You might think think of frequent flier miles as a giveaway for airlines; carriers rewarding loyal customers with free or discounted travel. However, these programs are now a bigger money-maker than airfare for U.S. airlines.
A good chunk of loyalty revenue comes from airlines selling miles to the banks that run co-branded credit cards. According to Bloomberg, these deals now account for nearly 50% of revenue for many airlines.
For every mile an airline sells to a credit card partner — like Citigroup, JP Morgan Chase, and others — it’s making $0.015 to $0.025.
While a fraction of a cent might not seem like a lot, Bloomberg notes that the big banks buy miles by the billions each month, and that translates to big bucks.
For example, Bloomberg reports that Delta Air Lines’ American Express partnership is expected to bring in $4 billion in revenue per year by 2021. Alaska Air Group says its partnership with Bank of America will bring in $900 million annually.
While having a slew of unused miles outstanding may be an accounting liability, analysts note that airlines aren’t too worried since they sold to these miles to credit card companies for “much more than they will cost the airline when those miles are redeemed.”