Bloomberg Confirms That Airlines Exist To Support The Credit Card Industry


One of the themes I’ve written about during my 13 years of blogging here is that the mileage game continues to exist due to it being a win-win-win situation.

-The banks need the airlines to lure valuable customers to their products and make massive profits from their credit card divisions.
-The airlines need the banks to buy their miles by the billions to keep afloat and rescue them from bankruptcy.
-Consumers benefit from the banks largesse and the airlines ability to provide aspirational awards at attainable pricing when there is distressed inventory.

Commenters over the years have taken issue with my right to complain about things going wrong when using miles. Even after we were marooned in JFK for a day, there will always be the commenters that say I’m taking advantage of the airlines by using miles.

But Bloomberg today writes what I’ve been saying for years. The airlines need the mileage game in order for the aviation industry to exist and thrive. They make more money selling miles than they do actually selling seats on their planes. That’s why mileage earning for paid flights has been devalued while mileage earning from credit cards continues to be enhanced.

They also have incredible leverage over the banks. If a bank loses a co-branded airline card it would be devastating to the bank. That means the airlines can demand high rates for their miles. It’s how Costco was able to squeeze Citi to offer free credit card processing in exchange for switching over their co-brand relationship from AMEX. That’s an incredible amount of leverage.

The Bloomberg article says that the banks pay 1.5-2.5 cents for each mile. Some DDFers say they would be shocked if they even pay a third of that. However it corroborates what a former Citi employee and DansDeals reader once wrote that Citi pays American 1.8 cents for each mile and I’m inclined to believe that banks do pay very high rates for miles in order to keep their co-brand business. That’s what makes me angry when American not only devalued their award chart, but wipes out the vast majority of their award inventory. Predictably, there were comments saying I had no right to complain. But at the end of the day it’s a 2 way street. I’ll focus my accumulation strategy on other airlines and in the end, the unfair programs will lose out on that revenue.

In November 2014 I ripped into El Al Matmid changes. The next day I got an email from Gal Egozi, Matmid’s business development manager and the face of the Matmid changes. We spoke for 90 minutes on a broad and fascinating range of topics, perhaps one day I’ll share a transcript of it. He tried to spin the changes as positive, but I wasn’t buying into any of that. The real eye opener is that El Al had no idea that the US airlines were doing so well specifically because of their mileage programs. El Al looks at Matmid as a cost center, which is why it’s such a poor program. With a little help it could be transformed into the same profit center that it is for the US carriers.

At the end of the day, there’s a reason you can still book a $30,000 first class suite for 100,000 miles, an outstanding value of 30 cents per mile. The airlines want to keep selling miles to the banks and if they switched to a flat 1 cent or even 1.5 cents per mile program, people would abandon ship in droves. Part of the lure is also the thrill of the hunt and the ability to come ahead.

Over the years the game has gotten tougher as banks and airlines crack down on the loopholes and the more lucrative parts of their programs.

At the same time we have seen new outsized value from hybrid cards like Sapphire Reserve and Business Platinum that give the ability to redeem points for a value of 1.5-2.5 cents each or the ability to transfer points into miles. By smartly using other cards from AMEX or Chase you can even earn 2-5x the points per dollar spent on top of those redemption values. In some ways that’s better than we’ve ever had it.

And so the game lives on and luckily for us, it’s quite sustainable. It evolves. It’s not as lucrative as it once was. But the ride goes on.

Long live the mileage game.

HT: ExGingi, via DDF

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55 Comments On "Bloomberg Confirms That Airlines Exist To Support The Credit Card Industry"

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Well as one who play the system we still dont have much right to complain even if overall they all win from it. If all consumers gamed the system like we all do this whole industry would already be bankrupt.

Mountain Man

It used to be that Southwest made so much money hedging oil that it was basically a trading firm that happened to fly planes to. Before that Southwest was basically a liquor store that flew planes. I think this is just an evolution of that.

It’s insane that AAdvantage is worth more than AA especially considering how hard it is to find good availability.


If “the banks pay 1.5-2.5 cents for each mile” why are they not offering higher cash incentives to the consumer to chose from instead of miles?
Most simple folk (not DD followers) wont open a card if they are offering $100 cash, but for $500+ people would run, no?


All those that rip you are just sour grapes. Keep it going Dan and to all the Haters, stop hating and start playing the game.


Will this be one of the topics in Whistler? I hope so.


Let’s say a grocery store sells tuna at below cost to lure you in with an amazing sale so you end up doing your entire grocery shop there instead of the competitor.

But let’s say I’m a bit obsessive, and I game the system and only buy the sale items there, and go to other stores to get their sale items, paying below cost for many of my groceries at 10 stores around town.

Do I lose my rights to complain at the store advertising the tuna special if the cashier tells me the special only applies to purple tuna in unicorn oil or bigfoot water?

I’m well within my rights to complain and tell all my friends – or blog readers – that their advertisements are an effective scam, as you’ll never actually be able to take advantage of said sale.

If I scammed my way to game the system, well, that’s a whole nother story


@Yehuda57: What if someone finds a way to get that tuna out of the store without paying?


@Emgee: Well another hater, without paying? We pay our credit card bills to get these points.


Let them eat cake


During the next downturn, the shareholders will likely ask for a separation of the miles business from the operation side, to increase value.


There is no reason why we can’t complain at the end of the day the banks and airlines set the rules so if they don’t like it they can stop it. Obviously they’re making money and they like the system they made.


@Dan, you say that airlines didn’t separate the miles from the operations. How do you explain Air Canada and Aeroplan, and did it work for them (as I have heard)?

reb yid

Your analysis is a bit inexact. First of all, we’re getting most of our points for free, from sign-up bonuses etc. If someone gives you a gift, even if it’s a (no-obligation) inducement to use their services in the future, it’s hard to really complain that the gift is now worth less than previously. If some Central American banana republic gave you a suitcase full of pesos for the privilege of sending you some free travel brochures in the hopes that you’d visit them, and then devalued their currency so it’d be worth less, what’s your basis for complaining?

Also, most of us aren’t taking regular flight in shower class. Most of us are getting, I would assume, 1.5-3 cents per point value for the average ticket. So if this is about what the CC companies are paying the airlines, what’s your beef?

Which brings me to the third point. The entire article that you cited was based on the analysis of one guy (DeNardi) at one firm (Stifel). It’s clearly in his personal interest to try to increase the value of airline stocks, and he’s doing it by ranting about how they’re so extremely undervalued by virtue of investors’ ignoring the points issue. It’s hardly an independent analysis. In fact, it’s just as biased as your claim that it’s not in the airlines’ interest to devalue their points, as if that had nothing to do with the fact that you hold millions of points and stand to personally lose out.

reb yid

1. Wrong. I’m not paying a cent to the banks. The merchants are.

2. Again. You got the points for free. Your free gift is worth less than it used to be. I certainly see how that would upset you, as is evident by how you’re lashing out at me, but that doesn’t make it in American’s interest to maintain the value of your free gift.

3. “airlines make much more profit selling miles to banks than selling seats on their planes.”
Obviously not, if they pay 1.8 cents a point, and I redeem 25000 points for a 450 dollar seat, for example.


“we maximize the value from our miles and spending”

Is that what we’re calling it now?


Com’on Reb Yid, still a couple hours b4 shabs, where is your counter argument?


@Anonymous: hey take it easy..”hater” is not an argument! I’m far from a hater I’ve been playing this game for quite a while. The point I was trying to make is that let’s not pretend as everything that people have done is 100% kosher. A lot of stuff border with unethical.


C’mon, you’re not being honest with us, and more importantly, with yourself if you think you’re just “maximizing the value…”

You are a prime example of someone who is abusing the hell out of the system, so you DO forfeit your right to complain when you are a little bit inconvenienced by it.


@Dan: Reb Yid has owned you on this one, Dan.

You’re too biased in this to be taken seriously…


@Emgee: That would be theft, and regardless when you get points from a credit card it isnt “free”. He isnt arguing about companies closing manufactured spending loopholes; somebody who flys AA or got the sign up bonus has an extremely difficult time actually spending the points. The only people who can actually redeem are those who subscribe to blogs like this that are tracking availability.


Not sure why some people are spending their time here,if they think you’re taking advantage and even abusing the system! I really think they’d love to be in your position.
My sister-in-law thinks her air tickets cost more because of what we’re doing, but she doesn’t want to put the time and effort into learning, even with me spoon-feeding her. So she’d rather blame me.
Thanks, Dan for all the great help over the years!!


You’re good at what you do. But you really do come across as an arrogant a**, oftentimes. Some of your responses to these readers provide another example. Be humble, man!


@Dan: Never said you don’t have a right to comment, so no need to play the victim here. I simply said SINCE you’re so biased you can’t be taken seriously.


@Dan: Alright, I suppose you don’t waive the right to complain about changes you don’t like even though you abuse the hell and manipulate the system.

That being said, most of us here are also free to view you as an entitled whiner when you do so.

Fair enough?

But thanks for all of the info you provide… you’re being whiny and pretty greedy doesn’t take away from the fact that you offer a lot of good information here.


How do banks make money from people opening hundreds of cards just for the bonus? You are gaming the system and so am I.



Two comments;

-Calling it a win-win-win situation is an injustice to the underbelly of society (i.e. single moms, immigrants, those struggling financially etc.) who are paying exorbitant interest rates on their credit cards – it is sometimes these little people that scream usery yet are never heard

-Also, flossing about your conversation with Gal Egozi and how right you were/are does little to take into account that the issur of ribbit – which the Israel banks are bound by (at least we wish), since Israel plays by different rules then the USA (and all nations for that matter) it is unfair to ridicule Gal for not seeing things your way.


@DAN2: If its erev shabbat after chatzot in his timezone, dont expect a response (if any) until motzei shabbat


@Dan: I know I’ll probably be put on your bad list for saying this and might be a point of discussion on your forums, but I must say – coming from someone who plays the points game a little bit ( although nothing remotely unethical (PGGM etc.) ) you definitely are throwing out heavily biased statements. Obviously, you’ll just tell everyone else they are wrong and don’t know what they are talking about, but, seriously, you can’t ALWAYS be right. We are all wrong once in a while. That being said, I do think you are right most of the team and appreciate you blog very much.


I really think Dan has been super patient with all of you over the years, providing great info and answering questions over and over, when people don’t even take time to read the post. Doubt most of you would be willing to take that much time to give great info, plus answering many questions that people could easily figure out for themselves! He wants you all to succeed,too. I wouldn’t call that greedy or entitled.


To all you bumbling fools who lurk here and criticize our esteemed host with your infantile illogical arguments, stop squabbling and take a hike. Many of your arguments are baseless and in no way represent even a subtle understanding of the inner workings of this industry.

If only you would file your taxes with the same scrutiny and “honesty”…. without taking advantage of the so-called loopholes.


Dan – I’m a big fan of your blog, but have to concur with Tom on this. The tone of your responses to those that question your opinion is defensive, condescending, and almost hostile. This may be your blog, but we – the readers who support your blog – are entitled to express our views and expect your responses to be respectful.

jay weiss

I do not get you guys. Dan puts out a blog, which all of us subscribe to. The purpose of his blog is to explain to us the complexities of the mileage/credit card game. Most obviously he does this better than all of us, which is why all us, all of you, subscribe to his blog. When he shows you the inner workings of the system, you complain. You call him names. That’s nice. I guess that since you pay so much for his advice you feel you have the right to complain and insult. Oh–wait a minute–you don’t pay anything for his advice! You certainly have the right to disagree, and even voice that. But this is way over the top. If you don’t like the advice, or don’t agree with the message, say so. But for G-d’s sake, do it politely and in good taste. That’s sort of been the hallmark of this blog. Things said and done politely and in good taste. If you can’t, I’d politely, and in good taste, suggest you get your information from another source, and stop chewing on the hand that freely feeds you.


Would it stand to reason the same is true for hotels?


It’s quite ironic. This blog is much like the airlines that are the subject of this post. It’s not a charitable blog – revenue is generated by the clicks the readers utilize – much like the swipes with respect to a credit card issuer. And just like the author posits that the consumers thus have a right to be heard, so too do the readers have a right to be heard.

To be clear, I actually agree with Dan that AA is wrong to have limited award availability for the reasons he cites, but I still object to his tone in these and recent responses. Case in point:

“I’m just tired of readers who feel compelled to try to censor me on topics like the electronics ban or mileage devaluations. Is somebody forcing you guys to read my commentary?”

You’re “tired” of your readers (a/k/a supporters)? No one is “forcing” your readers to support you by signing up to credit cards with your links?

Cmon, your success has obviously gone to your head. Take a few steps back.


-But, uh, you charge for those seminars.

-Regarding Ribbit, from what I’ve learnt, it is a serious issur and should be avoided lechumra. Are you suggesting that El Al give the carrot to the USA and nothing but a stick to Israel?

-Let me say this, El Al is the only airline who ever cared to accommodate kohanim – they listen and they care – they’ve closed entire runways to cater to kohanim while no other airline will do do more then tell you their “in-cabin body parts policy” (if you are lucky enough to get a cohesive response).

DD fan

@jay weiss:
Hey, well said. Isn’t this exaxtly the argument from all of the those negative responses? “If you get something free you are not entitled to complain”. Yet, that’s exactly what they’re doing. Coming to a free blog, and dictating exactly how it should be written.
What hyprococy!

DD fan

@Dan: Dan, i greatly appreciate your blog and the patience you take to respond to all of the coments.
No, I don’t always buy evertyhing you post b/c I may disagree and think it is not a great sale.
No, I dont run to open every single cc you post about.(All though i did open quiet a few based on your recommendations and benefited greatly. Thanks)
And I may also disagree on some of the topics you write about.
However calling names and talking in derogatory tones should not be accepted on this blog. I think u are entitled to filter out these messages or at least not respond to them. Maybe explain once what the ethics for comments should be like, and then come up with an accrynom for a quick response to haters ie: i do not repspnd to haters IDNRTH

mareh (anonymous)


1. Even if you never made a dime from seminar admission fees, every CC offer you post should with a warning of falling prey to being legally sucked with ribbit by the bank
2. Dan asked if I’m saying credit cards in Israel don’t charge interest? – Yes, that is what I am saying. Moreso, that is what the Torah says and chazal were never lenient about toleh momono benachri to get around it
3. Dan is proud that the national airline of the Jewish state cares about tumat kohanim. But asked what does this have what to do with running a profitable or even just competent mileage program? See answer 2.



1. I mean shachor al gabi lavan – like the warning on a cigarette package, and I mean on every single cc “deal” you put out before the tzibur

2. This proves my point, you have no experience and r busy flossing of how if you were running El Al you would be candymanning ribbit cards for all of benei yisroel to suck on – Israel plays by different rules, it is not × ×”×™×” ככל הגוים בית ישראל – and we need to be mafnim that idea and make it known


Here’s an idea for all those with millions of miles: Offer to sell them back to the bank for less than they paid for them originally.
Getting 1.7 cash per mile is pretty good, especially for people that don’t travel. I’d like to know how such a conversation would go.

CSR: Thank you for calling. How can I help?
Customer: Here’s an idea to save you guys money. Remember all those bonuses you gave me? How about buying them back and then posting a higher profit for the quarter?

How many HUCAs would that take? ;D ;D ;D


The airlines find it profitable not to release award seats. Why should they change that? Most people think they are getting value when they use points for a free ticket even when booked standard award.


The whole debate is off track, we never abuse an airline by opening cc for the bonus for instance, actually just the opposite, we generate them huge amounts of money what the banks will pay for those miles, as shown in the Bloomberg report. Now, I dont recall Dan ever complaining for on a bank not honoring a missed/early sign up etc. It’s always just on the airlines who downgrade their value unfairly or almost never open saver space etc. The airlines are not the ones who gives the free gifts, they are the ones who actually benefit the most of this site!!
Keep it on Dan!