Everything Everywhere Daily Episode Summary: "Frequent Flyer Programs"

Host: Gary Arndt
Episode Release Date: August 14, 2025
Podcast Description: Everything Everywhere Daily is a daily podcast catering to intellectually curious individuals. Host Gary Arndt shares captivating stories about people, places, and phenomena from around the globe and throughout history, covering a wide array of topics including history, science, mathematics, anthropology, archaeology, geography, and culture.

Introduction to Frequent Flyer Programs

In this episode, Gary Arndt delves into the intricate world of frequent flyer programs, exploring their origins, evolution, and critical role in today’s airline industry. Initially designed to reward loyal customers who frequently traveled by air, these programs have expanded to include rewards earned through credit card spending and everyday purchases. Arndt emphasizes the substantial financial impact these programs have on airlines, often being the linchpin that keeps them profitable.

“Frequent flyer programs were initially designed for loyal customers who flew frequently. However, they eventually branched out to people who use certain credit cards and earn miles by making everyday purchases.” (02:30)

Origins and Early Development

The concept of frequent flyer programs emerged in the late 1970s, coinciding with the deregulation of the U.S. airline industry. Prior to deregulation, the Civil Aeronautics Board (CAB) tightly controlled routes and fares, limiting competition. Economists like Alfred Kahn advocated for deregulation to foster competition, reduce fares, and enhance efficiency.

The first genuine mileage tracking program is credited to Texas International Airlines in 1979. They introduced "payola passes," which awarded miles based on the actual distance flown. This system allowed customers to accumulate miles for future free travel, laying the groundwork for what would become a standard in the industry.

“The first true mileage tracking program is generally credited to Texas International Airlines in 1979, which issued payola passes to reward distance flown.” (05:45)

Expansion and Standardization in the 1980s

Following Texas International Airlines' lead, major carriers swiftly adopted and expanded frequent flyer programs:

• American Airlines launched the Advantage program on May 1, 1981, integrating it with their Sabre reservation system to automatically enroll frequent customers.
• United Airlines introduced their MileagePlus program shortly thereafter.
• Delta Air Lines developed the ITS program, later renamed SkyMiles.
• Air Canada debuted Aeroplan in 1984.

A pivotal decision by American Airlines to make membership free and automatic significantly boosted program enrollment and participation.

“The brilliant part about the American Advantage program was that it made membership free and automatic. This seemingly small decision removed friction and allowed the program to grow exponentially.” (12:10)

By the mid to late 1980s, frequent flyer programs had established a core framework: earn miles by flying, redeem miles for award seats, and create tiers for elite members. This period also saw the globalization of these programs, with the launch of schemes like Britain's Airmiles (later Avios) in 1988 and Qantas Frequent Flyer in Australia in 1987.

Integration with Credit Cards and Revenue Growth

A major turning point occurred in 1987 when American Airlines and Citibank introduced the first co-branded airline credit card. This innovation allowed customers to earn miles not just from flying but from everyday credit card spending. This partnership model rapidly spread across the industry, becoming a cornerstone of loyalty economics.

“Airlines began partnering with hotels, car rental companies as well as credit card companies... They were becoming lifestyle brands embedded in customers’ daily financial lives.” (22:15)

These credit card alliances evolved into multi-billion dollar relationships, significantly contributing to airline revenues. By leveraging everyday consumer spending, airlines could tap into a continuous and scalable source of income beyond ticket sales.

Impact of the Internet and Technological Advancements

The advent of the Internet revolutionized frequent flyer programs. Transitioning from paper statements and phone bookings to online account management allowed customers real-time access to their miles, award availability, and self-service redemption options. This shift enhanced customer satisfaction and operational efficiency for airlines.

“Online account management meant customers could track their miles in real time, browse awards, availability and book their own redemptions.” (30:50)

Moreover, the Internet enabled dynamic pricing and inventory management for award seats, allowing airlines to optimize revenue based on real-time demand and route profitability. However, this also led to customer frustration when award bookings became more challenging during peak times.

Shift to Revenue-Based Earning

In recent years, frequent flyer programs have transitioned from distance-based to revenue-based earning systems. Instead of accumulating miles solely based on the number of miles flown, customers now earn miles proportional to the amount they spend on tickets. Delta was a pioneer in this shift in 2015, followed by United and American Airlines.

“Instead of earning miles based on how far you fly, you now earn based on how much you spend. And this aligns the program more closely with customer profitability from the airline's perspective.” (40:20)

This change allows airlines to better reward their most profitable customers, particularly high-spending business travelers, over leisure travelers seeking discounts.

Financial Cruciality to Airlines

Frequent flyer programs, especially co-branded credit cards, have become indispensable to the financial health of airlines. In 2024, Delta earned approximately $7.4 billion from its partnership with American Express, accounting for roughly 12% of its total revenue. Similarly, American Airlines garnered $6.1 billion, representing about 11.3% of their revenue.

Arndt explains that these programs are not just revenue sources but actually sustain the airlines' profitability. In 2024, major U.S. carriers like Delta, United, American, and Southwest Airlines relied heavily on loyalty-related income to remain profitable, even as traditional ticket revenues failed to cover operational costs.

“Without loyalty associated income, Delta's 10.5% operating margin would have flipped to minus 2.5, United's 8.9 becomes negative 1.9...” (55:35)

This dependency highlights how frequent flyer programs have transformed airlines from mere transportation companies into entities that resemble financial institutions, given their reliance on credit card revenue.

Gaming the System: Abuses and Loopholes

The popularity and profitability of frequent flyer programs have attracted individuals seeking to exploit these systems for personal gain. Gary shares examples of such practices:

1. Coin Loop Exploit: In the late 2000s and early 2010s, the U.S. Mint sold $1 coins with incentives like free shipping and allowed credit card purchases. Frequent flyers capitalized by buying large quantities of coins, earning miles through credit card rewards, and then using the coins to pay off their credit card bills. Although this loophole was closed in 2011, it allowed some to accumulate over a million miles with minimal expense.

2. Sign-Up Bonuses: Many frequent flyers continuously apply for new credit cards to take advantage of substantial sign-up bonuses, ranging from 20,000 to 100,000 miles. Despite increased restrictions, savvy individuals can still acquire significant miles multiple times a year.

3. Mileage Runs: Before new systems limited their effectiveness, enthusiasts would purchase cheap flights to accumulate miles without actual travel, often taking round trips without leaving the airport.

“What began as a way for airlines to reward their best customers has now become something that is absolutely critical to their success as a business.” (1:05:10)

These practices highlight the lengths to which individuals will go to maximize mile accumulation, sometimes undermining the original intent of these loyalty programs.

Conclusion: The Indispensable Role of Frequent Flyer Programs

Frequent flyer programs have evolved from simple loyalty rewards into complex, revenue-generating systems essential for the survival of modern airlines. They have shifted airlines from regulated, service-focused entities to dynamic financial and lifestyle brands intricately linked to consumers' financial behaviors. Without the substantial income from credit card partnerships and loyalty program revenues, many airlines would struggle to remain profitable.

Gary Arndt underscores the profound transformation of the airline industry, emphasizing that frequent flyer programs are no longer just perks for travelers but foundational components of airline business models.

“So it's not an exaggeration to say that without frequent flyer programs, especially rewards credit cards, many airlines would simply no longer exist.” (1:10:45)

Production Credits

• Executive Producer: Charles Daniel
• Associate Producers: Austin Otkin and Cameron Kiefer

Gary extends his gratitude to supporters on Patreon and invites listeners to join community groups on Facebook and Discord for further discussions.

This comprehensive exploration of frequent flyer programs underscores their pivotal role in reshaping the airline industry, blending customer loyalty with innovative revenue streams to create sustainable business models in a highly competitive market.