Frequent flyer economics

My travel agent enrolled me in the AA frequent traveller program while I was peddling Venezuelan software in Silicon Valley, around 1987. It’s the best credit card I ever had and still have. Now I rarely fly but still add some 500 miles a month by using the card.

I never knew the economics of loyalty programs, until now!

How Airlines Quietly Became Banks

The Captain
has some 112,000 accumulated miles, at 500 miles per month that’s over 18 years


has some 112,000 accumulated miles, at 500 miles per month that’s over 18 years

The real benefit is the sign-up bonus. For example, I live in Seattle where Alaska Airlines is based so that’s a good card for me. The card currently offers a 40,000 mile bonus (often higher) as well as a $121 companion fare with an annual fee of $75. 40,000 is enough to fly round trip to Hawaii, and since my wife and I both have cards we can fly for $150 (annual fee times two) which saves us about $700. The companion fare by itself can also save hundreds of dollars. And that’s not counting the value of points earned by the spend.

As the video points out, somewhat counterintuitively this benefits both the bank and the airline. I’ve signed up and canceled the Alaska card at least 10 times. This has had imperceptible effect on my credit score. The reduction if any, is on the order of two or three points. Rounding error. Hotel cards can be just as good.

I recommend you use your accumulated miles. Why not? They don’t gain interest and the airline might devalue them in the future. Plus they are easy to come by if you want more. Simply sign up for a new card. Your miles can be used on AA’s partner airlines as well.