Recessions may be mitigated with the help of loyalty programs offered by U.S. airlines

There was a significant reliance on loyalty programs for revenue generation by U.S. airlines during the pandemic, and industry representatives and experts said income from such programs would hold steady if a recession were to strike.

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In addition to helping to build airline brand loyalty, the program was launched more than four decades ago to help generate revenue for airlines through the sale of miles to third-party partners, mostly credit card issuers who award the miles to their own customers. The more a customer spends, the more miles that customer earns, and the more airline partners are paid for their services.

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It is estimated that non-flying activities now account for more than half of all the thousands earned in major loyalty programs, according to Evert de Boer, managing partner at consulting firm On Point Loyalty, increasing airlines' resilience to economic fluctuations.

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As a result of data from the consultancy IdeaWorksCompany, the percentage of revenue generated by loyalty programs at the big five U.S. carriers - Delta Air Lines (DAL.N), American Airlines (AAL.O), United Airlines (UAL.O), Southwest Airlines (LUV.N) and Alaska Airlines (ALK.N) - is expected to rise from about 12% in 2019 to 16% in 2021.

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While people curtailed flying during the pandemic, they still spent money on airline loyalty cards, according to JetBlue (JBLU.O) vice president Chris Buckner.

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In the event that the economy slows down, he predicts that this trend will continue if travel demand is reduced as a result.

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"The use of credit cards is not going away anytime soon," Southwest Airlines' (LUV.N) vice president Jonathan Clarkson said.

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It is estimated that Delta Airlines generated $5.7 billion in cash sales from American Express (AXP.N) and other partners last year, which equates to 14% of the airline's revenue expected for 2022, according to Trade Algo.

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In a similar manner, American Airlines received a cash payment of $4.5 billion from its partners, including Citi (C.N) and Barclays (BARC.L) - equivalent to 10% of its revenue generated from passengers.

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It has become increasingly common for carriers to sign up for new partnerships in order to generate even more cash out of these programs.

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United has partnered with companies such as Norton, the leading provider of anti-virus software, and SimpliSafe, which provides home security systems. As a reward for securing a home loan from a mortgage company, Alaska Airlines is offering its customers 50,000 miles for doing so. Several luggage companies have partnered with JetBlue to offer a variety of luggage options.

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Instacart, a company that delivers groceries, has partnered with Delta and Starbucks (SBUX.O) among other companies.

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As well as being highly profitable, loyalty programs offered by airlines are also very popular.

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There is a study by Frankie O'Connell, a professor of air transportation management at the University of Surrey in England, that shows American, United, and Delta have been able to realize more than 60% return on their investment from these programs, which is far greater than the 5% return they receive from their overall business.

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"This is a goldmine of reoccurring revenue that can be generated with little or no effort on your part," O'Connell said.