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The airline industry is ever evolving in the United States. Things have changed massively since the time when the first commercial flight was flown. Costs have increased, consumer trends have evolved, and loyalty programs have become much more than a way of earning and redeeming points. - US airlines would lose money without their loyalty programs.
- The revenue from loyalty programs helps carriers to keep their business going.
- Co-branded credit cards and travel credit cards make a lot of money for carriers and issuers.
We are also seeing a divide in the industry – some airlines are as profitable as ever, while others can no longer compete. One of the recent examples is Spirit Airlines, the pioneering discount airline, which ceased all operations and went out of business because of financial problems.
But why do some airlines stay profitable and others struggle to stay aloft? That’s because the profitable airlines are not actually making their money from selling tickets. Instead, they are earning their profits from their loyalty programs.
In recent years, frequent-flyer programs in America have grown ever larger and more lucrative. They’ve become more profitable than airlines themselves, and, in fact, airlines would lose a lot of money without loyalty programs.
There is an excellent analysis in Visual Approach Analytics that shows the state of US airline industry economics and the extent of profits that are driven by loyalty programs in comparison with airline ticket sales.
The analysis shows the 2025 operating profits of the six most profitable US airlines and compares their reported operating profits to what their operating profits would have been without loyalty revenues.
Here are the numbers at a glance:
- Delta Air Lines had a 9.7% operating margin, but without loyalty revenue, it would’ve had a -3.9% margin
- United Airlines had an 8% operating margin, but without loyalty revenue, it would’ve had a -3.9% margin;
- Allegiant Air had a 1.5% operating margin, but without loyalty revenue, it would’ve had a -4.1% margin;
- American Airlines had a 2.7% operating margin, but without loyalty revenue, it would’ve had a -12.9% margin;
- Alaska Airlines had a 2.1% operating margin, but without loyalty revenue, it would’ve had a -16.6% margin;
- Southwest Airlines had a 1.5% operating margin, but without loyalty revenue, it would’ve had a -25.1% margin.
How does loyalty revenue work?
The model is simple: airlines sell miles to card issuers; cardholders earn miles by spending; and those miles are eventually redeemed for travel. Each party benefits. Banks and other financial firms gain loyal customers, travelers enjoy flights and perks, and airlines secure a steady stream of profits.If we dig more into accounting, here’s how it works:
- When points are awarded for a flight, that gets booked as air traffic liability on the balance sheet, and then when those points are redeemed, the liability goes away, and the value of points gets booked as passenger revenue.
- When money is spent on a co-branded credit card, the money the credit card company gives the airline is split — roughly half goes onto the balance sheet as air traffic liability, and roughly the other half gets booked as marketing revenue; when the points are used, the air traffic liability gets booked as passenger revenue.
- When cardmembers or members of loyal programs forget about their points (or when they expire), the airline can release the liability in a breakage process, and removing the liability results in revenue.
Why are airline credit card partnerships so important?
Co-branded credit cards, and then travel credit cards like Chase’s Sapphire Reserve and American Express’ Platinum cards, have become a significant source of revenue, as well as useful tools of corporate finance. Airlines sell miles to issuers to receive much-needed cash upfront to keep things running and deliver the services later. Since carriers control the redemption rules, they can steer passengers towards off-peak flights and unsold seats.The expansion of frequent-flyer programs also resulted in a growing number of co-branded credit cards. Delta and American Express now offer seven co-branded cards. These cards earn SkyMiles for every dollar spent, and premium versions come with such travel perks as lounge access, free checked bags, and complimentary upgrades. Even non-branded credit cards, like Chase’s Sapphire or Citi’s Strata cards, can grant access to exclusive lounges and allow cardholders to convert their points into airline miles with a range of carriers.
Many airlines have switched from awarding loyalty status based on miles flown to awarding loyalty status based on how much customers spend. For example, with American Airlines, you can reach the top loyalty tier without ever having stepped on one of its planes. So, you can simply have an airline credit card, spend heavily on it, and earn status points.
Bottom line
Co-branded and travel credit cards were making a lot of money for financial firms too. Annual fees are one source of revenue. American Express has hiked the annual fee for its Platinum card to a whopping $895 a year, and Chase is currently charging a $795 annual fee for its upgraded Sapphire Reserve® credit card. But the real money comes from the interchange (swipe) fees collected on transactions. U.S. banks earned tens of billions in interchange fees in 2025.The US airline industry has evolved massively in recent years, both better and worse. The loyalty programs have become a new funnel for booking tickets and generating revenue. In other words, they’ve become another currency that airlines accept.
The US airline industry transformed to the point that it cannot exist in its current form without loyalty revenue. However, for carriers, it’s not that bad because they can compete with other airlines. It’s also good for consumers, as their tickets are essentially subsidized by credit card companies.
However, for smaller airlines, it’s hard to compete with bigger players who have robust loyalty programs. The recent example of Spirit Airlines, which eventually stopped its operations, clearly shows it.
