“I Can’t Believe You Think I’m An Airline?” - Every US Airline
Ken Book
Jul 18, 2024
Advertiser Disclosure
Pointwise is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as MileValue.com. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. Terms apply to American Express benefits and offers. Enrollment may be required for select American Express benefits and offers. Visit americanexpress.com to learn more.
Airlines. We know what they are. Don’t we?
We book flights, show up at the airport, and they take us where we paid them to take us. That must be how they make money: their business must be flying people places. That’s why United, Delta and American Airlines make more than $150B a year. They must fly a lot of people a lot of places.
Wrong.
What if I told you airlines don’t make any money from flying people places? Well, it’s true.
Let’s take Delta, for example. In 2023, Delta earned $48 billion in revenue. That seems like a lot of money. I mean, that is a lot of money, but not when you account for all of their expenses. After expenses, they were “only” left with $4.61 billion.
So what do you mean that they don’t make any money flying people places? $4.61 billion is still a lot of money!
Yes it is, but what makes you think that money comes from flying people places? See, Delta has this deal with American Express, where American Express pays them money for the right to issue the Delta branded credit cards.
Some of their cards offer simple benefits, like the popular Delta SkyMiles® Gold American Express Card (Terms apply. Rates & fees), which offers a free checked bag on Delta flights, as well as up to $100/yr in statement credits after using your Card for booking hotels/vacation rentals on delta.com/stays.
Others offer more luxurious benefits in exchange for much higher annual fees, like the Delta SkyMiles® Reserve American Express Card, which offers a binder full of benefits and credits in exchange for a more hefty $650 annual fee (Terms apply. Rates & fees).
What is constant about all of them is that Delta offers these cards because it makes financial sense for them to do so. This isn’t a secret. They brag about how often people use their Delta branded credit cards:
“In June 2023, at Delta Investor Day, executives proudly put up a slide claiming that spending on Delta co-branded credit cards issued by Amex is approaching 1% of U.S. GDP, hinting that over $250 billion was spent.” Source: Skift
The question then becomes how much revenue did they earn from that $250B spent on their cards? While every deal is private and unique, we know from the recent Wall Street Journal tell-all story about Bilt’s relationship with their issuing bank, Wells Fargo, that its commonplace for card-issuing banks to pay their brand-name partners when these cards are opened, when people spend on these cards, and perhaps also when people pay interest (although American Express collects far less interest income as a percentage of their revenue than many other credit card issuers).
And while we don’t know the exact breakdown of Delta’s deal with American Express, we do know that American Express reportedly paid Delta $6.8 billion in 2023.
If we look back to Delta’s bottom-line, you’ll recall they only made $4.61 billion that year. That means if you take away the money their credit cards earned them, they actually lost $2.19 billion from flying people places.
I hope it’s starting to make more sense now, why they try to sell you credit cards at the gate or on the plane, why they try and upsell you on credit cards that come with lounge access, why you’ll see the “airline” running ads promoting their credit cards more than they run ads promoting their airplanes.
It’s because they aren’t an airline. They’re a credit card company, and their go-to-market strategy is giving you benefits on flights. They figure it’s more economical for them to just offer the flights themselves than to pay for your free checked bag or lounge access on other airlines, so they operate an airline as a loss-leader to get you to sign up for their credit cards.
They even allow people who don’t have their cards to book flights on their airline for less than it costs them to run the airline, knowing they can use that as a chance to sell them on their credit cards.
The whole model would break if it weren’t for credit cards. Flights would be way more expensive if airlines were actually a business that had to make money, instead of a credit card marketing expense.
But that’s just Delta. Delta’s known for its credit cards and loyalty programs. That doesn’t prove anything about other airlines!
Well, it’s not just Delta. It’s every major US airline. American Airlines generated $52.79 billion in revenue in 2023, but after expenses they only made $822 million. That’s still a lot of money from flying people places, but not when you realize that of their $52.79 billion in revenue, $5.2 billion came from their credit card deal with Citi.
That means in 2023, American Airlines lost $4.38 billion from flying people places. The only reason they would continue to do that is if that loss weren’t an accident. And it isn’t. The $4.38 billion airline loss is a marketing expense for their $5.2 billion credit card business.
That means the American Airlines credit card business, accounting for the airline expenses, is operating with 16% profit margins, which is perfectly normal for a healthy business! That’s way better than the 1.5% margins the business runs on if you consider the airline revenue to be the top-line, instead of the credit card revenue.
If you don’t believe me yet, I’ll prove to you the airline is actually a loss-leader with negative value: the American Airlines loyalty business (which is mostly their credit card business) is valued at $23 billion. American Airlines as a whole, is only worth $7.25 billion.
That means American Airlines the credit card company is worth $23 billion, and American Airlines the airline is worth negative $15.75 billion. In a world without American Airlines the credit card company, American Airlines the airline would not exist. But together, they’re worth $7.25 billion, which is where the stock is trading.
While we’ve only profiled Delta and American Airlines in this piece, the same concept is true for United, Alaska Airlines, Jet Blue, insert every US airline with a big credit card business.
These are not airlines. They don’t know how to make money flying people places. Rather, they’re excellent financiers and marketers, who know that by waving shiny travel rewards in front of our faces, they’ll convince us to use their credit cards.
On that note, if you’re curious which credit cards will get you the shiniest travel rewards based on your actual spending and preferences, we built Pointwise to answer that for you.
——
Editors Note: The opinions expressed in this article are solely the author's and do not reflect the views of any bank, credit card issuer, hotel, airline, or other entity. This content has not been reviewed, approved, or endorsed by any of the organizations mentioned.
“I Can’t Believe You Think I’m An Airline?” - Every US Airline
Ken Book
Jul 18, 2024
Advertiser Disclosure
Pointwise is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as MileValue.com. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. Terms apply to American Express benefits and offers. Enrollment may be required for select American Express benefits and offers. Visit americanexpress.com to learn more.
Airlines. We know what they are. Don’t we?
We book flights, show up at the airport, and they take us where we paid them to take us. That must be how they make money: their business must be flying people places. That’s why United, Delta and American Airlines make more than $150B a year. They must fly a lot of people a lot of places.
Wrong.
What if I told you airlines don’t make any money from flying people places? Well, it’s true.
Let’s take Delta, for example. In 2023, Delta earned $48 billion in revenue. That seems like a lot of money. I mean, that is a lot of money, but not when you account for all of their expenses. After expenses, they were “only” left with $4.61 billion.
So what do you mean that they don’t make any money flying people places? $4.61 billion is still a lot of money!
Yes it is, but what makes you think that money comes from flying people places? See, Delta has this deal with American Express, where American Express pays them money for the right to issue the Delta branded credit cards.
Some of their cards offer simple benefits, like the popular Delta SkyMiles® Gold American Express Card (Terms apply. Rates & fees), which offers a free checked bag on Delta flights, as well as up to $100/yr in statement credits after using your Card for booking hotels/vacation rentals on delta.com/stays.
Others offer more luxurious benefits in exchange for much higher annual fees, like the Delta SkyMiles® Reserve American Express Card, which offers a binder full of benefits and credits in exchange for a more hefty $650 annual fee (Terms apply. Rates & fees).
What is constant about all of them is that Delta offers these cards because it makes financial sense for them to do so. This isn’t a secret. They brag about how often people use their Delta branded credit cards:
“In June 2023, at Delta Investor Day, executives proudly put up a slide claiming that spending on Delta co-branded credit cards issued by Amex is approaching 1% of U.S. GDP, hinting that over $250 billion was spent.” Source: Skift
The question then becomes how much revenue did they earn from that $250B spent on their cards? While every deal is private and unique, we know from the recent Wall Street Journal tell-all story about Bilt’s relationship with their issuing bank, Wells Fargo, that its commonplace for card-issuing banks to pay their brand-name partners when these cards are opened, when people spend on these cards, and perhaps also when people pay interest (although American Express collects far less interest income as a percentage of their revenue than many other credit card issuers).
And while we don’t know the exact breakdown of Delta’s deal with American Express, we do know that American Express reportedly paid Delta $6.8 billion in 2023.
If we look back to Delta’s bottom-line, you’ll recall they only made $4.61 billion that year. That means if you take away the money their credit cards earned them, they actually lost $2.19 billion from flying people places.
I hope it’s starting to make more sense now, why they try to sell you credit cards at the gate or on the plane, why they try and upsell you on credit cards that come with lounge access, why you’ll see the “airline” running ads promoting their credit cards more than they run ads promoting their airplanes.
It’s because they aren’t an airline. They’re a credit card company, and their go-to-market strategy is giving you benefits on flights. They figure it’s more economical for them to just offer the flights themselves than to pay for your free checked bag or lounge access on other airlines, so they operate an airline as a loss-leader to get you to sign up for their credit cards.
They even allow people who don’t have their cards to book flights on their airline for less than it costs them to run the airline, knowing they can use that as a chance to sell them on their credit cards.
The whole model would break if it weren’t for credit cards. Flights would be way more expensive if airlines were actually a business that had to make money, instead of a credit card marketing expense.
But that’s just Delta. Delta’s known for its credit cards and loyalty programs. That doesn’t prove anything about other airlines!
Well, it’s not just Delta. It’s every major US airline. American Airlines generated $52.79 billion in revenue in 2023, but after expenses they only made $822 million. That’s still a lot of money from flying people places, but not when you realize that of their $52.79 billion in revenue, $5.2 billion came from their credit card deal with Citi.
That means in 2023, American Airlines lost $4.38 billion from flying people places. The only reason they would continue to do that is if that loss weren’t an accident. And it isn’t. The $4.38 billion airline loss is a marketing expense for their $5.2 billion credit card business.
That means the American Airlines credit card business, accounting for the airline expenses, is operating with 16% profit margins, which is perfectly normal for a healthy business! That’s way better than the 1.5% margins the business runs on if you consider the airline revenue to be the top-line, instead of the credit card revenue.
If you don’t believe me yet, I’ll prove to you the airline is actually a loss-leader with negative value: the American Airlines loyalty business (which is mostly their credit card business) is valued at $23 billion. American Airlines as a whole, is only worth $7.25 billion.
That means American Airlines the credit card company is worth $23 billion, and American Airlines the airline is worth negative $15.75 billion. In a world without American Airlines the credit card company, American Airlines the airline would not exist. But together, they’re worth $7.25 billion, which is where the stock is trading.
While we’ve only profiled Delta and American Airlines in this piece, the same concept is true for United, Alaska Airlines, Jet Blue, insert every US airline with a big credit card business.
These are not airlines. They don’t know how to make money flying people places. Rather, they’re excellent financiers and marketers, who know that by waving shiny travel rewards in front of our faces, they’ll convince us to use their credit cards.
On that note, if you’re curious which credit cards will get you the shiniest travel rewards based on your actual spending and preferences, we built Pointwise to answer that for you.
——
Editors Note: The opinions expressed in this article are solely the author's and do not reflect the views of any bank, credit card issuer, hotel, airline, or other entity. This content has not been reviewed, approved, or endorsed by any of the organizations mentioned.
“I Can’t Believe You Think I’m An Airline?” - Every US Airline
Ken Book
Jul 18, 2024
Advertiser Disclosure
Pointwise is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as MileValue.com. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. Terms apply to American Express benefits and offers. Enrollment may be required for select American Express benefits and offers. Visit americanexpress.com to learn more.
Airlines. We know what they are. Don’t we?
We book flights, show up at the airport, and they take us where we paid them to take us. That must be how they make money: their business must be flying people places. That’s why United, Delta and American Airlines make more than $150B a year. They must fly a lot of people a lot of places.
Wrong.
What if I told you airlines don’t make any money from flying people places? Well, it’s true.
Let’s take Delta, for example. In 2023, Delta earned $48 billion in revenue. That seems like a lot of money. I mean, that is a lot of money, but not when you account for all of their expenses. After expenses, they were “only” left with $4.61 billion.
So what do you mean that they don’t make any money flying people places? $4.61 billion is still a lot of money!
Yes it is, but what makes you think that money comes from flying people places? See, Delta has this deal with American Express, where American Express pays them money for the right to issue the Delta branded credit cards.
Some of their cards offer simple benefits, like the popular Delta SkyMiles® Gold American Express Card (Terms apply. Rates & fees), which offers a free checked bag on Delta flights, as well as up to $100/yr in statement credits after using your Card for booking hotels/vacation rentals on delta.com/stays.
Others offer more luxurious benefits in exchange for much higher annual fees, like the Delta SkyMiles® Reserve American Express Card, which offers a binder full of benefits and credits in exchange for a more hefty $650 annual fee (Terms apply. Rates & fees).
What is constant about all of them is that Delta offers these cards because it makes financial sense for them to do so. This isn’t a secret. They brag about how often people use their Delta branded credit cards:
“In June 2023, at Delta Investor Day, executives proudly put up a slide claiming that spending on Delta co-branded credit cards issued by Amex is approaching 1% of U.S. GDP, hinting that over $250 billion was spent.” Source: Skift
The question then becomes how much revenue did they earn from that $250B spent on their cards? While every deal is private and unique, we know from the recent Wall Street Journal tell-all story about Bilt’s relationship with their issuing bank, Wells Fargo, that its commonplace for card-issuing banks to pay their brand-name partners when these cards are opened, when people spend on these cards, and perhaps also when people pay interest (although American Express collects far less interest income as a percentage of their revenue than many other credit card issuers).
And while we don’t know the exact breakdown of Delta’s deal with American Express, we do know that American Express reportedly paid Delta $6.8 billion in 2023.
If we look back to Delta’s bottom-line, you’ll recall they only made $4.61 billion that year. That means if you take away the money their credit cards earned them, they actually lost $2.19 billion from flying people places.
I hope it’s starting to make more sense now, why they try to sell you credit cards at the gate or on the plane, why they try and upsell you on credit cards that come with lounge access, why you’ll see the “airline” running ads promoting their credit cards more than they run ads promoting their airplanes.
It’s because they aren’t an airline. They’re a credit card company, and their go-to-market strategy is giving you benefits on flights. They figure it’s more economical for them to just offer the flights themselves than to pay for your free checked bag or lounge access on other airlines, so they operate an airline as a loss-leader to get you to sign up for their credit cards.
They even allow people who don’t have their cards to book flights on their airline for less than it costs them to run the airline, knowing they can use that as a chance to sell them on their credit cards.
The whole model would break if it weren’t for credit cards. Flights would be way more expensive if airlines were actually a business that had to make money, instead of a credit card marketing expense.
But that’s just Delta. Delta’s known for its credit cards and loyalty programs. That doesn’t prove anything about other airlines!
Well, it’s not just Delta. It’s every major US airline. American Airlines generated $52.79 billion in revenue in 2023, but after expenses they only made $822 million. That’s still a lot of money from flying people places, but not when you realize that of their $52.79 billion in revenue, $5.2 billion came from their credit card deal with Citi.
That means in 2023, American Airlines lost $4.38 billion from flying people places. The only reason they would continue to do that is if that loss weren’t an accident. And it isn’t. The $4.38 billion airline loss is a marketing expense for their $5.2 billion credit card business.
That means the American Airlines credit card business, accounting for the airline expenses, is operating with 16% profit margins, which is perfectly normal for a healthy business! That’s way better than the 1.5% margins the business runs on if you consider the airline revenue to be the top-line, instead of the credit card revenue.
If you don’t believe me yet, I’ll prove to you the airline is actually a loss-leader with negative value: the American Airlines loyalty business (which is mostly their credit card business) is valued at $23 billion. American Airlines as a whole, is only worth $7.25 billion.
That means American Airlines the credit card company is worth $23 billion, and American Airlines the airline is worth negative $15.75 billion. In a world without American Airlines the credit card company, American Airlines the airline would not exist. But together, they’re worth $7.25 billion, which is where the stock is trading.
While we’ve only profiled Delta and American Airlines in this piece, the same concept is true for United, Alaska Airlines, Jet Blue, insert every US airline with a big credit card business.
These are not airlines. They don’t know how to make money flying people places. Rather, they’re excellent financiers and marketers, who know that by waving shiny travel rewards in front of our faces, they’ll convince us to use their credit cards.
On that note, if you’re curious which credit cards will get you the shiniest travel rewards based on your actual spending and preferences, we built Pointwise to answer that for you.
——
Editors Note: The opinions expressed in this article are solely the author's and do not reflect the views of any bank, credit card issuer, hotel, airline, or other entity. This content has not been reviewed, approved, or endorsed by any of the organizations mentioned.