The Rewards Programs of Airlines Are Their Most Valuable Asset

It's Friday, July twenty fourth. I took a flight yesterday from San Francisco to Boston on Delta, and I got upgraded. Again. I only fly Delta now because of the rewards, and at this point I don't remember the last time I didn't get bumped up to at least Comfort Plus. I'm not trying to sound cocky about it, it's just become so routine that I almost expect it, which is kind of the whole point of what I want to talk about today. Because I used to buy the cheapest flight I could find regardless of airline. If Spirit was $40 cheaper, I flew Spirit. I was completely airline-agnostic and I thought that was the smart move. Then I got hooked up with Delta Gold status through a friend, started getting the upgrades, and now I fly Delta even when it's not the cheapest option because the experience feels like I'm getting more value than I'm paying for. I know, sitting here saying this, that I sound like exactly the kind of customer Delta designed this system to create. So I looked into how airline loyalty programs actually work as a business, and the numbers are so absurd that they change how you think about what an airline even is. Delta received $8.2 billion from American Express last year, just from their credit card partnership, which is more than the airline made from actually flying people. The loyalty program isn't a perk attached to an airline. The airline is a delivery mechanism attached to a loyalty program. The business model behind airline loyalty programs is one of the most elegant money-making machines ever designed, and it works because most people, including me until this week, don't understand what's actually being sold.

Airlines create frequent flyer miles at essentially zero marginal cost. A mile is not a unit of distance or a unit of currency backed by anything tangible. It's a number in a database that the airline invented and can produce in unlimited quantities. They then sell those miles in bulk to banks and credit card companies at rates that typically range from 1.5 to 2.5 cents per mile. When you swipe your Delta American Express card at the grocery store and earn miles, what actually happened is that American Express bought those miles from Delta, paid for them with the interchange fee the bank collected from the merchant, and gave them to you as a reward for using the card. The merchant raised prices slightly to cover the interchange fee, which means everyone pays a little more for groceries whether they have a rewards card or not.

The scale of this is hard to overstate. In 2025, Delta received $8.2 billion in cash from American Express, which represented about 14 percent of Delta's total revenue and roughly 1.4 times its adjusted operating income. American Airlines received $6.2 billion from its credit card partners, about four times its adjusted operating income. Delta's own executives have described quarters where the credit card revenue was the difference between an operating loss and a profitable quarter, meaning the airline would have lost money flying people if the loyalty program hadn't covered the gap. One financial publication summarized it by saying that if you strip out the loyalty machine, the core airline is "at best, a break-even business." During COVID, when planes were grounded and revenue collapsed almost entirely, the airlines proved just how valuable their loyalty programs had become by using them as collateral for emergency financing. United raised $6.8 billion by securitizing MileagePlus. Delta borrowed $9 billion against SkyMiles. American secured $10 billion using AAdvantage, the largest airline-backed financing in history at the time. In their loan filings, American valued AAdvantage at roughly $24 billion and United valued MileagePlus at about $22 billion.

Think about that for a second. The points program, a database of imaginary units that the airline created from nothing, was worth more as collateral than the fleet of physical aircraft sitting on the tarmac. Wall Street analysts have noted that in some valuations, the loyalty program alone is worth more than the entire airline. The planes, the routes, the employees, the airport gates, all of it is worth less than the system that tracks your miles and sells them to banks. When I got my Delta Gold status, I thought I was getting access to a nice perk. What I was actually doing was enrolling myself in a $26 billion financial instrument that generates more reliable revenue than selling plane tickets.

The profitability gap between flying people and selling miles is staggering. Airline ticket margins typically run between 2 and 14 percent. Loyalty program margins run between 39 and 44 percent. The most profitable thing an airline does isn't transporting you from San Francisco to New York. It's selling the miles you earned on that flight to a bank that already paid for them before you booked the ticket. The financial engineering is only half of it. The other half is the behavioral psychology that keeps you loyal even when it's not in your best interest, and I say that as someone who is currently experiencing it.

I fly Delta now even when another airline has a cheaper fare because I don't want to "waste" a flight on a carrier where it won't count toward my status. That's the sunk cost fallacy in action: I've already invested flights toward Gold status, so switching airlines feels like throwing away progress, even if the cheaper flight on United would save me more money than the upgrade on Delta is worth. The program is designed to create exactly this feeling, and it works on nearly everyone who reaches any meaningful tier.

The variable reward schedule is the other mechanism, and it's the same one that makes slot machines addictive. I don't get upgraded every flight. Sometimes I do, sometimes I don't, and I never know until I check the app at the gate. That unpredictability is more psychologically compelling than a guaranteed upgrade would be, because the anticipation and occasional surprise trigger a stronger dopamine response than a predictable reward. If I got upgraded every single time, it would stop feeling special within a month. Because I get upgraded sometimes, every boarding pass feels like a lottery ticket.

And then there's breakage, which is the industry term for points that are earned and never redeemed. Between 15 and 30 percent of all loyalty points across the industry go unredeemed, either because they expire, because the member forgets about them, or because the redemption options aren't compelling enough to bother. Pre-pandemic, McKinsey estimated that roughly 30 trillion miles were sitting unredeemed in airline loyalty accounts worldwide. Those unredeemed miles represent revenue the airline already collected from the bank that bought them, with zero cost of fulfillment because the passenger never flew. Pure profit from a product that was never delivered.

The value of the miles themselves has also been quietly declining. A recent report found that the "payback" value of reward redemptions, meaning what your miles are actually worth when you use them, has fallen by about half since 2019. Airlines are making it harder to earn miles on cheap tickets and more expensive to redeem them for flights, which means the currency you're accumulating is being devalued while the behavior it's designed to produce, loyalty to one airline over price-shopping, remains fully intact. You're working harder for points that buy less, and most people don't notice because the occasional upgrade to Comfort Plus feels like the system is working in your favor. I know this, and I'm still flying Delta on Friday. The thing that reshaped how I think about this is the COVID collateral detail. When everything shut down and airlines needed emergency cash, they didn't pledge their planes or their routes or their airport gates. They pledged their points programs, because that's where the real value lives. The airline is the thing that gets you to join the loyalty program, and the loyalty program is the thing that makes money. I got upgraded to First Class last month and it felt like the system was rewarding me for my loyalty, and in a way it was, but the upgrade cost Delta a few hundred dollars in a nicer seat while my loyalty cost me thousands in flights I could have gotten cheaper somewhere else. That math works great for Delta and it works well enough for me that I keep doing it, which is probably the most honest summary of how loyalty programs work in general.

Stay informed, stay curious, and we'll see you tomorrow.