US Airlines Offer Subscription Programs: Does It Save Money?

Delta Air Lines joins Buy Now, Pay Later, a new wave of airline marketing schemes designed to show loyalty to customers ahead of the busiest travel season ever, reports Axios.

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Loyalty programs are generating huge revenue for airlines, and this year's pent-up travel demand provides them with a rare opportunity to increase brand stickiness and revenue.

Delta's new "buy now, pay later" option allows customers to create a fixed, interest-free monthly payment plan when they book their flight with an American Express credit card co-issued with Delta.

And, for example, Alaska Airlines allows customers to pay as little as $49 a month for six flights a year to select destinations on the West Coast.

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These programs are examples of how airlines are looking to increase their alternative sources of income by increasing control over consumers' wallets.

What is the benefit?

Airlines make money by selling frequent flyer points to banks, which then award them to credit card holders as rewards for purchases such as hotels and restaurants or groceries.

Banks pay airlines between 1 and 1,5 cents per mile plus a bonus when new customers sign up for their branded credit card.

Banks collect annual fees but take most of their cut in "swipe fees" when customers use the cards to make purchases.

The more consumers spend, the more miles they earn from free vacations, upgrades and other perks, prompting them to use an airline credit card.

Today's loyalty programs go far beyond flying. For example, Delta SkyMiles members can now get a free trial of Instacart Express for up to 12 months and earn miles for every grocery delivery.

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Aeroplan, Air Canada's loyalty program, allows members to earn points for Uber Eats and Uber Rides with a free six-month Uber Pass trial.

American Airlines now defines frequent flyer status even by how much they spend on daily activities, not just how often they fly.

“Airlines have realized that there is much more to earning from these programs than just generating loyalty,” says David Slotnick, senior aviation business reporter at The Points Guy, Axios.

Loyalty programs, especially branded credit cards, are becoming increasingly profitable for airlines.

Delta said its long-term deal with American Express is expected to generate up to $7 billion in annual revenue by 2023.

Some analysts claim that frequent flyer programs are the most profitable part of an airline's business, but this is difficult to confirm as few airlines disclose details of their programs.

The one exception to this rule is United Airlines, which valued its MileagePlus loyalty program at nearly $22 billion in 2020 when it launched the program as collateral for a debt deal to help weather the pandemic.

MileagePlus earned almost $2 billion on sales of $5,3 billion in 2019, United said at the time as part of its offer to investors.

According to Bloomberg, United is now exploring the possibility of selling a minority stake in the program.

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