This piece is part of Reason’s 2025 summer travel edition. For more articles from this issue, please visit the provided link.
My introduction to frequent flyer programs came in 1991 with American Airlines’ AAdvantage program ahead of a trip to Australia. Unfortunately, those miles eventually expired. By 1996, I was flying frequently for work and began exploring the detailed terms of airline loyalty programs. I discovered opportunities like earning 5,000 MileagePlus miles by purchasing four sodas at different restaurants. I accumulated 40,000 British Airways miles by having someone at a Jaguar dealership complete a form indicating my family and I test-drove a car. I even attended a Bosley hair loss consultation to earn 10,000 Delta SkyMiles (back when I had more hair) and bought Emmi cheese and numerous magazine subscriptions to earn enough miles for a Concorde flight.
As a child, I often flew between New York and California to visit my father. I used to admire the first-class cabin, thinking I could never afford such luxury. However, by strategically earning and using miles, I’ve traveled extensively in business and first class, visiting numerous countries and experiencing some of the world’s best airports and lounges.
Among my favorites is Singapore’s Changi Airport, known for its exceptional food, butterfly garden, and the world’s largest indoor waterfall. In the U.S., Ronald Reagan Washington National Airport stands out for its convenient location and ease of navigation. Its Capital One Landing lounge, essentially a José Andrés tapas restaurant, is my preferred lounge in the country. While Air France’s La Première lounge in Paris offers an unparalleled experience with its Alain Ducasse restaurant, spa, and car transfers, my personal favorite remains the Qatar Airways Al Safwa First Class Lounge in Doha, which impresses with its minimalist luxury, towering ceilings, and art pieces on loan from the Museum of Islamic Art.
Airports and lounges are merely stepping stones to the destinations themselves. By my count, I’ve visited the majority of the world’s countries, including multiple trips to places like the Maldives and Australia, largely thanks to airline miles.
The Birth of Frequent Flyer Programs
Before deregulation, frequent flyer miles were virtually nonexistent. Domestic airfares were set by the federal government, and international pricing was effectively fixed due to antitrust immunity granted to airlines. Discounts like frequent flyer miles were largely illegal until the Airline Deregulation Act of 1978.
Southwest Airlines was an exception, as it operated solely within Texas and wasn’t subject to these regulations. In 1972, it launched the “Southwest Sweethearts Club,” rewarding secretaries with free travel for booking their bosses on Southwest flights. When the Civil Aeronautics Board allowed “experiments in price competition” two years before the Airline Deregulation Act, Southwest introduced a two-tiered pricing structure: a $13 discount fare or a $26 fare paid by the company that included a free fifth of alcohol. By 1977, Southwest had become the largest liquor distributor in Texas.
Deregulation was a consumer-focused initiative championed by figures like Ralph Nader and pursued in Congress by Senator Ted Kennedy (D-Mass.). Kennedy enlisted Harvard law professor Stephen Breyer, later a Supreme Court justice, to lead the effort through the Judiciary Committee’s Subcommittee on Administrative Practice and Procedure.
The airline industry initially thrived on government subsidies, particularly through postal contracts that determined which airlines succeeded on specific routes. President Herbert Hoover’s postmaster general awarded contracts at a “spoils conference” where major carriers divided routes and excluded competition.
When this practice came to light, President Franklin Roosevelt’s administration canceled the contracts and assigned the Army Air Corps to carry the mail. Due to inadequate preparation, 13 airmen died within days. Mail was eventually reassigned to private carriers, leading to the breakup of United Aircraft and Transport into companies like Boeing, United Airlines, and Pratt & Whitney. These changes culminated in the Civil Aeronautics Act of 1938, which limited competition and restricted industry entry.
With government-set fares ensuring airline profitability, prices remained high, and planes often flew with empty seats. Business travel was common, while leisure travel was less frequent. Adjusting for inflation, airfares (including airline fees) have dropped by about 50% since the government stopped setting prices.
Airlines wanted to compete but couldn’t on price alone. This led to the development of robust onboard services and food. At one Civil Aeronautics Board hearing, there was even discussion about regulating the thickness of airline sandwiches, as that was one way airlines competed for passengers.
With the Airline Deregulation Act, airlines needed to create brand loyalty for what is essentially a commodity product: a seat that transports people between cities. Frequent flyer programs were designed to encourage customers to stick with an airline even if schedules were less convenient or prices slightly higher.
A Private Currency with Unique Properties
Today, airline miles function as a private currency, similar to cryptocurrencies like Bitcoin but even more decentralized in nature.
Issued by private companies, airline miles can be redeemed for flights, upgrades, car rentals, hotels, merchandise, and more. Miles can be earned not only through travel but also through online shopping, gas station purchases, credit card spending, real estate transactions, and other activities. Since consumers value these miles, airlines can sell them to third parties to reward their own customers. As a result, major airline frequent flyer programs have developed their own unregulated currencies that are useful across businesses, albeit within a mostly closed and controlled ecosystem. Airlines can cancel miles if they detect unauthorized use or sales.
While some loyalty programs have devalued their points due to overly generous initial setups (such as IHG Hotels’ Priority Club), frequent flyer miles generally lose value over time for simpler economic reasons.
Using the basic economic formula mv=pq, where the number of miles and the speed at which consumers want to redeem them must equal the quantity of available seats times the redemption price, we can see parallels to monetary policy. Just as the Federal Reserve expanding the money supply faster than economic growth leads to inflation, airlines face similar challenges when expanding their mileage supply too quickly. This results in “airline loyalty price inflation” or shortages when airlines must deny redemptions due to insufficient available seats.
Political Implications and Consumer Impact
Senator Dick Durbin (D-Ill.) has been targeting frequent flyer programs. If he can delegitimize them, he strengthens his argument against opponents of his attempts to regulate credit card swipe fees who might respond with “But my miles!” (A majority of frequent flyer miles are earned through airline co-brand credit cards.)
Durbin, along with Senator Roger Marshall (R-Kan.), seeks to limit the fees that merchant processing networks like Visa and Mastercard charge to retail businesses. Rather than imposing a direct price cap, their Credit Card Competition Act would require banks to offer merchants a choice between at least two unaffiliated networks when processing credit card transactions. This means a Visa-branded card issued by a bank could no longer exclusively route transactions through Visa’s network alone; it would have to provide at least one alternative network to process the payment.
Banks pay airlines for miles and rebate a portion (sometimes all) of the credit card swipe fees to consumers to encourage transactions on their products. This helps banks generate charge volume and attract consumer lending. Customers who pay their bills in full each month benefit the most: They receive the rebate without paying interest on revolving balances. Lower card swipe fees mean less valuable rewards.
Durbin aims to redistribute money from banks and consumers to retailers, and consumers don’t want to give up their miles. So, Durbin wants to argue that those miles aren’t actually such a great deal for consumers after all. His efforts culminated, near the end of Joe Biden’s presidency, in a regulatory probe into the inner workings of loyalty programs. It remains to be seen how this effort will progress under President Donald Trump.
Loyalty programs have made themselves an easy target. Since the introduction of the first airline mileage-earning credit card, the Continental OnePass TravelBank MasterCard from Marine Midland Bank, we’ve had too many miles chasing too few seats, with airlines consistently devaluing already-earned miles.
Today, credit cards represent a significant revenue stream for airlines. In 2024, Delta Air Lines reported $7.4 billion in revenue from its partnership with American Express. United and American Airlines have similarly lucrative programs. While the comparison isn’t exact, those three airlines have reported margins on this revenue ranging from 39% to 53%. Selling miles to banks has represented the entire profit at American Airlines, suggesting that they otherwise lose money transporting passengers on their planes.
When those three largest U.S. airlines each raised between $6.5 billion and $10 billion against the future revenue streams of their frequent flyer programs during the pandemic (borrowing against the money they’d get from selling miles to banks), the securitization documents made it clear that investors could be confident in getting their loaned U.S. dollars back since they could always devalue the loyalty currency. Transaction revenue gets earmarked for servicing the notes before any other use, with most revenue directed to debt service before any other allocation, and no covenant protects members or their miles. Airlines, and their debt-holders, control both the issuance of miles and their redemption policies.
Legal Protections and Consumer Rights
Delta once ran a Super Bowl ad promising that its miles would never expire. The company later began expiring miles but eventually reversed this decision, declaring it was the “right thing to do,” though it didn’t reimburse customers whose miles had been taken away in previous years. Programs frequently change their rules without informing customers, expecting members to keep up with dense rules on a program’s website, with many airlines failing to provide summaries of changes. Fortunately, third-party tools can track website changes, but this expectation placed on customers explains why consumers often feel frustrated.
When the Airline Deregulation Act allowed airlines to set their own schedules and prices, it also prohibited states from having their own regulations in this area. Unfortunately, the Supreme Court decided in Northwest v. Ginsberg that this meant consumers couldn’t sue over frequent flyer programs using common law claims such as duty of good faith and fair dealing, reasoning that such principles amounted to state regulation. As a result, frequent flyer programs are largely shielded from consumer lawsuits unless airlines actually violate the terms of their stated program rules.
The only other avenue for redress was the Department of Transportation, whose inspector general concluded during the Obama administration that complaints about frequent flyer programs were generally ignored.
The Competitive Landscape and Consumer Benefits
Air travel volume has grown significantly, and airline tickets have become much more affordable due to deregulation. However, airlines have had to find ways to differentiate themselves when the scope for improving the travel experience is limited.
Airports in the United States are usually government-owned, with security screening performed by government employees. Features onboard aircraft, from seats to lavatories, require government approval. Airlines can’t even install doors on business class beds without federal permission. From the moment a plane pushes back from the gate to its arrival at its destination, it’s guided by government air traffic controllers.
So, airlines, newly allowed to compete with each other nearly five decades ago, found a way to transform what once seemed like a commodity product into one that consumers perceive as differentiated through frequent flyer miles—a marketing engine unlike that in almost any other industry. Marketing is typically a cost center, but airline miles have become a significant profit center, with self-reported margins exceeding 50%.
Airlines would have to spend on marketing anyway. This approach allows them to do so primarily by rebating value to customers—in a way that benefits consumers who receive something (travel) they value more than it costs the provider to offer, especially since companies often provide seats that would have gone unsold.
This is great for consumers, particularly informed ones who seek out excess capacity that airlines make available using miles. The best deals are often long-haul business and first-class redemptions found through preferred airline partners worldwide, who have available seats and offer them at the lowest prices.
And so, a young child who never imagined the possibility of seeing the world, let alone doing so in comfort, can expand his horizons, meet more people, try new foods, and gain a richer understanding of the world beyond what Ted Kennedy, Stephen Breyer, and the other architects of airline deregulation had ever envisioned.