 points to secure the flight reservation. However, purchasing the same ticket without using the loyalty program would set you back around $4,988.

“I’ve had numerous great rewards,” stated Dunn, who predominantly travels in business class using reward points rather than paying the thousands of dollars in cash. “One instance was an impromptu flight with United Polaris from San Francisco to French Polynesia for 85,000 points. Another was an American Airlines trip from Los Angeles to Sydney costing only 65,000 points.”

Providing more affordable or nearly complimentary flights, enhanced seating options , or free checked baggage appears to be a bad move by the airlines—why spend money unnecessarily? However, all these perks come with various drawbacks. First, the expense for airlines allowing you to use reward points is typically much less than what they initially made from selling those points to banks, particularly during quieter periods. This means you might think you’re scoring a good deal, but the bank has likely already paid for that “free” seat through their point purchases. Second, spending to accumulate sufficient loyalty points Or status for a flight or an upgrade indicates that the airline has already guaranteed tens of thousands of dollars in your business multiple times, whether you chose their flights over competitors (even though those might have had lower prices) or used their credit card.

Savanthi Syth, a Raymond James analyst, mentioned that having an airline credit card often makes customers more loyal.

The complimentary or points-purchased upgrades usually consist of business class or first-class seats that would otherwise remain empty or be allocated at short notice on the actual travel date.

The fourth and concluding method through which airlines ultimately result in winning the points game Perhaps the most significant and straightforward point is this: They assume people will never utilize these rewards. In 2018, the McKinsey consulting firm estimated that around 30% of these benefits go unused. trillion airline points went unused globally. That's billions of dollars' worth of unredeemed flights. Unredeemed points are listed as a liability on an airline's balance sheet to account for potential redemptions, but the ones that go unused are essentially "free money" because airlines keep the revenue from issuing the points without having to offer any actual reward in return. And the cost to keep unredeemed points in the system is virtually zero. A 2024 federal filing said Southwest had $4.8 billion worth of unused points on its balance sheet; Delta has about $9 billion.

Many people are so cost-conscious individuals who choose whatever airline offers the cheapest fare And often, you won’t accumulate sufficient points through flights with just one airline to get something worthwhile. Many individuals don't fly as frequently as anticipated after signing up for a co-branded credit card—especially young folks such as students. Additionally, this demographic might lack the financial means to cover more than what their redeemed flight points offer towards a holiday. Even when travelers manage to use these benefits, airlines can counterbalance losses by adjusting seat availability for reward claims and altering point requirements according to variables like demand and aircraft size. Such adjustments effectively deter habitual fliers from leveraging rewards to lessen the expense of pricey tickets paid in cash.

All effective loyalty programs face the issue of individuals exploiting them excessively, which airlines perceive as problematic. To counter this, these companies often make surprise adjustments to the number of points needed, how much one must spend, or the criteria for achieving elite status, perks, and rewards. Their aim is to boost loyalty-related income, decrease redemption claims, and enhance brand prestige by requiring customers to pay higher prices for services that were once available at reduced costs. However, it might end up pushing people away as well.

The most recent instance of this change occurred when United raised nearly all of its co-branded credit card annual fees in March, increasing them by anywhere from $55 to $245. Delta followed suit by boosting the yearly price for its American Express cards in 2024 as well. This wasn’t where it ended though; both airlines also made significant changes to various aspects of their respective loyalty programmes. Delta added limitations on its Sky Club lounge access and made earning status more costly by basing it on spending rather than miles flown. Delta said the changes addressed a need to manage overcrowding at airport lounges and how many people earn elite status.

Many customers are utilizing little to none of these advantages.

United's loyalty program modifications were less drastic, like increasing the cost of accessing their lounges, but these adjustments nevertheless annoyed many members. Despite this, even the new credit card "perks" — which the company claimed would boost their offerings by catering to various consumer travel preferences — come with some significant downsides. Sally French, a NerdWallet analyst, explained to me that United’s new perks carry “the ultimate coupon book vibe.” Shoppers can apply travel credits towards options such as hotels, rideshares, car rentals, Instacart, and flights through this partly private service. charter company JSX These might appear beneficial in theory, however, the issue lies with the $60 to $150 yearly credit provided for Uber and Lyft being distributed monthly in amounts ranging from $5 to $18, varying based on the specific card. This also applies to Instacart credits. According to French, the potential $200 annual JSX credit could fall short when tackling the airline’s costlier fares; these start around $200 each way for shorter trips yet can soar above $1,000 for extended journeys. As for the maximum of $200 hotel credit, this must exclusively go towards stays at Renowned Hotels and Resorts—this cannot apply to regular accommodations. favored brand, potentially being Hyatt Given their low value and narrow range, numerous customers are opting out of these offers. However, the airline has already received payment from the bank through the signup bonus.

French informed me that most customers are utilizing little to none of these advantages.

Nevertheless, French pointed out that there are some positive aspects of these changes in airline loyalty programs, although they are limited. For instance, lounges may become less congested and offer greater exclusive benefits to members. Many current cardholders are expected to remain loyal regardless of the modifications. During Delta’s January earnings call, President Glen Hauenstein mentioned that approximately one million individuals had enrolled for their Amex card in 2024. Similarly, during United’s annual earnings report, it was stated that the company experienced one million new credit card enrollments over the previous year; however, the impact of its upcoming alterations in 2025 on future registrations remains uncertain.

Currently, airlines are confronting a dire situation. The economic instability coupled with President Donald Trump's actions and policies are contributing factors. The tariff war has caused airline stocks to plummet. And this threat looms over future profits. Concerns about a downturn are challenging people’s desire to travel by air, and a decrease in local official trips due to government job cuts isn’t making things better either. However, customer loyalty might provide some relief since, despite an economic slump, credit card usage and the resulting income won't disappear—this acts as a safeguard. supported airlines' finances throughout the pandemic And could experience another decline if there's an economic downturn later this year.

In April, Delta reported that its loyalty revenue rose by 7% compared to the same period last year, which includes the $2 billion generated through its collaboration with American Express. Although this represents a decline from the 12% boost seen in the first quarter between 2023 and 2024, it remains robust enough to maintain an upward trend. Likewise, United’s financials indicated a 9.4% rise in loyalty revenue for the year-over-year comparison, marking a decrease from the 15% jump recorded during the initial quarter of 2024 yet still reflecting solid performance.

Even with the potential for regulatory and economic roadblocks, loyalty ecosystems are imperative to an airline's success.

American's 5% increase in loyalty revenue, driven by credit card swipes It ranked as the lowest among the three primary carriers. Southwest chose not to reveal how its loyalty program performed compared to the previous year. Despite neither company reporting a quarterly profit, both mentioned that their loyalty programs improved their financial standings: "Our co-branded credit card saw record spending in the first quarter," stated Andrew Watterson, Southwest’s chief operating officer, during the earnings conference call.

However, the golden goose is now at risk. In September, the Department of Transport initiated investigating the programs At American, Delta, Southwest, and United to assess if they were practicing "unfairness, deception, or anti-competitive behavior." Former Transportation Secretary Pete Buttigieg stated that the airlines’ capability to reduce the value of their loyalty points negatively impacts Americans and their households. The approach the Trump administration would take with this investigation remains uncertain.

Despite possible hurdles posed by regulations and economics, loyalty ecosystems remain crucial for an airline’s prosperity. With the aviation industry becoming increasingly competitive, margins have been squeezed The primary airlines are increasingly dependent on income derived from non-ticket sources. Although charges for baggage and seat selection provoke customer frustration, loyalty programs and partnerships with credit cards seem somewhat gamified. This shift steers airlines away from focusing solely on air travel and transforms them into small-scale banking entities. To put it in Generation Z vernacular, they're becoming less about the Wright brothers and more akin to JPMorgan.

Taylor Rains is a senior aviation reporter on the transportation team focused on all things aircraft and airlines.

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