Why airline miles depend on high swipe fees—and what’s at risk if they go

For most travelers, credit card fees are a hidden cost—rarely visible, often shrugged off. But for airlines, they’re a multi-billion-dollar engine that powers the very perks customers love: free flights, elite status upgrades, and generous welcome bonuses. In recent months, this financial engine has come under scrutiny. US lawmakers and regulators are increasingly asking why card networks can charge high “swipe fees,” and what impact those costs have on merchants and ultimately consumers. But behind this regulatory push lies an important tradeoff: if swipe fees fall, airline loyalty programs could lose their most lucrative subsidy.

Every time you pay for something with a rewards credit card, a merchant pays a fee to process the transaction. These “interchange fees” typically range from 1.5% to 3% in the US—among the highest globally. A large portion of those fees flows through card networks like Visa or Mastercard and ends up with the banks that issued the credit cards. To make these cards attractive, banks use part of that revenue to buy airline miles from major carriers. These miles, in turn, are distributed to cardholders as sign-up bonuses or for everyday spending. Airlines are not merely passive recipients in this system—they actively sell miles to banks, often generating more revenue from loyalty programs than from actual flying.

Delta, for instance, reported nearly US$6.8 billion in revenue from its American Express co-branded card program in 2023. For United and American Airlines, loyalty revenue is now so central to their business models that it can act as collateral for loans. In effect, frequent flyer programs have become their own economic asset class.

Proposals like the Credit Card Competition Act in the US aim to reduce the fees that banks and card networks can charge merchants. The bill would force large banks to enable alternative payment networks—potentially lowering transaction costs. Consumer advocates argue that this could ease the burden on small businesses and reduce prices for consumers. But airlines and their financial partners warn that slashing swipe fees will gut rewards programs, making it harder to justify offering lucrative miles and perks.

This tension is not new. Australia and the EU already have interchange caps, and the result has been predictable: fewer rewards cards, lower bonuses, and a tilt toward debit. In Europe, high-fee credit cards remain niche. In Singapore, where regulation is less aggressive, banks and airlines continue to partner closely on rewards, although even here signs of tightening can be seen in reduced transfer rates and shifting tier structures.

If card interchange fees are reduced or capped in the US—the world’s largest and most lucrative rewards market—the effects will ripple far beyond American consumers. Airlines that rely on US credit card partnerships to monetize their loyalty programs will need to rethink the economics of those deals. Miles may be devalued, perks cut, or elite thresholds raised.

International travelers who book US flights using miles could also be affected. Award availability and redemption value could deteriorate, especially on popular long-haul routes. For Asian and Gulf-based customers with US-issued cards or global airline loyalty program ties, the impact could be indirect but noticeable. Airline balance sheets, already pressured by rising fuel and labor costs, may not be able to replace this lost revenue easily.

Crucially, the timing of redemption and tier qualification may shift. Airlines could begin prioritizing direct spend over credit-linked accruals. For travelers who’ve built loyalty through strategic spending, this may mark the end of the “fly free, spend smart” era.

Unlike hotel points or cashback programs, airline miles are a currency tied to a scarce resource—seat inventory. That gives airlines more control over redemption and breakage, allowing them to profit even when miles aren’t used. But it also means that the system depends heavily on credit card funding to stay attractive. Remove the funding, and the loyalty proposition weakens. Yet few consumers understand this linkage.

That’s partly why airlines are lobbying hard against fee caps: not just to protect a revenue line, but to defend the ecosystem that makes loyalty work. The irony is that many of the most frequent flyers today don’t earn status by flying—they earn it by spending, strategically using rewards cards to game the system. A regulation meant to improve fairness for merchants might unintentionally narrow access to aspirational travel perks.

In the coming months, the fate of the Credit Card Competition Act—and any broader regulatory intervention into card fees—will signal how seriously lawmakers want to challenge the credit card–airline nexus. Even if legislation stalls, pressure from retailers and digital payment challengers could prompt voluntary fee reductions or structural changes.

Some banks may experiment with direct cash rebates rather than mileage conversions. Airlines may start offering status tiers or upgrades based on subscription models, reducing their dependency on swipe-driven revenue. But any major shift will take time—and loyalty programs won’t vanish overnight.

Still, global spillover is inevitable. Southeast Asian and Gulf carriers that depend on US-based partner cards could see their mileage sales contracts renegotiated. Airlines may need to localize loyalty economics, build new fintech partnerships, or pivot to co-funded travel clubs and bundled offers. Consumers should expect more differentiated tiers, segmented redemption options, and loyalty ecosystems that feel more like gated e-commerce than pure rewards.

Many travelers assume loyalty perks are a win-win: you fly, you get rewarded. But in reality, those “free” flights are cross-subsidized by a payments system that charges merchants—and ultimately consumers—a premium. As policymakers reassess this system’s fairness, travelers may face a recalibration of what loyalty is worth.

The illusion of “free” travel works because the costs are scattered and indirect. Higher retail prices absorb swipe fees, while credit card interest and annual fees fund the rewards that keep consumers spending. It’s a carefully tuned cycle that thrives on opacity. For high-spending professionals, the system still delivers value. But for average earners who don’t revolve balances or hit spend thresholds, the perks are increasingly out of reach.

If interchange reform breaks that cycle, we may enter a new era where travel loyalty becomes less democratic and more exclusive. The question ahead isn’t just “Will perks shrink?”—it’s “Who gets to keep them?”