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Let's say I have a credit card1 that awards me with miles for my expenses (each X dollars spent = Y miles earned).

When I use my card to buy products and services, the money goes to the places I spent my money on2, and I get all the correspondent miles.

Then, I can use those miles in whatever airline loyalty program the card allows me to.

Assuming that I have enough miles to book a flight, all of them earned through credit card expenses (which means the airline got no money from me), how can this be profitable or advantageous for the airline?

The only benefit I see is that I'm not flying with their competitors, but I don't understand how the airline can make any money from this, or at least get some advantages other than preventing me from choosing a competitor.


I can understand the advantage, from the airline point of view, when I get miles from flying with them. The airline already got my money on previous flights (in which I could've chosen their competitors, but I didn't), and as a benefit for my loyalty, I've got a "free" flight3.

But when I earn miles from another sources that have nothing to do with the airline (in the example above, credit card expenses), what's the benefit for them? Does the airline make money - or get any other kind of advantage - somehow in this case? Or is preventing me from choosing a competitor the only benefit?

Obviously I'm missing something, as I don't fully understand how loyalty programs really work, where do all those "miles"/points/whatever come from, etc. Hence my question.


1: Credit cards usage is not the focus here, I'm just using it as an example. My question applies to any other mechanism of getting miles other than flying.

2: I'm aware that credit card companies get their share, and there are also fees and taxes, but my point here is that no money - AFAICT - is going to the airline.

3: I know it's not entirely free, there are other expenses such as government/aiport taxes, but AFAIK that money doesn't go the airline. Yes, there are also fuel surcharges, but I guess charging only this wouldn't be enough to be profitable.

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    There are some highly complex loyalty/miles/points schemes involving lots of businesses working together. The airline may let you use points for other things (often hotels and travel-related stuff), as well as earn points by buying other things. Teaming up like this also lets businesses share intelligence, create bundled offers, advertise to clients of other businesses, etc. (How exactly the scheme works will vary a lot.)
    – Stuart F
    Feb 22 at 11:28
  • Is this like asking how can a grocery store profit if you're paying with a salary earned at a different job? (in that: miles are a de facto currency)
    – njzk2
    Feb 24 at 14:06
  • @njzk2 I didn't know where all those miles were coming from. Never occurred to me that they were a currency, hence my question.
    – hkotsubo
    Feb 24 at 15:06

3 Answers 3

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Airlines negotiate with a merchant (credit card, etc) a value per point. The merchant buys the miles for you from the airline. And of course the airline has priced its "free" tickets at a cost in miles that will be acceptable to them when converted back to cash.

The miles are booked as unearned income (they received cash, but it's not currently used for a ticket). Buying a ticket with miles converts these miles to their internal monetary value, and gets that cash transferred to income.

And the tickets aren't entirely free. You still need to pay taxes, surcharges, etc... usually with the same credit card (in the case of a credit card co). Again more miles for the airline.

So why would the credit card co or other merchant do that? Obviously to capture a market share, and lock you in (vs other, similar, merchants).

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    I didn't know that airlines sell miles, and now that you said that, it seems so obvious! And considering the amount of miles that expire before being used, I guess it might be a great source of income.
    – hkotsubo
    Feb 21 at 18:59
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    Frequent flyer programs are big business, to the point the programs are often worth more than the airlines themselves. It's a currency that people value, the airline can print more anytime they want, and the airline has considerable control over (and can change the rules in the future) when and how they can be redeemed. These are incredibly valuable qualities and part of why frequent flyer programs are worth so much. Feb 22 at 9:47
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    @ZachLipton Very interesting article, thanks for sharing. This excerpt catched my eye: "Airlines create points out of nothing and sell them for real money". Knowing that airlines make more money with loyalty programs is also mindblowing, I had no ideia they were so profitable.
    – hkotsubo
    Feb 22 at 11:57
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    It is similar with electronics companies like Best Buy. They make almost nothing off of the sale of electronics. They make far more from the interest paid by customers who sign up for a financing deal and extend it beyond the "same as cash" timeframe. A secondary revenue stream is extended warranties.
    – Pete B.
    Feb 22 at 12:38
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    Part of the trick is that, especially in today's era of dynamic pricing for frequent flyer mile redemptions, airlines can exchange miles for seats that would have otherwise gone empty or at least sold at highly discounted fares. The marginal cost of putting another passenger in an empty seat is very low (even lower when the passenger pays the applicable taxes and fees themselves), so the airline can exchange valuable points for a seat that costs them little to provide. Feb 22 at 21:17
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When I use my card to buy products and services, the money goes to the places I spent my money on

Not all of it. Some goes to the credit card company. If you're in the US it's about 3%, in Europe typically less.

The credit card company can pocket this money and make a profit. Or they can return some of it to you, hoping it would make you use their card more. They'd get less per dollar spent, but more overall. The simplest way to do this is to offer cash-back. Another way is to offer airline miles. As @dda wrote before me, the credit company will buy the miles from the airline. Thus the airlines makes money.

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  • I'm aware the credit card company will get its share, and there also are taxes, etc. I just didn't include that in the question to not add more clutter. My point was to focus on the fact that none of this money was going to the airline and I couldn't see how they could benefit from that. I didn't know that airlines sell miles, that was the piece of information that was missing, now I have the whole picture. Thanks!
    – hkotsubo
    Feb 21 at 18:54
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    @hkotsubo: a good chunk of that money definitely goes back to the airline..
    – Hilmar
    Feb 22 at 8:05
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Co-Branded Credit Card Agreements and Selling Miles to Banks

The airlines either sell the miles to the banks that issue the credit cards or (in the case of co-branded credit cards,) they have an agreement to share a cut of the annual fees and card swipe fees on those cards with the airline.

This is actually an enormous business. The major U.S. airlines often actually make more profit from their credit card agreements than from their entire airline operations. For example, in the 3rd quarter of 2023, Delta made $1.7 billion USD from their agreement with American Express. This represented 11% of Delta's entire revenue for that quarter. To put this in perspective of the bottom line, their profit for the quarter was $1.1 billion.

To perhaps add yet more perspective to this, Delta's CEO stated in mid 2023 that around one percent of the entire U.S. gross domestic product flowed through Delta co-branded Amex cards. The U.S. GDP is roughly $28 trillion, meaning around 280 billion dollars flows through Delta co-branded Amex cards annually. That's a sum roughly equal to the GDP of Portugal (as of this writing in 2024.)

As other answers discuss, airlines often also have agreements to sell their miles to banks other than just the one(s) they have co-branded card agreements with. For example, Singapore Airlines, Virgin Atlantic, and Air France/KLM all sell their miles to all 4 major U.S. banks that issue travel-focused credit cards with transferrable points (Amex, Chase, Capital One, and Citi.) Airlines do make quite a bit from this, too, but, especially in the U.S., it's the co-branded card agreements where they make the real money. There have been quite a few quarters over the last several years (especially during the Covid pandemic) where the co-branded card agreements were the difference between a major airline losing money or turning a profit for the quarter.

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