Airlines expand loyalty credit card offers to generate steady revenue

US airlines have disclosed they earned more revenue from loyalty programs and affiliated credit cards in the second quarter 2018 than in the same period in 2017, according to the Wall Street Journal.

For many airlines, those increases outpaced overall sales growth. Much of the revenue comes from the credit cards associated with loyalty programs, though the programs don´t necessarily require customers to have a credit card.

Revenue from American´s loyalty program grew 7% to USD 1.4 billion in the second quarter, while overall revenue at the world´s top airline by traffic rose 4%. The loyalty program accounted for 12% of the carrier´s overall sales, roughly flat from a year earlier.

Delta said it expects its deal with American Express to contribute USD 4 billion in revenue by 2021, up from USD 3 billion in 2017.

Banks buy miles from airlines and award them to people who sign up for new cards and cardholders who make purchases on everyday items. The more cardholders spend, the more miles they rack up–and the more cash the issuing banks pay the airlines. Cards not tied to a particular airline work in a similar way, but the banks pay airlines when holders convert points to miles.

Airline credit cards essentially let carriers book revenue from a slice of customers´ spending, though they have strong competition from credit cards unaffiliated with airlines that may offer benefits such as 2% cash back.

Loyalty programs are among the top lucrative revenue sources airlines are tapping beyond ticket sales. Revenue from nonfare, ancillary sources such as bag fees and loyalty programs accounted for 11% of global airline revenue last year, up from 5% in 2010, according to industry consultant Jay Sorensen.

Loyalty programs are providing a buffer this year from higher fuel prices that have pushed airlines to trim capacity-growth plans and raise ticket prices. Consumers will keep using their cards to buy food and other staples even if the economy sours and they pull back on travel, consultants and executives expect.

Loyalty programs and the credit cards associated with them aim to encourage repeat business.