How Airlines Created a Global Currency

Everyone knows about frequent flier programs. They are simple enough: passengers are rewarded for their loyalty to an airline by earning miles or points based on flights or credit card spending. They can secure seat upgrades or discounts on flights. However, over time, airmiles have become a self regulated currency, and the programs themselves are financial institutions. So how did we get to this point?

The Backstory

In the late 1970s, the federal government deregulated the airline industry, meaning the removal of government control over ticket prices and flight routes. It promised free market competition would lead to lower fares, but at the time, fares were already decreasing, and airlines consolidated. The concern for many airlines was not how far customers flew with them, but how many customers they had at all. This led to the birth of frequent flier programs.

Carriers tied the programs to co-branded credit cards. They introduced points and sold them for actual money to banks with co-branded credit cards. The banks offered cardholders points for spending, allowing both the bank and the credit card company to profit off of the swipe fees from using the card. Points could then be redeemed for flights or other goods/services sold by the airline.

Therefore, airlines were able to create these points out of thin air, without costing them anything, and profit off of them as the points became highly sought after. Almost 1% of America’s GDP is charged to Delta American Express cards ($260 billion in annual transactions). The value of these points can theoretically be adjusted at any time to the benefit of the airline, representing absolute control over this “currency”.

And so can the program itself. In 2023, Delta Air Lines changed its Sky Miles program from points earned by a combination of miles flying and money spent to points earned only by money spent. On top of that, Delta raised the amount of money cardholders would need to spend to acquire points and perks.

But who is to blame? To find the answer to this question, one must return to congressional decisions made in the 1900s. From the 1930s to the 70s, airlines were a public utility regulated by the Civil Aeronautics Board. They set prices that were fair for travelers but would make the airlines a decent enough profit. But in 1978, when airlines were deregulated, the CAB was abolished.

Now, it was up to the airlines themselves to determine prices. American Airlines, one of the more aggressive money-getters, sold the last remaining seats on their planes at a cheaper price, simply to make some extra profit. But this upset business travelers, who bought tickets early on and for high prices. As a result, in 1981 American Airlines created AAdvantage, its frequent flier program, paving the way for other airlines to do the same.

But from here, three changes brought forth the modern day point system. First, in 1987, American partnered with CitiBank to offer the first co-branded credit card, along with points redeemable for flights. Then, in the 90s, airlines increased the number of fare classes, introducing a variety of differently priced tickets. And lastly, in 2007, Virgin America created their loyalty program which rewarded money spent rather than mileage accrued.

These three shifts marked the transition from frequent flier programs to spending based point systems, and the development of airlines into financial institutions that manage their own self regulated currency.

The Takeaway

Ultimately, frequent flyer programs have evolved far beyond simple loyalty perks. Driven by deregulation and the rise of lucrative co-branded credit cards, airlines successfully transformed miles into a powerful, self-regulated currency. By shifting from distance-based rewards to pure spending models, these corporations effectively transitioned into financial institutions, prioritizing banking over transportation.