Airline Loyalty Points and the Credit Card Moat

Delta Airlines and other major US carriers relied heavily on loyalty point sales to credit card companies to stay profitable last year. Delta alone generated $7 billion from this side hustle, accounting for more than its total operating profit. Remarkably, 1% of US GDP flows through Delta's co-branded cards.

The $187 billion credit card interchange fee market remains ripe for disruption, yet rewards programs create a formidable defense. Consumers willingly pay inflated fees for the illusion of 'free' travel, with three-quarters of interchange fees recycled as rewards. Airlines fiercely protect this system, recently lobbying against legislation that WOULD have lowered interchange fees.

Stablecoins loom as a potential challenger to this entrenched credit card ecosystem. While proposed amendments to lower fees failed this round, the rise of digital assets could eventually dismantle the loyalty point economy that keeps airlines aloft.