• Airlines Are Just Banks Now   

Excerpt from The Atlantic

They make more money from mileage programs than from flying planes—and it shows.

Last week, Delta Air Lines announced changes to its SkyMiles program that will make accruing status and taking advantage of perks much harder. Instead of relying on a combination of dollars spent and miles traveled in the air, Delta will grant status based on a single metric—dollars spent—and raise the amount of spending required to get it. In short, SkyMiles is no longer a frequent-flier program; it’s a big-spender program. These changes are so drastic that one of the reporters at the preeminent travel-rewards website The Points Guy declared that he’s going to “stop chasing airline status.”

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.

Like the federal reserve, airlines issue currency—points—out of thin air. They also get to decide how much that currency is worth and what it can be spent on.

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