Delta Air Lines earlier this month revamped its SkyMiles program to prioritize dollars spent over miles flown for status. This shift positions SkyMiles more as a program for high spenders than frequent flyers, causing dissatisfaction among many, including industry insiders.
Historically, airline regulations, controlled by the government, ensured fair pricing until deregulation in 1978. This deregulation spurred airlines to introduce competitive strategies, transforming frequent-flyer programs into intricate points systems. These programs now, a piece in The Atlantic argues, closely resemble financial systems, with airlines minting and selling points for profit. From the report: Here’s how the system works now: Airlines create points out of nothing and sell them for real money to banks with co-branded credit cards. The banks award points to cardholders for spending, and both the banks and credit-card companies make money off the swipe fees from the use of the card. Cardholders can redeem points for flights, as well as other goods and services sold through the airlines’ proprietary e-commerce portals.
For the airlines, this is a great deal. They incur no costs from points until they are redeemed — or ever, if the points are forgotten. This setup has made loyalty programs highly lucrative. Consumers now charge nearly 1 percent of U.S. GDP to Delta’s American Express credit cards alone. A 2020 analysis by the Financial Times found that Wall Street lenders valued the major airlines’ mileage programs more highly than the airlines themselves. United’s MileagePlus program, for example, was valued at $22 billion, while the company’s market cap at the time was only $10.6 billion.
Is this a good deal for the American consumer? That’s a trickier question. Paying for a flight or a hotel room with points may feel like a free bonus, but because credit-card-swipe fees increase prices across the economy — Visa or Mastercard takes a cut of every sale — redeeming points is more like getting a little kickback. Certainly the system is bad for Americans who don’t have points-earning cards. They pay higher prices on ordinary goods and services but don’t get the points, effectively subsidizing the perks of card users, who tend to be wealthier already.
