How airlines become 'credit card corporations with wings'

[UNITED STATES] As airlines face rising fuel costs, increased competition, and fluctuating passenger demand, many are diversifying their business strategies—shifting from traditional flight operations to lucrative ventures in financial services. Today, numerous major airlines are rebranding themselves as more than just carriers; they are becoming "credit card companies with wings," offering everything from loyalty programs to co-branded credit cards and even financing options for travel bookings. This shift is reshaping the travel industry, changing how passengers pay for flights, and introducing new opportunities—and risks—for both consumers and airlines.

The Rise of the Airline Financial Ecosystem

Over the past decade, airlines have faced numerous economic challenges, including volatile fuel prices, competitive pricing pressures, and shifting travel patterns. To cope, many have expanded into the financial services sector, seeking to generate new revenue streams beyond just ticket sales.

One of the most significant moves has been the rise of co-branded credit cards. Major airlines like American Airlines, Delta, and United have partnered with major financial institutions such as Citi, Chase, and American Express to offer customers credit cards with compelling rewards for frequent flyers. These credit cards, often branded with the airline’s logo, allow consumers to earn miles, points, and other perks that can be redeemed for future flights, upgrades, and other travel-related services.

How Airlines Monetize Loyalty Programs

Airlines’ loyalty programs have become powerful tools for generating revenue. Frequent flyer programs, once focused solely on rewarding loyal customers, now serve as key profit drivers for airlines. These programs generate billions in revenue each year, not just from ticket sales, but from the sale of miles to third-party companies, including hotels, car rental agencies, and retailers.

The sale of miles and points to financial partners is a major component of airlines' bottom lines. In fact, some industry analysts argue that these frequent flyer programs are now more valuable than the airlines' core business of flying passengers. For example, a report by the airline consultancy IdeaWorksCompany found that in 2022, Delta’s SkyMiles program generated an estimated $7.7 billion in revenue, while American Airlines’ AAdvantage program earned over $9 billion.

Beyond just offering points for credit card use, airlines have also expanded the concept of loyalty to include financing options for customers booking flights. Some airlines have introduced “buy now, pay later” (BNPL) programs, allowing travelers to split their flight costs into manageable payments. These services are marketed as convenient options for consumers, but they also come with significant fees and interest rates if payments are not made on time.

The Impact on Consumers

For many travelers, the expansion of credit card offers and loyalty programs has provided an array of benefits. Frequent flyers can enjoy priority boarding, lounge access, free checked bags, and even exclusive vacation packages—all funded by their credit card spending. For those who travel often for work or leisure, the opportunity to rack up miles and points can substantially reduce the cost of future trips.

However, experts caution that the transformation of airlines into credit card-driven enterprises may have unintended consequences for consumers. While co-branded credit cards offer significant rewards, they often come with high annual fees, interest rates, and complex terms and conditions. Additionally, airlines' loyalty programs can be difficult to navigate, with miles sometimes expiring or blackout dates limiting the availability of free tickets.

"Airlines are taking advantage of their customers’ loyalty, but the financial products they offer may not always be the best deal for the consumer," says travel expert and author of Frequent Flyer Myths, David Landsberg. "While the rewards may seem enticing, the high fees and interest charges can erode the value of the benefits."

Airlines Take on More Financial Risk

By expanding into financial services, airlines are not just tapping into new revenue streams—they are also taking on more financial risk. Credit card offerings, loyalty programs, and buy now, pay later services expose airlines to the volatile world of consumer credit, and the financial stability of these ventures is closely tied to broader economic trends.

During times of economic uncertainty, for instance, airlines may find that customers are less willing or able to pay off their credit card balances or take advantage of loyalty programs. Furthermore, an increase in defaults on payments or issues with reward redemption could lead to costly disputes and regulatory scrutiny.

Additionally, as airlines grow their financial services businesses, they are also more likely to face competition from digital-only financial companies like PayPal, Square, and fintech startups, who are aggressively entering the travel sector. As this market becomes more crowded, airlines must navigate both traditional competition and the emerging digital landscape.

The Future of Airline Business Models

While the shift to financial services is a clear trend in the airline industry, the long-term sustainability of this business model remains to be seen. Some analysts believe that the expansion of financial offerings is a necessary move to counterbalance the volatility of the airline industry, especially as travel demand remains unpredictable. However, others warn that airlines may be veering too far from their core business of providing air travel, and that over-reliance on financial services could backfire.

"I don’t think airlines are abandoning their roots in aviation, but it’s clear that credit cards, miles, and financial products have become increasingly important in their overall strategy," says airline analyst Sophie Harrington. "The challenge for airlines moving forward will be to strike a balance between maintaining their aviation operations and growing their financial services business without alienating customers who are simply looking for a safe, affordable flight."

As airlines evolve into complex financial ecosystems, they are reshaping how customers experience travel and payment options. The growth of loyalty programs, co-branded credit cards, and buy-now-pay-later schemes highlights the increasing importance of finance in the airline industry.

For consumers, the benefits are clear—travelers can earn rewards and enjoy exclusive perks. However, the risks associated with high fees, interest rates, and complex terms should not be overlooked. As the lines between airlines and financial services continue to blur, both consumers and airlines will need to carefully navigate the changing landscape to ensure that the balance between travel and finance remains in harmony.