Changes in airmile system angers customers, but a welcome profit booster for airlines

Key topics:BA shifts loyalty status to spending rather than miles flownAvios profit surges, driven by non-air partnerships and credit cardsBA loyalty revamp mirrors Delta's, despite backlash from frequent flyers.Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here.The auditorium doors will open for BNIC#2 on 10 September 2025 in Hermanus. For more information and tickets, click here..By Marc Rubinstein.Like many Bloomberg Opinion readers, I am an avid collector of airline miles. Being based in the UK, my preferred program is Avios, owned by International Consolidated Airlines Group SA, the parent of British Airways. I’ve been a member of the scheme for 30 years, since taking my first foreign trip as a young banker.But alongside the points, I also enjoy collecting status. Take enough flights and you ascend through tiers, unlocking perks, including dedicated check in, priority boarding and lounge access. Higher status also proffers bonus reward points, giving more currency to access free flights. For many frequent flyers, the prestige conveyed by a shiny membership card matters as much as the benefits themselves, so when BA changed in April how members achieve status – switching from a system based on miles flown to one based on pounds spent – there was a predictable outcry. Under the new rules, reaching Silver status requires accumulating 7,500 tier points – one point for each pound spent – making the climb to elite status considerably steeper.British Airways argued that the overhaul aligns its program with other global carriers. But the shift signaled a broader transformation in how loyalty programs operate and whom they benefit. By 2024, almost two-thirds of Avios points were already being earned through non-air partners. Now, BA is extending this approach to elite status itself, allowing tier points to be earned through credit card spending and holiday packages. The airline’s announcement last week that American Express cardholders can earn up to 2,500 tier points – a third of Silver’s requirement – through credit-card spending underscores this direction. At an investor day last week, sister airline Iberia emphasized plans to expand further into nonair partnerships.Avios has already emerged as a major driver of IAG’s profitability. By selling points to partners at a price higher than the cost of redemption, it is able to lock in a steady stream of earnings while managing unsold inventory. The program generated £420 million ($570 million) of profit last year, up from £218 million in 2019 and the company forecasts it can continue to grow at 10% per annum. With an operating margin of 17% – higher than the group average – it offers a capital-light complement to the airline’s core earnings. Currently, the program has 69 million enrolled members, of whom 9.6 million are active. In Iberia’s case, they spend 5% to 10% more on average than non-frequent flyers, suggesting that free flights and other perks may pay for themselves..Read more:.How to avoid your British citizenship application being refused.The value of points became apparent during Covid, when IAG pre-sold a pile of Avios to American Express for £750 million. The two initially paired up in 2000 and today British Airways is one of Amex’s largest partners alongside Delta Air Lines Inc. and Hilton Worldwide Holdings. Since then, the value of points to issuers has only gone up. According to accounts filed this month, Avios issued 177 billion points last year, up 24% on the prior year. It deferred revenue on them at a rate of 0.91 pence per point, up from 0.62 per point in 2022, reflecting higher fares. The company books revenue only when points are redeemed – last year, 141 billion points were redeemed, up 20% on the year before. The turnover is normally quite rapid: Just under half of the Avios issued in 2024 were redeemed the same year, although the company profits most when points fester unused.Compared with Delta, IAG’s Avios program is still small. Delta has roughly 120 million members in its SkyMiles program. At the end of 2024, it had $8.8 billion of deferred revenue linked to points issuance on its balance sheet, versus $3.1 billion in the case of Avios. Last year alone, it earned $7.4 billion from American Express, which it anticipates will grow to $10 billion over the long term. Last year, 46% of Delta’s loyalty income came from third-party brand usage, compared with 23% at Avios. Back in 2023, Delta faced a similar backlash when it revamped SkyMiles and lounge access policy. Chief Executive Officer Ed Bastion conceded he “probably went too far” and later dialed down the modifications. British Airways may have learned from that experience. Despite the initial outcry, Delta’s loyalty revenue continued to grow. BA is seeing similar resilience. On his earnings call last month, CEO Sean Doyle says Executive Club bookings are tracking in line with wider bookings, while members are being “rewarded more fairly” for increased wallet share. The grumbling on frequent flyer forums may continue, but BA's bet on evolving its loyalty program appears to be paying off..© 2025 Bloomberg L.P.

Changes in airmile system angers customers, but a welcome profit booster for airlines

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