The landscape of air travel has dramatically shifted in recent years. A prime example of this change is the evolution of frequent-flyer programs. Once a reward for loyal customers, these programs have transformed into complex financial instruments.
Spending Over Loyalty
In September 2023, Delta Air Lines announced sweeping changes to its SkyMiles program, making it harder to achieve status and enjoy perks.
Under the new system, status depends solely on dollars spent, with spending thresholds significantly raised. This marks a departure from the traditional combination of dollars and miles traveled. Essentially, SkyMiles is no longer about frequent flying but rewarding big spenders. The changes are so drastic that even industry insiders, like a prominent writer from The Points Guy, are stepping away from pursuing airline status.
This shift reflects broader challenges within the American airline industry, where frequent-flier programs have become emblematic of deeper systemic issues rooted in deregulation.
In fact is not only the airlines in the US that are making the change but the German flagship carrier Lufthansa has also made significant changes to their loyalty program encompassing on actual ticket purchase rather then miles traveled.
The Rise of Frequent-Flier Programs
For decades, airlines were regulated like public utilities. From the late 1930s to the 1970s, the Civil Aeronautics Board (CAB) controlled routes, fares, and profits, ensuring affordability for travelers and stability for airlines.
It all changed in 1978 when Congress deregulated the industry, allowing airlines to set their own prices and routes. The move sparked fierce competition, with airlines introducing innovations like discount fares.
To appease business travelers upset by these lower prices, American Airlines launched the first frequent-flier program, AAdvantage, in 1981. Initially simple, these programs rewarded travelers based on miles flown.
Over time, however, they evolved into complex systems tied to credit cards, fare classes, and spending. By the late 2000s, airlines like Virgin America shifted loyalty programs to prioritize revenue over mileage.
Airlines as Financial Institutions
Frequent-flier programs are no longer about travel but about financial transactions. Airlines partner with banks to issue branded credit cards, awarding points for spending.
These points, essentially a form of currency created by airlines, are sold to banks and redeemed for flights or goods. For airlines, the model is lucrative—points cost nothing until redeemed, and many go unused.
This system drives enormous revenue. For instance, Delta’s American Express credit cards account for nearly 1% of U.S. GDP in annual spending. Wall Street even values mileage programs higher than the airlines themselves.
In 2020, United Airlines’ MileagePlus program was worth $22 billion—more than double the airline’s market value.
However, this setup burdens consumers, especially those without points-earning credit cards. Swipe fees from credit card transactions inflate prices for everyone, meaning non-cardholders subsidize perks enjoyed by wealthier card users.
Deregulation’s Broken Promises
Deregulation was supposed to lower airfares, increase competition, and improve service. Initially, ticket prices did drop, but this trend had already begun pre-deregulation and continued at the same rate afterward. The industry quickly consolidated, with smaller airlines failing and major carriers dominating the market.
Today, four airlines control over 75% of the U.S. market, leaving consumers with limited options. Deregulation also failed small cities, many of which lost air service altogether. As a result, airlines have cut costs relentlessly, reducing legroom, increasing fees, and degrading overall passenger experience.
The industry’s financial fragility is another consequence. During crises like 9/11 or the COVID-19 pandemic, airlines turned to the federal government for bailouts, having prioritized stock buybacks over building financial reserves.
The Need for Modern Regulation
Airlines play a critical public role, akin to utilities like railroads and the electric grid. The government already provides essential infrastructure, such as air traffic control, making the case for oversight even stronger.
A modern regulatory framework could curb the financialization of airlines, ensuring they prioritize transportation over e-commerce and making air travel less miserable.
Conclusion: Reimagining Air Travel
Delta’s SkyMiles changes are a symptom of a larger problem in the airline industry: the shift from serving travelers to maximizing profits through financial schemes.
Deregulation, once seen as a boon for competition, has led to monopolistic practices, poor service, and inequities in pricing. Revisiting how airlines operate is crucial not only to improve passenger experiences but also to address the economic and social costs of an industry that has strayed far from its purpose.
It’s time for policymakers to rethink the balance between profit and public service in air travel, ensuring it remains accessible, reliable, and fair for all.
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