Frequent flyer miles are big business for airlines and banks
NEW YORK (FOX5NY.COM) - If flight attendants seem like they are trying to sell you something when you travel, it is because they are.
The Points Guy senior editor Julian Mark Kheel says American Airlines and United Airlines have their flight attendants hawking credit cards to travelers in flight. They get a commission when they make a sale.
Airline miles have become such a big business that the top seven U.S. airlines made nearly $4 billion on their frequent flyer programs, largely selling those miles to the banks, in the first six months of 2018, according to Stifel Financial.
Joseph DeNardi, managing director at Stifel, explains that if you have an airline co-branded credit card, like the Delta American Express card, as you spend money you earn Delta miles as your reward. AmEx needs to buy those miles from Delta to give them to you and they're paying Delta more per mile than it costs Delta when you redeem them.
DeNardi says Delta made $805 million selling miles to the banks in the first half of 2018. American Airlines made more than $1 billion. DeNardi says American has the largest loyalty program with roughly 100 million members. Not all of them have American Airlines credit cards, DeNardi says, but many of them do. American also benefits from having the richest card agreement, he says.
American signed an agreement with Citi and Barclays in the middle of 2016, so they have the freshest economics, which has contributed to really powerful and very high-margin revenue for American.
The airlines make even more money when frequent flyers let their miles pile up and never redeem them, Kheel says.
So how should travelers max their miles? Kheel says don't use them to buy merchandise other than travel and don't use them for upgrades. The deals in both of those categories don't add up.
Your better option, he says, is to actually redeem your miles for a business class ticket rather than trying to upgrade a paid fare, which often comes with extra fees.
And if you don't fly one airline exclusively, Kheel suggests looking at general travel rewards cards like the Chase Sapphire Preferred or the American Express Everyday Preferred. These cards give you a lot more flexibility by earning points and miles that can be transferred to different airlines and hotels.