How Big Does An Airline Need To Be To Make Loyalty Money?
With the company no longer saddled with its loss-making resort, it wants to re-focus on credit card revenues. But is Allegiant large enough to compete for cardholders against larger programs?
Dear readers,
When Brett Snyder and I interviewed Sun Country CEO Jude Bricker in September for The Air Show, Bricker took an aggressive swipe at the credit card fees that fund profits at United, Delta, American, and Southwest. “I don’t think it’s an appropriate scheme,” he told us, explaining that credit card rewards programs reduce margins for small businesses by about 2 percent, while enriching wealthy cardholders, who redeem the points for “free” airfare. Ideally, he said, interchange fees would drop significantly, and airlines like his would charge more for airfare.
I sensed that this might be a self-serving answer. Sun Country is the tiniest of the “major” U.S. airlines, and in the credit card business, scale matters most. With a relatively small target market (mainly budget-conscious leisure travelers in the Upper Midwest) Sun Country will make about $20 million this year from loyalty — not much for a company that earned about $400 million last year from scheduled service. But I’m curious: if Sun Country is too small to benefit, how big does an airline need to be to make outsized returns?
I know the answer has changed over the past 10 years. A decade ago, only giant airlines could earn material profits on loyalty because they had the package passengers wanted: size, scale, global partners, aspirational destinations, and upgrade options. But now, lower-cost carriers (other than Sun Country) are embracing loyalty programs more than ever.
Last year, I wrote about Breeze’s investments in loyalty just three years after its first flight — a rapid timeline. Last month, I wrote about how Frontier is betting on credit card revenues and a new first class (ripe for loyalty-related opportunities) to improve its fortunes in 2026.
Now, Allegiant wants in. The airline, which is on track to earn about $135 million this year from loyalty, told investors on its earnings call last month that it is re-committing to its program. Allegiant introduced its first co-brand credit card in 2016, and Drew Wells, the airline’s chief commercial officer, told me that with some tweaks to its co-brand scheme, the airline can do much better.
“Fast forward to 2025, there’s obviously more emphasis on it, because the legacies in particular have driven some significantly phenomenal economics,” Wells said in an interview. “By no means do I think that we will rival what Delta is getting on a percentage of total revenue basis. But I do think that there’s room for us to improve to something more like 4 percent or 5 percent of remuneration as [percentage of] revenue.”
If I were going to say something catty about this (and apparently, readers prefer that — many of you accused me of being too optimistic about Frontier’s prospects in a recent story), I might say that Allegiant could have been focusing on this high-margin segment all along.