In a surprising turn of events, the four leading U.S. airlines—Delta, United, American, and Southwest—generated over $200 billion in revenue last year but paradoxically lost money on passenger transport. Yet, these giants managed to post substantial profits, thanks largely to their lucrative credit card partnerships. This article delves into the intricate financial dynamics that have redefined the airline industry.

Unveiling the Secret Formula for Airline Profits

Financial Performance Amidst Operational Losses

Despite posting combined net income near $8 billion and operating income of $14 billion in 2024, all four major U.S. airlines incurred higher costs per available seat mile (CASM) than passenger revenue per available seat mile (PRASM). This anomaly highlights a critical shift in the industry's profitability model. Delta, with an operating profit of $6.0 billion and revenue of $61.64 billion, exemplifies this trend, reporting PRASM of 17.65 cents against CASM of 19.30 cents. Similarly, United’s PRASM of 16.66 cents narrowly missed its CASM of 16.70 cents, illustrating the razor-thin margins.The pandemic-induced disruptions in 2020 exacerbated these financial challenges. Prior to the crisis, all four carriers had higher PRASM than CASM. However, the surge in operational costs during the pandemic reversed this trend, a pattern expected to persist for several years for Delta, American, and Southwest. Analysts predict United will regain PRASM superiority by 2028, driven by strategic capacity management. United's Chief Commercial Officer Andrew Nocella emphasized controlled capacity growth to bolster PRASM strength, stating, “In 2025, we plan to maintain low to minimal capacity growth in Q1.”

Credit Cards: The Unsung Heroes of Airline Profits

The cornerstone of airline profitability lies not in ticket sales but in credit card partnerships. These collaborations generate significant non-operational revenue, enabling airlines to thrive despite operational losses. Delta's partnership with American Express yielded approximately $7.4 billion last year, fueled by robust co-brand spend and new card acquisitions. President Glen Hauenstein highlighted, “This success is driven by high single-digit growth in co-brand spend and over 1 million new card acquisitions.”American Airlines also capitalized on this strategy, signing an exclusive deal with Citi in December. This agreement sent shares soaring by 17%, underscoring the market's confidence in such partnerships. With an estimated $5.6 billion from co-branded credit cards and other partners in the 12 months ending September 30, American anticipates this figure to approach $10 billion, reflecting the growing importance of credit card alliances in the airline sector.

Pandemic Legacy and Future Outlook

The pandemic has left an indelible mark on the airline industry, reshaping its financial landscape. Before 2020, airlines operated with PRASM exceeding CASM, but the crisis led to skyrocketing costs, eroding profitability. Analysts tracking these trends through Visible Alpha foresee this pattern continuing for Delta, American, and Southwest. However, United is poised to reverse this trend, projecting higher PRASM than CASM by 2028.United's strategic focus on controlled capacity growth aims to prevent oversupply and maintain PRASM strength. As Nocella noted, “We plan to keep capacity growth in check to support continued PRASM strength.” This approach underscores the airline's commitment to balancing supply and demand, ensuring long-term financial stability.

Conclusion

While the airline industry faces operational challenges, credit card partnerships offer a lifeline, driving substantial profits. By leveraging these alliances, airlines like Delta, United, American, and Southwest can navigate turbulent waters and maintain profitability. As the industry evolves, the role of credit cards in shaping airline finances will only grow more significant.