Airlines Make More Money Selling Miles Than Seats

Ever wonder why banks offer lucrative promotion deals for you to open airline miles credit card. Each year airlines make billion of dollars in revenue from the credit car deal. For instance, Delta Air Lines Inc., the world’s second-largest carrier, said it expects that its American Express partnership will yield $4 billion in revenue per year by 2021, rising by more than $300 million annually until then. Bloomberg reported that airlines making more money selling miles than seats:

Does your wallet contain an airline-branded credit card? If so, your daily Starbucks visits, iTunes selections, and dining habits serve a critical role in keeping the U.S. airline industry fat and happy.

For carriers such as American Airlines riding Citigroup Inc. plastic, or Delta on American Express Co., these programs are a cash cow, a golden goose, or any other fiscal livestock you care to conjure. Each mile fetches an airline anywhere from 1.5 cents to 2.5 cents, and the big banks amass those miles by the billions, doling them out to cardholders each month.

For the banks, people who pay annual fees for those cards to accumulate miles are the closest thing to a sure bet. These consumers typically have higher-than-average incomes and spend more on their cards, which generates merchant fees for the banks. They also tend to maintain high credit scores, which means they pay their bills on time and banks experience fewer defaults.

In fact, I have opened a Gold Delta Skymiles American Express earlier this year. Why I did it? The credit card offers me 60,000 bonus miles after spending $1,000 in eligible purchases and a $50 statement credit after making a Delta purchase. There is $0 introductory annual fee for the first year and I plan to close the credit card after I receive the bonus.

Previously, I have 53,000 Delta SkyMiles. I would need over 100,000 miles to book an international trip. With the 60,000 bonus miles from the Gold Delta SkyMiles Credit Card from American Express, I will have over 100,000 miles required to book an international trip that I want or to use the miles for several domestic flights.

Anyway, it’s good for certain customers to take advantage of the airline-branded credit card’s promotion deal then close out the credit card to avoid the annual fees. Otherwise, credit cards bring enormous revenue for airlines and banks.