Airline loyalty programs were more profitable than ever in 2025. Airlines… not-so-much.

If we consider the profitability of an airline’s loyalty program, we must also consider the profitability of the airline outside of that program. Sure, the two are intricately linked. A loyalty program would be worthless without the airline behind it. But consider the opposite: how would an airline fare without the loyalty program?

It would lose money. In fact, it would lose a lot of money.

When we consider loyalty revenues, we take two numbers into account from the airlines’ annual reports. The first is the dollar value of the points redeemed during the year. This counts on the financial reports as passenger revenues. The second is the marketing benefit from the credit card companies. This gets booked as other revenues.

What we do not consider (nor do the airlines) is any credit card points purchase or other transactions. This does not count as revenue during the year, primarily because purchasing points creates a new liability on the balance sheet (Similar to Air Traffic Liability, which represents tickets bought but not yet flown. In this case, loyalty liability is points issued but not yet redeemed or expired.)

In what should be a surprise to nobody, the majority of airline profits came from loyalty revenues. And by “majority” we mean “all.”

Without loyalty revenues, no U.S. airlines would have made money in 2025. But, let’s examine that a bit closer, because there is a caveat to that.

Certainly, many of these loyalty points burned as redemptions were done so by booking travel and filling a seat. Had the seat not been filled through points, it would have been inventory that could have been sold. So the argument goes that the opportunity cost of a loyalty booking is the ability to sell the seat for cold hard cash otherwise.

Yes and no, at least from our perspective. Yes, the seat could have been sold at a cash fare. That’s the opportunity cost. But how many and at what fare?

Taking this a step further, how much inventory would be in excess of market demand if points were not an option? Put a better way, how much would every other seat be discounted without loyalty redemption taking a portion of the inventory off market? It’s not just the opportunity cost of what the airline could sell a redeemed seat for without points, but it’s the increased yields the rest of the aircraft delivers from having reduced supply.

Regardless of the debate around what hypothetically may have happened had points not been a thing, no airline would have been profitable without the direct loyalty revenues. Airlines rely on loyalty programs, and that reliance is growing.

The total percentage of revenue attributable to loyalty programs begins to reveal a different side of the industry. The largest programs at the big three airlines account for between 11% and 13% of total revenue. That means points redemption, as well as direct payments and commissions from branded credit cards.

Firstly, let’s look to the right of the chart. The ultra-low-cost airlines drive not only significantly smaller loyalty programs, but on a percentage of revenue basis, are much smaller as well. This makes sense. As we discussed before, when we considered airline points as a currency, the buying power for Frontier Miles is lower than that of Delta’s SkyMiles. A smaller network means fewer options to redeem. Just as importantly, fewer premium upgrade options mean even fewer options to redeem. (Also, as a point of note: yes, we removed Delta’s refinery numbers from the analysis, keeping it apples to apples.)

But consider this: Frontier would have easily found profitability had the airline been able to drive the 13% proportion of revenues industry average. Suddenly, the drive to introduce more premium offerings starts to make sense. While demand for the product may feel insufficient, the value wouldn’t be extracted from people paying cash so much as people redeeming points.

It also shows partially why the ULCCs are having such a hard time finding profitability as airlines these days. It’s because airlines aren’t profitable; the loyalty programs are.

But there are some standouts in the group. Before getting to Alaska and Southwest, other surprises for us were JetBlue and Allegiant. JetBlue’s TrueBlue program is producing a higher percentage of its overall revenues than United. And yet the airline remains unprofitable. We can’t decide if this is good news or bad news: good news in that JetBlue has been very successful with its loyalty program. Bad news in that it’s still not been enough to find profitability.

Since 2019, JetBlue has found the most growth in its loyalty revenues as a portion of total revenues of all the airlines. This jump for JetBlue has come amid a trend of all airlines increasing their portion of revenues through loyalty. While this was expected, the magnitude of the increases was not.

Allegiant certainly lags the network airlines, but handily leads the low-cost space. Even without the network effect, Allegiant has built what we would call an exceptionally successful loyalty program. There are a few reasons for this. Firstly, consider that Allegiant’s customers are much more distributed to smaller communities where owning a SkyMiles Amex may not be as powerful. But Allegiant has also focused on giving its customers more redemption offerings, including making it easier to pay for hotels, cars, etc., using points all in one place. The results show positively for Allegiant.

Clearly, Southwest and Alaska realize the highest percentage of their total revenues through loyalty programs. Yet, while the two airlines are neighbors in the top spots, the benefit of the programs to the airlines arrives in different ways.

The velocity of the points - i.e., how many of the points held are redeemed each year - is vastly different for Southwest and Alaska. Over 71% of the points on Southwest’s balance sheet were redeemed in 2025. The airline has the highest velocity of points, showing Southwest passengers actually use most of their points. Alaska nears the other end of the spectrum at 40%.

But, when we consider the rate at which points were earned vs burned in 2025, Alaska and Southwest hold opposite ends of the spectrum. Almost 25% more points were earned by Alaska customers in 2025 than were redeemed. As a result, the overall number of points in circulation increased.

This is both good and bad. First, the good: Customers seem to like getting Alaska points. It’s considered one of the strongest programs based on what you can do with it. Similarly, since loyalty revenue is largely realized on redemption, there is a growing bucket of points that will eventually get converted into revenue.

But that highlights the challenge, as well. Alaska is printing a lot more currency than is being used. Supply is increasing while the velocity of the currency remains low. Whether that leads to devaluation by the airline, or just in the minds of the customers, is a real potential challenge. It appeared easier to acquire than spend Alaska Atmos Rewards in 2025, though that will likely be partially mitigated by the new long-haul Europe service with full business class.

Southwest is almost the opposite story. Over 21% of the airline’s revenues come from its loyalty program, leading the industry. Southwest also retains the highest points velocity, which suggests that not only do customers earn miles, but they also like to spend them.

In fact, they liked to spend miles so much that more miles were redeemed than were awarded in 2025. This is largely due to accounting changes throughout the year, where revenues were realized, not through point redemptions and marketing benefits from the credit cards, but in a new third category called “airline benefits.” This references the new benefits a branded credit-card holder may have, including not paying bag fees, seat selection, etc. Notably, this is not accounted for in loyalty revenues, but is buried in passenger revenues. By our estimate, we expect about $270 million of passenger revenue (ex-loyalty) is actually loyalty-driven - about 63% of the airline's annual operating profit.

It also means the airline’s loyalty revenue as a percentage of total revenues is not 21.3% as reported, but actually close to 22.3%.

At what point is this number too high? Especially considering the total amount of points held contracted during the year, how many more years can Southwest continue to post revenue numbers this high? (The mathematical answer is eight years at this rate, after which the customers run out of points, but that’s unlikely to happen.) Miles can’t be converted into revenues if they’re not earned first. The high velocity is nice, and we like seeing passengers looking to spend miles, but are they just burning down miles today, or is this a deeper revenue stream that can be expected going forward?

We expect both to happen. The airline just gave its customers a big reason to use miles by introducing new fees. But do you see the Catch-22? How do you tell your customers your branded credit card is going to be more valuable because you’re going to charge people not holding the card more for things that didn’t cost before? How many people will just burn down the points because they have them rather than adopt them as a type of currency to manage these new costs? The answer is not known. And while the airline will be certain to communicate the number of new branded credit cards signed up, it is the use of these cards that matters.

In the end, the reason this all matters is simple - without it, the airlines would all lose money.

Notably absent from the stock charts this week is Spirit Airlines, up over 150% after the U.S. government signaled a bailout for the airline.

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