A customer buys groceries with an airline credit card. There is no flight, no bag checked, no aircraft taking off. And yet the airline profits. The customer gets miles as a result, but these were not given away; the bank bought them from the airline. This lucrative business has made some airlines two-headed beasts: one part transportation company, one part currency issuer.
Banks Buy the Miles First
A co-branded airline card typically involves a partnership between an airline and a card issuer. The customer shops and flies, the bank gives miles. To get those miles, the bank pays the airline, in cash, under a commercial agreement. The airline gets paid today, in exchange for a promise to deliver a flight in the future. Delta Air Lines gives us a useful insight into the scale of these deals.
In 2025, the airline’s “revenue from American Express is projected to exceed $8.2 billion, an 11% increase from the previous year. Delta said it expected the relationship to reach $10 billion over the next several years,” the company said in a filing with the SEC. In the same document, Delta reported selling miles to partners in credit cards, hotels, “retail, car rentals, and ridesharing.” That $8.2 billion figure does not include the cash value of all the miles issued. It reflects a complex set of revenues and responsibilities.
Still, it is a useful reminder that the business behind a loyalty program can be massive. The customer may feel that the airline earns the miles by giving them free flights, and the bank earns the miles by convincing the customer to spend.
The Airline Gets Paid Before It Has to Deliver
An airline’s business model typically has a timing problem. The company gets paid for a ticket when it has not yet delivered the flight. The cost to provide that flight is also significant: fuel, crew, airport fees, baggage handling.
But by monetizing miles, an airline can generate cash without having to operate another flight. Some of those miles will be redeemed far in the future, or not at all. Meanwhile, other miles will go toward seats that would have otherwise gone empty. The liability is controlled, but the value is massive. The airline sets aside money for future redemptions, but it also controls the inventory. It decides which flights to put up for redemption, how many miles are needed for each, and what rules or restrictions apply. The miles have the virtue of being cash, with the exception that the issuer gets to dictate both the currency and the store.
An Empty Seat Has Unusual Economics
Imagine that an aircraft is preparing to depart with one seat left. The airline has already spent most of the money it will spend on this flight, but that final passenger will pay for very little. By allowing a loyalty member to redeem miles for that seat, the airline can dramatically reduce the cost of the flight. The same airline can benefit from a surge in demand during peak travel seasons. A seat on a plane during Diwali or Christmas may be much more valuable than a seat during a quiet period.
The airline may control the supply of seats by adjusting the number of miles needed for redemption. The value of the miles to the airline can fluctuate dramatically, based on the time of year or the demand for a particular route. The customer buys the miles, but the currency’s value is not fixed. A frequent traveler who buys 100,000 miles over the course of a year may see those miles shrink in value if the airline changes the number of miles needed for a flight.
Why Spending Matters More Than Miles Flown
Many frequent-flyer programs used to reward customers for the number of miles flown. The more you flew, the more you got. Modern programs are increasingly focused on reward spending. A customer who buys a premium economy seat on a short flight may be more valuable to an airline than a customer flying a much longer distance in economy.
A credit-card user who spends heavily on the airline’s affiliated partners may be more valuable than either, even if they only fly a few times a year. This is why airline programs are rewarding broader commercial partnerships.
In India, IndiGo’s BluChip loyalty program rewards points based on eligible spending with the airline and its partners, rather than strictly on distance traveled. IndiGo advertises “no blackout dates” and “points never expire” for members who continue to engage with the program.
India’s loyalty-card market is unlikely to rival the deep pockets of America’s largest credit-card companies, but it is following the same pattern. The airline needs a relationship with the customer between flights, and the financial partners are happy to help. A flight may happen only twice a year, but a credit-card purchase can happen twice a day.
Loyalty Is Also Data
The airline and the bank benefit from the relationship, but it is not just about the money. The partnership gives the airline valuable data about the loyalty of its customers. It tells the airline which customers are willing to pay extra for an upgrade, a premium cabin, or a special experience.
The bank, meanwhile, has a product that the customer will not want to abandon, because doing so would derail their plans to redeem miles for a flight. The customer with 80,000 miles is no longer shopping for credit cards based on annual fees or interest rates. They are also thinking about the value of their miles and how those miles might buy them an upgrade. The airline can use that to its advantage.
A Currency Backed by Future Seats
An airline is a difficult business to be in. It has to contend with fuel prices, the weather, airport regulations, labor laws, and the expense of aircraft. Loyalty programs are different. They have partnerships that pay them in cash, data about their customers, delayed liabilities, and a currency that they can devalue at will. It is hard to imagine either existing without the other.
The miles have value because they can be exchanged for flights; the airline partnership has value because it drives customer spending and loyalty. The aircraft gives the miles their value, and the miles give the airline cash. The most valuable product an airline can sell may be one that never flies.