How Loyalty Programs Work

What’s The Point?
How Loyalty Programs Work
Credit Cards and Credit Scores
Types of Miles & Points
Identifying Your Travel Goals
How Alliances Work
Credit Card Strategy For Beginners
Earning Miles & Points
Hotels Matter Too
What’s Next?

If we offer our loyalty and consistent patronage to a business, in exchange they often reward us with better prices, special offers and discounts that benefit us. Consequently the more we benefit the more we feel compelled to spend more with a particular firm.

Airlines also have loyalty programs which work in the same way. Often the most sought after customer for an airline is a business traveler. They know that customers are often encouraged to stay loyal to a single airline if they are provided with the right incentives and are even willing to spend more on a ticket on certain occasions to get those benefits.

Various airlines are offering great perks (such as complimentary upgrade) to people who fly tens of thousands of miles each year, and the benefits often increase the more you fly. The customer gets his great perks and the airline gets the business so both win.

With this business strategy the airline loyalty programs have greatly increased in size over the years, and their programs have become profit centers for the airlines, and these are often independent of the airline operations. What this means is today you can earn miles for many kinds of products and services, just by spending money on a credit card. The benefits can be anything from getting a car insurance quote, to taking out a mortgage. This why it is very important to be conscious of every single transaction you make as it represents a possibility to earn miles.

At the moment the airlines control millions of unredeemed airline miles, which are ultimately a liability for the airline accounts, but the day to day cost is negligible. One of the reasons for this is that around 85% of travelers redeem their miles for domestic economy tickets, which are not that expensive for the airline to begin with.

In addition the economic situation in the United States has created a situation where financial institutions and airlines have partnered in way which can be very profitable for the smart consumer.

How does this happen?

The credit card companies and the banks purchase billions of miles from the airlines and offer those miles as a rebate to customers on their spending. The credit card companies are purchasing these miles at a fraction of a cent. They are doing this because it provides the airline with better cash flow, so they can do things to expand their business like offering creased route networks. The banks are also benefitting from this arrangement because they receive a fee from the merchant every time their credit card is swiped.

Some cards offer points which can be transferred to airline miles in the future and some cards offer airline miles right away. What this means for you is that you receive a rebate on all your purchases, which a can be very beneficial to you as a customer.

At the moment the best way to accrue airline miles is though specific, leveraged, spending on the right credit cards. By strategizing how you spend your money on a daily basis you can really maximize the rewards you are going to receive. You don’t have to be spending six figures every year to get amazing benefits. A family with an average income should be able to generate a least one trip a year just by maximizing the dollars they are spending.