When former American Airlines CEO Robert Crandall launched AAdvantage, the world’s first frequent flier program, in 1981, he couldn’t have predicted how ubiquitous such programs would someday become. He also couldn’t have predicted that what seemed like an acceptable cost to drive loyalty would someday become a major moneymaker of its own for American and other airlines.

It quickly became clear just how much customers liked accumulating miles. Airlines formed partnerships with other travel providers like hotels and rental car companies, who were happy to leverage airline customer loyalty to drive their own sales. Other retailers that seemingly had little to do with the airline industry followed as partners, becoming big customers for airlines without even flying—they, like travel industry partners, purchased miles from airlines to award to their own customers.

Co-branded credit cards became the most lucrative partnerships of all. In fact, it’s no exaggeration to say that some once- and still-struggling airlines exist today because of their relationships with credit card issuers. Several times during the past decade, U.S. airlines in particular were in bankruptcy and on the brink of liquidation, only to be rescued by key suppliers who were willing to extend “loans” or “invest” in the airlines, regardless of how wise that was in pure investing terms, in exchange for assured continued revenue streams. Manufacturers did it, regional carriers did it and—especially—credit card issuers did it. Delta’s partnership with American Express is legendary, but almost every major airline has an important and often exclusive relationship with a card issuer.

Even before its merger with Northwest, which created the world’s largest frequent flier program, Delta earned more than $1b annually from selling SkyMiles to Amex and other partners inside and outside the travel industry. That’s the revenue Crandall and other loyalty pioneers probably never envisioned, in addition to the annual $1b in loyalty-driven revenue (customers choosing Delta over other airlines because of the program) that was the original point of loyalty programs.

Our frequent flier program was profitable from day one. If it weren’t, we wouldn’t have it.
—Spirit Airlines CEO Ben Baldanza
Airline Weekly, June 8, 2009

Perhaps the event that made clear the value of loyalty programs more than any other was when Air Canada spun off its Aeroplan program in a bankruptcy-era effort to raise cash. By market capitalization, standalone Aeroplan is more valuable than the airline itself and is sometimes more profitable than even Air Canada’s always profitable competitor WestJet, which is incidentally launching its own loyalty program. Aeroplan’s ability to influence consumer behavior in Canada is remarkable: when Esso began awarding a modest amount of miles to its gasoline purchasers, it experienced significant share shift in the high-margin premium fuel market away from other gasoline retailers. Other global airlines from Qantas to United considered spinning off their own programs before the global financial meltdown killed the IPO market. As the economy recovers, so too, undoubtedly, will the interest in such transactions. Aeroplan, believing its loyalty expertise far exceeds what airlines can do in house, will likely be involved.

As with all ancillary initiatives, it’s fair to ask whether this is all too good to be true. After all, while not only carriers like Southwest but even ultra-LCC Spirit embrace their programs, the world’s largest ultra-LCC Ryanair doesn’t have a program. It does have a co-branded credit card, believing it can get the milk without buying the cow (it sells “free” flights to the card issuer to award to card holders but doesn’t want to manage a full loyalty program). But also as with all ancillary initiatives, while frequent flier programs may not be a panacea for all that ails, they are most likely to grow, not shrink, in importance.