The New Math of Airline Loyalty: How Credit Cards Became the Real Business

The New Math of Airline Loyalty: How Credit Cards Became the Real Business

For decades, frequent flyer programs existed to fill seats. Today, they exist to fill bank accounts. U.S. Airlines are fundamentally rewiring their loyalty programs to focus on credit card spending over actual flying, a shift that is reshaping the economics of the entire industry.

United Airlines announced last month that starting April 2, 2026, regular MileagePlus members without a co-branded credit card will earn just 3 miles per dollar spent on flights. Cardholders will earn at least double that. The airline also restricted mileage earning on basic economy tickets to cardholders only. American Airlines has already stopped awarding AAdvantage miles and Loyalty Points on its cheapest fares entirely. Delta Air Lines allows customers to use spending on its American Express cards to qualify for elite status.

The message is clear: airlines now view their loyalty programs as financial services businesses that happen to operate aircraft on the side.

The Revenue Reality

The numbers explain why. Delta received $8.2 billion in cash from American Express in 2025, representing roughly 14% of adjusted operating revenue and about 1.4 times its adjusted operating income. American Airlines collected $6.2 billion from co-brand and other partners in 2025, approximately four times its adjusted operating income. At Alaska Airlines, loyalty revenue comprised about 16% of total revenue.

These payments from banks are less volatile than ticket sales, a distinction with fresh relevance as Middle East conflict drives jet fuel costs higher and squeezes airline margins. But the model also leaves carriers more exposed to bank strategy, credit cycles, and political decisions that could reshape how rewards programs are funded.

The Erosion of Traditional Loyalty

Jay Sorensen, head of consultancy IdeaWorks, put it bluntly: “The value provided to frequent-flyer members has decreased over time.” IdeaWorks’ 2025 U.S. Domestic Reward Report found that reward “payback” (linking cash fares to award prices) has fallen by about half since 2019. Several airlines have cut back or eliminated mileage earning on their cheapest tickets.

David Robertson of the Nilson Report warned that if redeeming miles feels out of reach, some consumers may abandon airline cards entirely. That would pressure banks that buy miles in bulk, potentially forcing a reckoning in the co-brand ecosystem.

Airlines dispute this framing. Alaska Airlines loyalty chief Kevin Scott said non-cardholders “continue to earn meaningful value through flying.” Co-branded cards, he said, are meant to enhance the program, not replace traditional earning. But the policy changes tell a different story.

Political and Regulatory Pressure

The credit-card-driven loyalty model faces headwinds from multiple directions. The Durbin-Marshall proposal in Congress would require more competition in payment-network routing. Supporters say this would lower merchant costs. Airlines for America warned the bill could jeopardize airline credit-card rewards, citing the collapse of debit-card rewards after similar regulatory changes.

President Trump has proposed a one-year cap on credit-card interest rates at 10%, a move banks and airline groups say could hurt rewards programs. High U.S. Interchange fees currently fund rich rewards, and research shows that caps in Europe and Australia reduced rewards, raised annual fees, and caused some cards to disappear.

The U.S. Department of Transportation is also scrutinizing loyalty programs. In 2024, the agency requested information about rewards programs and policies from American, Delta, Southwest, and United. All four responded, and their replies are under review.

What This Means for Travel Merchants

For travel merchants and payment processors, the airline loyalty shift carries several implications:

• Interchange fee pressure: As airlines defend their lucrative co-brand arrangements, merchant groups continue pushing for interchange reductions. The outcome will affect payment costs across the travel sector.
• Credit risk exposure: Airlines are increasingly tied to bank partners and the credit cycle. Brian Riley, a payments analyst, noted that banks tighten lending and cut co-branded card marketing during downturns, slowing new-account growth and affecting airline earnings within two to three quarters.
• Consumer behavior shifts: If airline miles become harder to earn and redeem, travelers may shift spending to general travel rewards cards or cash-back products, redistributing payment volume across card categories.
• Regulatory uncertainty: Multiple legislative and regulatory threats hang over the co-brand model. Merchants should monitor developments closely, as changes could ripple through travel payment economics.

The Bottom Line

John Breyault, vice president of public policy at the National Consumers League, captured the transformation succinctly: “The modern airline is a gigantic rewards program that just happens to fly airplanes.”

For travel merchants, this means understanding airline loyalty economics is no longer optional. The programs that drive customer acquisition, spending behavior, and payment method selection are now financial instruments first, travel benefits second. As regulatory pressure builds and consumer frustration with devalued miles grows, the industry may be approaching an inflection point. The merchants who understand these dynamics will be better positioned to navigate whatever comes next.

Sources: USA Today, Morgan Lewis, WTOP News