The Big Business of Points and Miles

Why Airlines Have Loyalty Programs, How the Money Flows Among Partners, and How Consumers Can Tap Into Points as Meaningful Currency 

Over the last two-plus decades, points and miles have evolved into a multi-billion-dollar industry. Exact numbers aren’t published, but it’s estimated that $300 billion in award points are issued every year. For context, that’s on par with the GDP of Greece. 

In fact, in their book Loyalty Programs and the Currency Effect, Evert de Boer and Xiao Yao Chin attest that when outstanding balances are accounted for, loyalty points could be the world’s third-largest currency after the U.S. dollar and euro.

Airlines, hotels, and even retailers use points to drive loyalty and increase profits, while consumers avidly collect them and often devote hours to cracking the code to redeem them for the most value. It’s estimated that 71% of Americans have at least one credit card that earns points or cash back, and the world’s largest airline loyalty program, Delta SkyMiles, has more than 120 million global members.  

Yet despite this widespread use of loyalty programs, few consumers fully understand how they work, how every participant in the ecosystem benefits, and how to maximize the value of their rewards. In this report, we shed light on the inner workings of travel rewards currencies and how consumers can make informed decisions that enhance their spending power.

“Loyalty programs and a strong currency are crucial drivers of both profitability and customer retention for airlines. By fostering deep, direct relationships with customers, airlines not only enhance brand loyalty but also create predictable, recurring revenue streams.“

Adam Daniels, CEO of IAG Loyalty

In this report, we’ll cover: 

• The future of the industry 
• The growth of loyalty programs from inception to a multi-billion dollar ecosystem
• How points are created and distributed to consumers and partners
• The challenges of this unique ecosystem and how they impact redemption
• How airlines, banks, partners, and consumers can all benefit from the system
• Tips for consumers to make the most of their rewards

1. The Evolution of an Industry

In the late 1970s and early 1980s, legacy airlines were facing a challenge. The 1978 Airline Deregulation Act had led to new competitors entering the industry, and the airlines were fighting to retain their customer base without lowering prices. 

United had previously launched a loyalty program that rewarded flyers with promotional items, and in 1979, the now-defunct Texas International Airlines created the frequent flyer program to resemble today’s modern programs. However, American Airlines was arguably the pioneer in the industry. It launched the AAdvantage program on May 1, 1981. 

United followed, launching its own loyalty program within a week. Delta and Continental launched their respective programs by the end of 1981, and Air Canada and British Airways followed suit the following year. By the decade’s end, hotels got in on the action, with Hilton, Marriott, and Holiday Inn introducing their own loyalty programs. Airlines remained a step ahead, with American and Continental launching their own co-branded credit cards. The airline loyalty program boom was in full swing. 

Airlines recognized the advantage of offering rewards that customers viewed as highly valuable, such as free flights. Since planes frequently had empty seats, these perks felt like a huge win for travelers, encouraging loyalty in a competitive market — all while costing the airline little to nothing.

What began as a simple reward system to encourage repeat business evolved into a complex financial ecosystem that now fuels airline profitability. 

Today, all major airlines, hotels, banks, and even retailers offer rewards programs that monetize consumer loyalty.

The Birth of Loyalty Programs 

2. The Loyalty Program Boom 

Since those early days, loyalty points have evolved into a powerful economic force, shaping consumer behavior, driving airline revenue, and expanding brand influence far beyond the travel industry. 

According to an OAG report, 82% of travelers are enrolled in an airline loyalty program, and an IAG survey found that more than two-thirds of people are members of at least three. And that membership drives loyalty, with 83% of consumers saying that being a part of a loyalty program influences their decisions. 

A well-structured program, including a strong currency like Avios, encourages repeat business, boosts customer lifetime value, and provides valuable data on consumer behaviour. Ultimately, investing in loyalty programs is an investment in long-term growth and stability, as it strengthens customer engagement and loyalty, ensuring a sustainable competitive advantage.”

Adam Daniels, CEO of IAG Loyalty

The airlines offer rewards not only to encourage loyalty but also to increase profit, as margins on the sale of points are much bigger than those on revenue from flying. However, the number of points consumers earn from flying is dwarfed by the number of points earned from other activities like credit card spending. Banks and credit card issuers are actually the number one purchaser of points. 

Credit card companies offer points because travel rewards have a higher perceived value than other incentives, making them an effective tool for attracting customers. Consumers are more likely to sign up for and actively use credit cards that offer airline miles or transferrable points they can use on partner airlines, leading to increased spending. These customers also generate higher revenue for banks through interchange fees and interest payments. Aspirational rewards, such as free flights and upgrades, encourage premium spending and long-term customer retention, further boosting profitability for credit card issuers.

Today, the loyalty points industry is massive, rivaling major global currencies in scale. According to Airlines for America, in the U.S. alone, 31 million people hold airline credit cards, while an additional 70 million consumers hold other rewards-earning credit cards. An estimated 63% of airline miles are earned through credit card spending, and approximately 15 million domestic trips are booked via credit card points every year. 

Yet, many consumers are unaware of how much monetary value they can access via their points, and they are even more confused about the best ways to redeem them. 

3. Points as Currency 

Points and miles function as a currency minted by loyalty programs and then “sold” to a third party — which could be the airline of that loyalty program (a separate entity from the airline), a bank/credit card issuer, or another partner. Consumers then “earn” an amount of this currency as a reward for spending with the airline, the bank, or other partner. Completing the cycle, consumers can then redeem them for rewards with the airlines, banks, and other partners in that ecosystem. 

As points become a part of everyday financial transactions, this lucrative cycle allows customers to accumulate points for flights, hotel nights, upgrades, and other redemptions while airlines, banks, and other partners reinforce customer loyalty by delivering highly aspirational rewards. And perhaps most importantly, it drives billions in profit for airlines, banks, and their partners —  in 2022, it was over $20 billion annually for the top four U.S. airlines alone. 

It’s profitable for airlines in the short term and also builds brand loyalty. When consumers engage with a brand on multiple fronts (by booking flights, using a branded shopping portal, dining rewards program, etc.), they’re more likely to be loyal and spend more with that airline.  

For example, in 2019, American Airlines reported that the average flyer spent just $408 with them while the average member of their AAdvantage loyalty program spent three times that — $1,220. 

Airlines also enjoy impressive margins on mileage sales. For example, in 2019, American Airlines generated $5.9 billion in mileage sales at a 53% margin. The same goes for competitors Delta and United, which saw 39% and 44% margins on $6.1 billion and $5.3 billion in mileage sales, respectively. In comparison, the margin from selling tickets ranges from just 2-14%, so it’s no wonder airlines have come to see loyalty programs as vital business drivers. 

Loyalty programs are clearly lucrative, and the airlines want customers to use their points. When an airline issues points, these show up on its balance sheet as a deferred liability; the revenue is recognized when the points are redeemed — whether by booking a flight directly with the airline, with a partner, or with another redemption opportunity.

The airlines want their outstanding points redeemed in a controlled and steady way. If miles are issued but not redeemed (known as breakage), airlines see it as a sign of a bad program that’s not regularly engaging customers and will look at factors causing this dissatisfaction or take steps to incentivize travelers to use their points.

Case in point: Air Canada’s Aeroplan recently ran an ad campaign encouraging members to redeem their points sooner rather than later. 

4. How the Money Flows from Loyalty Programs to Airlines, Banks, and Consumers 

The accounting of the value of points as they make their way between different parties is…complicated. 

Loyalty programs sell points to banks at negotiated rates, typically between 1.25 and 2 cents per mile or point. The exact pricing depends on factors such as purchase volume, program value, and the specifics of co-brand agreements. Large credit card issuers often buy in bulk to secure better rates, while airlines strategically fund transfer bonuses to incentivize spending. 

Loyalty programs also sell points directly to consumers. For example, Aeroplan has been known to offer points to consumers at 2.45 cents per point, while Avianca Lifemiles routinely sells their miles for 1.2 cents each. While these are relatively high rates, consumers can exceed this value by redeeming miles for luxury travel.

Loyalty programs even sell points to their own airlines, typically at cost. The airline and its loyalty program are, more often than not, separate entities with their own goals and budgets. For example, United’s MileagePlus program is actually MileagePlus Holdings., a wholly owned subsidiary of United. To award its members with points when they fly, United must “pay” MileagePlus Holdings for those points, the same way that the banks do. 

But how do airlines account for the cost of redemptions? For starters, they allocate a portion of ticket costs toward future redemptions (including flights and upgrades). Airlines track these costs as liabilities on their financial statements until the miles are used or expire.

Where it gets extra complicated is alliance partners and interline agreements, which are agreements among airlines to work together and transport one another’s passengers (for a fee, of course). It shocks many first-time points users to learn that because of these partnerships, the airline they have points with does not have to match the airline they actually fly. 

For example, a traveler with Chase Ultimate Rewards points could transfer those points to one of 11 airline programs. If they choose to transfer their points to United’s MileagePlus program, they can then choose to redeem those points for a flight on one of more than two dozen partner airlines. 

When passengers redeem loyalty points on partner airlines within an alliance, interline billing and cost-sharing agreements determine reimbursement rates. Let’s go back to that Chase/United example. Let’s say that the passenger used their United MileagePlus miles for a Lufthansa flight. United would then reimburse Lufthansa based on a fixed rate or negotiated formula. The reimbursement rate depends on mileage zones, cabin class, and specific routes. 

The loyalty program that issues the points (in this case, United MileagePlus) recognizes the cost when the passenger uses them, and the airline operating the flight (in this case, Lufthansa) gets paid for the service.

This system ensures fair compensation among alliance members while maintaining a seamless experience for passengers.

5. Why Points Redemption is So Complicated 

All of these intricacies — from the interplay between airlines and their own loyalty programs to how revenue is transferred from the airline to the bank — make booking a flight with points much less straightforward than booking with cash. The often confusing process of point redemption is a consequence of these factors. 

Limited Availability 

As mentioned, loyalty programs have to “buy” the award seats available on their own airline, which can cause friction between the loyalty program team and the airline’s Revenue Management (RM) team. The RM team’s priority is maximizing revenue per seat, so they may limit reward seat availability to ensure higher-paying customers get in-demand seats. Meanwhile, the loyalty team focuses on customer satisfaction and retention, aiming to make redemptions more accessible. 

This is why there can be limitations on the number of award seats available, especially during peak periods when RM teams restrict seat availability, frustrating customers trying to use their miles. Successful airlines balance these competing interests by offering flexible redemption options and using data to improve customer satisfaction while maintaining revenue goals.

While some airlines offer minimum “seat commitments,” guaranteeing a certain number of reward seats, even on sold-out flights, on other airlines, the number of seats available on each flight depends on the airline’s capacity control strategies, demand, and how the airline prices its award flights. For example, fewer seats might be available on an airline with fixed pricing, but they’ll all cost the same amount of points. In contrast, on an airline with dynamic pricing, more award seats might be available, but the price can vary widely depending on when you book. 

Still, things are further complicated by how you book — whether it’s directly with the airline you plan to fly or by booking through a partner program — as many programs prioritize the availability of their own airline and have less availability of seats on partner airlines. 

Inconsistent Pricing 

Just like different airlines charge different prices for the same route, award fares can be vastly different for the same route, depending on how you book. Some airlines publish their award rates and make it easy to know exactly what a flight from point A to point B will cost, while others are less forthcoming, and still others have dynamic pricing, so the rate rises and falls frequently, similar to its cash fares. 

All of this means that it can be challenging for a customer to know what a flight should cost or whether they are getting a good deal.

Even within the same airline alliance, each program has varying redemption rates for the same award flights. A flight that costs $3,500 in cash might cost 233,000 in a credit card portal, 57,500 miles + $700 when booked with one program, and 60,000 miles + $200 when booked with another — for the same exact route. 

This isn’t an intentional move to make things confusing for consumers; it’s a function of the varying worth of different points, the way airlines price their flights, and their reimbursement rates with various partners. 

Then, there are credit card portals, which set their redemption rates at 0.6-1.5 cents per point. Credit card companies make money with every swipe via interchange fees, which help fund rewards. In the U.S., there’s enough money to go around from those swipes that these credit card companies can offer rewards of at least 1 point for every dollar spent, and sometimes up to 5 or even 10. 

These credit card companies allow you to redeem your points towards any travel purchase, regardless of whether award seats are available on a particular flight, at 1 cent per point for most transactions. Redeeming through these portals makes the process easy and more straightforward for consumers, but it isn’t always the best value. Airlines can typically offer more value for their own seats than the portals can — with fares costing up to 90% less when booked by transferring points to the airline rather than using the credit card portal. 

Comparison is Difficult

These various redemption options and varying prices across programs mean consumers must search multiple sites to compare prices and find the best deals. The process can be time-consuming, and many customers struggle to navigate these systems, adding a layer of frustration to the experience.

Tools like point.me alleviate this problem by acting as a one-stop solution for award booking. point.me searches more than 150 airlines and programs and displays the total fare, including points and additional fees so that consumers can easily compare fares across all major frequent flyer programs without the need to visit multiple websites and conduct dozens of searches. 

6. How Consumers Can Maximize Their Return 

Points are undeniably valuable, but redeeming them is also undeniably challenging for many consumers. Nearly one-fourth of credit cardholders have unused points and miles, resulting in millions of dollars in untapped value. In 2018, McKinsey estimated the global number of unredeemed airline miles to be 30 trillion. That would cover roughly 250 million roundtrips from the U.S. to Europe in business class — one roundtrip for almost every American adult. 

Why let all this value go to waste? According to surveys, 54% of American consumers find the redemption process confusing, especially if numerous transfer options are available or travel portals aren’t easily accessible. With some research and education, consumers can maximize their rewards and save on travel. 

Compare Programs

Due to the variations in redemption rates across different frequent flyer programs, comparing rates before booking is crucial. But, given the complexity of navigating different loyalty programs, comparing reward fares manually can be time-consuming and requires knowing where to look. 

Tools like point.me show redemption rates across various programs, making it easier for travelers to quickly see all the available point fares and choose the one that’s best for them.

Book Early

To further increase the chance of securing high-value redemptions, travelers should book as early as possible. Most airlines release award seats at least 330 days before departure, and premium cabin award space often gets booked quickly. Since only a portion of seats are available for award redemptions, booking early is crucial to snag those seats before they are gone. Understand the purchasing potential of the points you have 

Be Flexible

Flexibility in travel dates and destinations can significantly improve redemption opportunities. Flying mid-week, choosing off-peak dates, and considering alternate airports can help secure the best deals. Some programs even allow members to join waitlists for award seats, which may become available closer to departure.

Other flexibility strategies include mixing miles with cash for partial redemptions, booking one-way flights on different airlines to increase availability, flying into or out of alternate airports, and searching for award seats one passenger at a time to uncover individual seat inventory. Checking flexible date calendars and monitoring award deals can also lead to more significant savings. By employing these tactics, travelers can maximize the value of their points, making premium travel experiences more accessible and cost-effective.

Use Transfer Bonuses

A transfer bonus is a percentage of extra points an airline gives you when you transfer your points from a certain loyalty program to that airline. It could be 10-15% or as much as 30%, and it can mean parting with a lot fewer points to get the flight you want. Airlines strategically fund these to incentivize spending, and they can save you quite a bit. When searching on point.me, you’ll see any current transfer bonuses that you can leverage to spend fewer points for your redemption.

Understand Good Points Values

While comparing fares across programs allows customers to see the various redemption options for their points, it’s also important to understand the limitations of the points you have and what type of points you need for the trips you want. 

For example, if you dream of a business class trip to Europe, Southwest points aren’t going to help you — those points can only be used on Southwest, and the airline doesn’t fly over the Atlantic. And if you’re trying to go from a small regional airport on the East Coast to Japan during peak season, the number of points needed is simply going to be much higher than what you’d need to fly there from a major gateway on the West Coast during off season. 

While deep discounts and unexpected sales happen, holding out for the lowest possible fare often results in people simply not using their points or not taking the trip at all. Instead of comparing the fare you’ve found to the lowest possible fare, it’s wiser to compare the cash cost to the number of points required and look at the per-point price. 

Credit card portals typically offer one cent per point, so if the value you’re getting works out to less than a penny per point, it’s generally not worth using your points. On the other hand, if the value is more than 1.5-2 cents per point, that’s a better value than the credit card portal offers, and you can be confident that it’s a pretty good redemption. 

7. The Future of Points and Miles 

Airlines, banks, and other partners love loyalty programs because they drive revenue and long-term value. Customers love them, too, but many find the process confusing or frustrating as they struggle to understand the best way to redeem their points. 

So, where do we go from here? We’ve got a few predictions about changes and trends we’ll see in 2025 and beyond —  and how the ecosystem will continue to evolve to bring even more benefit to all participants. 

Increased Transparency 

Transparency will continue to be key to helping consumers maximize their rewards. point.me was the first tool developed to help customers understand all the options available and discover the true value potential of their points. 

This increased transparency will make redemptions easier for the non-expert consumer, and more people will be able to turn their points into real value, increasing (and spending on) travel reward cards and leading to even more value for issuers. 

Partnership Program Growth 

With so much upside, loyalty programs will continue to expand on cross-industry partnerships. From grocery store programs to streaming services, brands are leveraging the aspirational appeal of airline seats as a reward for everyday activities. 

By making points available through multiple channels (including outside of travel), loyalty programs will continue to increase their appeal to a broader audience, and consumers will have even more chances to increase their points balance. 

Currency Consolidation

With a wider audience, loyalty programs will also continue the growing shift toward currency consolidation, integrating their programs into broader loyalty ecosystems rather than managing their own standalone programs. An example of this includes Qatar Airways adopting Avios as its currency, alongside Aer Lingus, Finnair, British Airways, Vueling, and Iberia. 

This consolidation brings more consistency for airlines and helps streamline the redemption process for consumers. 

Subscription Models 

Subscription models within loyalty programs will also continue to rise. Some programs offer subscriptions in which members get a low price on miles (like $200 a month for 18,000 miles) and allow engaged customers to unlock desired seats, point bonuses, and discounted awards. These changes signal a future where loyalty programs continue to evolve beyond traditional earning and redemption structures, creating more opportunities (and complexities) for consumers to navigate. Third-party tools and resources like point.me will continue to play a crucial role in helping consumers navigate these changes. 

Points Inflation

Now for a bit of bad news: As airlines put more rewards into circulation (and engage a growing number of savvy consumers ready to maximize them), the cost of those redemptions increases for the airlines; following macroeconomic trends, inflation will follow in the form of devaluations. A devaluation is when a program effectively changes the worth of its rewards so that you need more points for each redemption. A flight that may have once required 45,000 miles could require 60,000 after a devaluation. 

While greater transparency about upcoming devaluations will be key to a more consumer-friendly experience, the best way consumers can control their exposure to these fluctuations and continue to get value out of their rewards is to redeem their points regularly. Points “hoarding” is a surefire way to see the value of your balance decrease over time. 

The Key Takeaway

The world of points and miles isn’t just a niche hobby or an obsession for frequent flyers and finance geeks —  it’s a multi-billion dollar industry that fuels airline profitability, drives consumer spending, and shapes global commerce. And it’s only getting bigger. 

Loyalty programs have evolved from marketing and retention tools into a huge financial ecosystem in which banks, airlines, and businesses profit from the sale and redemption of points. But limited availability, pricing discrepancies, and comparison challenges — from knowing which points transfer to which programs to understanding if a redemption is a good deal — means that for too many consumers, it is hard to have confidence and often feels like the odds are stacked against them. 

But the reality is that the system thrives when consumers actually use their points. Airlines and banks don’t just want people earning to maintain a healthy balance sheet; they need those points to be redeemed, too. This need for engagement means the ecosystem is incentivized to turn points into real value.

Points are wealth. And those who understand the system best — and have the best tools — will get the most out of it.