Frequent-Flyer Miles as Shadow Currency: How Inflation Is Built-In

JetBack

25 Jun 2025 — 27 min read

Frequent-flyer miles have evolved from simple loyalty rewards into a de facto "shadow currency" in the travel economy. Airlines issue billions of miles that function much like fiat money - created out of thin air, traded for goods (flights and upgrades), and subject to inflationary devaluation. In fact, points and miles now form a massive parallel economy: by one estimate, they are the third-largest currency in the world (behind the U.S. dollar and euro) with about $300 billion worth of points issued each year. Major U.S. carriers like Delta, United, and American each have tens of millions of loyalty members and carry loyalty program liabilities in the billions on their balance sheets. This report examines how frequent-flyer programs create and redeem miles, documents historical devaluations (the "inflation" of this currency), and analyzes the economic forces that virtually guarantee a mile earned today will be worth less tomorrow. Industry commentary and financial filings reveal that airlines intentionally manage - and benefit from - mile devaluation much like a central bank controlling a money supply. The result is a system where loyalty points mimic fiat currency, complete with seigniorage (profit from issuing currency) and an inflation rate that far outpaces that of official currencies.

(In the sections below, we break down the mechanics of mileage accrual and redemption, highlight major devaluation events and their frequency, quantify how mile values have declined, and explore how and why "built-in inflation" is an intentional feature of frequent-flyer currencies.)

How Airlines Issue Miles: Accrual Mechanisms and "Printing" Currency

Frequent-flyer programs such as American AAdvantage (launched 1981), United MileagePlus (1981), and Delta SkyMiles (1981) were originally conceived as simple loyalty schemes - fly a certain number of miles, get a free trip. In the early years, these programs resembled a punch-card: for example, American Airlines initially fixed the reward at 20,000 miles for a round-trip coach ticket anywhere in the U.S.. Over time, however, airlines discovered that their loyalty programs could be monetized by "printing" miles as a currency and selling them to partners. Today, miles are earned not only by flying but through a myriad of activities - especially credit card spending - turning frequent-flyer programs into profit centers.

Accrual via Flying: All major U.S. programs have shifted to revenue-based earning. Rather than earning one mile per mile flown, members earn miles per dollar spent on tickets (often 5 miles per $1 for base-level members, with higher multiples for elite status). For example, Delta SkyMiles awards 5-11 miles per dollar of airfare depending on status. This change, implemented by Delta and United in 2015 and American in 2016, ties mileage issuance directly to spending and airline revenue rather than distance traveled. It reflects a broader strategy: loyalty programs now emphasize high spenders over frequent flyers, as seen in Delta's 2023 move to require status purely via dollars spent.
Accrual via Credit Cards and Partners: A much larger share of miles come from "partner miles" sold to third parties. Banks purchase miles in bulk to award as credit card bonuses or for each dollar spent on co-branded airline credit cards. This began in the late 1980s (American's first Citibank AAdvantage card debuted 1987) and exploded in scope. Today, banks and credit card issuers are the #1 purchasers of airline miles. For instance, Delta's American Express co-branded cards are so popular that in 2022 consumers put nearly 1% of U.S. GDP in charge volume on Delta Amex cards alone. Airlines also sell miles to hotel chains, car rental companies, online shopping portals, dining reward networks, and others who use miles as customer incentives. The scale is enormous: Delta Air Lines sold $6.9 billion worth of SkyMiles to partners in 2023 (largely to Amex) , and American Airlines in 2019 generated $5.9 billion from mileage sales at a 53% profit margin. In effect, airlines mint miles as a private currency and sell them for real cash - much like a central bank issuing money. Airlines even refer to their currency explicitly; Delta's SEC filings describe expanding "the value of our SkyMiles currency beyond flight".
Issuance as Liabilities: Each mile issued is a promise of future travel, so airlines record deferred revenue liabilities for outstanding miles. As of recent reports, Delta's SkyMiles deferred revenue totals $8.4-8.8 billion , American's AAdvantage roughly $9 billion, and United's around $7 billion. These huge balances underscore that miles are a form of debt owed to customers. However, airlines know only a fraction of miles will ever be redeemed (due to breakage - miles expiring or going unused) and that the cost to fulfill a mile is far less than the cash received for issuing it. This gap is where profit lives. In 2019, United and Delta each had mileage sales margins near 40-45%, and selling miles can yield profit margins (40-50%+) far higher than the single-digit margins of the airline seat business. Put simply, printing miles is extremely lucrative for airlines - akin to a government printing money and enjoying seigniorage, the profit from issuing currency at little cost.

Airlines increasingly derive revenue from loyalty "currency" sales. The chart below illustrates how the largest U.S. carriers now earn billions from their frequent-flyer programs each year (through mileage sales and related partnership revenue). In 2022, the top four U.S. airlines collectively earned over $20 billion from loyalty operations - in many cases, more than they earned from passenger ticket sales. This has transformed airlines into quasi-financial institutions, leveraging loyalty programs as high-margin businesses in their own right.

How Miles Are Redeemed: Award Charts, Dynamic Pricing, and Value Extraction

The other side of the coin is redemption - how "shadow currency" miles are spent and what value they deliver. In traditional programs, airlines set award charts that fixed the mileage price of a flight award by region and class of service. For example, for many years a domestic round-trip in economy cost 25,000 miles (or 20,000 in earlier days) across all legacy carriers. Such fixed pricing meant that if cash fares rose with inflation, the relative value of miles increased - making miles akin to an inflation-hedged voucher. Indeed, in the old days, savvy flyers would save miles for expensive fares: "When the award was 'any flight for 20k miles', the best strategy was to wait until a ticket price spiked; your miles had more leverage as fares went up". Miles acted like an option on an inflation-linked bond, as one analyst quipped. There was no "cost of carry" to holding miles then - they did not expire (in some programs) and had fixed redemption costs, so waiting could only increase their buying power.

This has changed dramatically. Over the past decade, airlines have dismantled traditional award charts in favor of dynamic pricing, ensuring that mileage costs rise in tandem with fares (and, by extension, with inflation in airfare prices). Delta pioneered this shift: in 2015 Delta removed its published award charts and moved to dynamic award pricing tied to cash ticket prices. United followed in 2019 by eliminating its fixed award tables for travel after November 15, 2019, and American Airlines has gradually introduced variable "Web Special" awards and removed most fixed charts. Today, Delta SkyMiles awards are fully dynamic, United MileagePlus uses dynamic pricing for most awards (with some partner award minima that can be raised at will), and American's AAdvantage, while still publishing some partner award levels, heavily uses dynamic pricing on AA flights. The result is that the mileage "price" of a ticket now floats based on demand and fare level, just like a currency with a floating exchange rate.

Under dynamic pricing, airlines increase mileage requirements whenever cash fares increase or demand is high. A 25,000-mile round trip might still be available on a low-demand route, but popular flights can cost vastly more miles. Delta SkyMiles famously has no upper limit - examples like 500,000 miles one-way for business class to Asia have been seen during peak demand. In a 2023 analysis, one observer found a near-linear relationship between United's cash fares and mileage prices, with 1 mile ≈ 2.5 cents on average for domestic economy tickets. In other words, United was effectively pricing awards as if miles were a 2.5¢ currency. The red line in the analysis (see chart in source) shows where the old 25k mile award would fall - many cheaper flights would cost less than 25k if paying cash, and many expensive flights far more, but on average the "slope" pegs a mile's value around $0.025. Under this scheme, when airfares rise (as they have post-pandemic), the miles required rise proportionally, keeping the real value of miles roughly constant or lower. Thus, miles have become "indistinguishable from money, in the air travel marketplace" - they buy tickets at roughly market rates, with no guaranteed bargains.
Airlines also impose capacity controls and fees that limit redemption value. In the fixed-chart era, if an award seat was available, the mileage price was fixed - giving outsized value when fares were high. Today, airlines simply don't make "saver" seats available on high-demand flights, or they charge exponentially more miles. E.g. premium cabin awards have skyrocketed in cost. Delta and United have repeatedly raised business and first class award prices "again and again" in recent years. During 2020, United hiked partner business/first award prices twice with no notice , and Delta stealthily raised mileage rates on partner awards as well. Even Southwest, which has a pure points-to-cash formula, has nudged up the points rate per dollar of airfare multiple times in the last few years (points devaluation in another form).
Non-flight redemptions (hotel stays, merchandise, gift cards) are generally priced at poor rates (often 0.5-1.0¢ per mile) and are intentionally unattractive compared to flight awards. The optimal value is usually found in redeeming for flights, where one can sometimes still exceed the average value per mile if finding underpriced awards or last-seat availability. However, airlines carefully calibrate these options to ensure they're not losing money; if too many points chase too few award seats, they either raise prices or restrict inventory.

Through dynamic pricing and program tweaks, airlines maintain full control over the value of their proprietary currency. As one industry expert put it, airlines act like a central bank with no external constraints: "Miles and points are like dollars, printed by airlines instead of by a government... with no independent central bank to avoid inflation". They can devalue at will, and they frequently do.

Historical Devaluations: "Inflation" in Award Charts

Frequent-flyer miles exhibit persistent inflation: over time, the cost in miles for a given flight or upgrade relentlessly increases. Airlines have a long history of devaluing their award charts, often in sneaky ways that frustrate loyal customers. Below we highlight notable devaluations and how frequently they occur:

Early Devaluations: In the 1980s and 1990s, the mileage price for a standard U.S. domestic award rose from 20,000 to 25,000 miles (25k became the norm by the 1990s). Airlines also introduced expiration policies in 1989 (United was first to make miles expire if inactive) to prod members to redeem before miles "went stale". Expiration (use-it-or-lose-it) is itself a form of controlled inflation, creating urgency. Delta is a notable exception, having eliminated mileage expiration in 2011 to boast "miles never expire" - but Delta instead devalues via dynamic pricing and no fixed gauge of value.
2000s - Multi-tier Awards and Fees: Airlines added tiers (e.g. "saver" vs "standard" awards costing double miles) and new fees (booking fees, award change fees, fuel surcharges on awards). These effectively raised the cost or reduced the value of miles. For example, by the 2000s if you couldn't find a saver seat for 25k, you might pay 50k miles at the higher tier - a stealth devaluation.
2010s - Major Chart Overhauls: The early-to-mid 2010s saw massive award chart increases at U.S. airlines: United's infamous 2014 devaluation (effective Feb 2014) hugely raised mileage prices, especially for first and business class on partner airlines. United introduced a separate, higher-priced award chart for partner redemptions, with increases up to 60-87% for premium cabins. For example, a first-class round trip from the U.S. to Japan on a partner (e.g. ANA) jumped from 135,000 miles to 220,000 miles (+63%) , and first-class to Europe went from 135k to 220k (63% increase). American Airlines followed with its own "March 2016 AAdvantage devaluation", raising many awards by double-digit percentages. Notably, American's one-way first class award from the U.S. to "Asia Region 2" (e.g. Hong Kong on Cathay Pacific) leapt from 67,500 to 110,000 miles (+63%) , and business class to that region from 55k to 70k. In economy, changes were smaller, but premium cabins were hit hard.
Delta's Stealth Devaluations: Delta Air Lines has taken a different approach - incremental and unannounced devaluations. After axing its award charts in 2015, Delta began adjusting SkyMiles prices upward regularly, without fixed reference points for members to protest. For instance, Delta quietly increased the miles for partner business-class awards in late 2020 , and has repeatedly made "no-notice" tweaks that make awards cost more miles. Delta also severely devalued its upgrade certificates and other elite benefits in mileage terms (outside scope here). The net effect is an ongoing slow inflation rather than periodic big jumps, but over a few years the increases are significant. Delta flyers often wake up to find that their trip to Europe that was 70k miles yesterday is 85k today, with no announcement.
Pandemic Era (2020-2022): Despite (or because of) the travel downturn, airlines accelerated devaluations. United raised partner award rates twice in 2020. Many foreign carriers devalued as well (e.g. Singapore KrisFlyer, Air Canada Aeroplan revamped with new charts). Southwest raised the points per dollar rate. On the flip side, some fees were rolled back (United, Delta dropped change fees on awards during COVID). But as travel demand returned in 2021-2022, airlines faced huge volumes of accumulated miles (from customers not traveling during lockdowns) - a liability that threatened future capacity. Unsurprisingly, by late 2022 and 2023 we saw moves like American Airlines effectively eliminating its award charts in favor of fully dynamic pricing (announced 2023), and Delta implementing drastic changes to elite qualification (indirectly pushing miles usage). Experts widely predicted further devaluation as a wave of points from pandemic stockpiles hit the market. The President of Air Canada's Aeroplan even ran ads urging members to burn their points now because holding them is "not in your interest" - a candid acknowledgment of expected inflation.

To illustrate the trend of devaluation, the table below lists a few historical award price increases in major programs:

Table 1 - Examples of Frequent-Flyer Mile Devaluations (Award Price Inflation)

Program & Year	Award Example (one-way, unless noted)	Old Price → New Price	Increase (% more miles)
United MileagePlus (2014)	First Class, USA to Japan (round trip, partner airline)	135,000 → 220,000 miles	+63% (chart devaluation)
United MileagePlus (2014)	First Class, USA to Australia (round trip, partner via Asia)	160,000 → 260,000 miles	+62% (chart devaluation)
American AAdvantage (2016)	First Class, USA to Asia Region 2 (e.g. Cathay Pacific)	67,500 → 110,000 miles	+63% (chart devaluation)
British Airways Avios (2015)	Business Class, Boston-Dublin (one-way)	25,000 → 50,000-60,000 Avios	+100%+ (chart devaluation)
Delta SkyMiles (ongoing 2015-2023)	Example: Delta One Business Class USA-Europe (dynamic pricing)	~62,500 miles in 2014 → 120,000+ miles in 2023 (typical)	~+90% (no fixed chart; gradual hikes)

Sources: Airline announcements and program documents from TravelSort, One Mile at a Time, and The Points Guy. More detail under Sources at the bottom.

As seen above, large devaluations of 20-50% (or more) in mileage price happen every few years for each program, especially for premium cabin awards. Even when not announced, stealthy increases of ~5-15% per year are common in the new dynamic pricing regime. Mileage experts often warn that miles lose value if not used. The industry adage is "earn and burn" - don't stockpile miles for the long term because their buying power will decline. Indeed, one mileage brokerage analysis found that airline miles have been devaluing at around 15% annually, far outpacing general consumer inflation of ~2-3%. While the exact figure may vary by program and year, the direction is one-way. If a bank told you your cash savings would lose 15% of value each year, you'd be alarmed ; yet millions of travelers unknowingly face this with mileage balances.

Notable patterns in devaluations:

Frequency: Major "reset" devaluations (publishing a new, higher award chart) used to occur every 3-5 years per airline. Now, with dynamic pricing, devaluation is continuous - prices can creep up monthly. Still, we see punctuated jumps: e.g. Delta increasing partner awards overnight, United raising a whole class of awards by X% in one go. Programs also often devalue after mergers or industry shocks (United's 2014 post-merger deval; American's 2016 post-USAir merger deval; numerous airline devals after COVID recovery).
No Notice: Airlines often implement devaluations without warning, or with minimal notice, to prevent a run on redemptions. United's 2014 chart increase was announced just 3 months in advance; American gave about 4 months notice in late 2015 for the March 2016 changes. However, Delta and others have done no-notice changes (Delta's 2020 partner award hike hit overnight ). Lack of transparency is a sore point - it prompted the U.S. Department of Transportation in 2024 to investigate whether frequent flyer program changes are unfair or deceptive to consumers.
Scope: Devaluations disproportionately hit premium cabins and long-haul awards, where the gap between paid ticket price and old mileage price was largest. Economy awards have seen slower erosion (some domestic awards are still 25k round-trip after decades, at least on lightly traveled routes), but even those effectively cost more now due to added fees or scarcity at "saver" level. Upgrades and non-flight awards have also been adjusted (e.g. more miles needed to upgrade, or poorer point-to-hotel exchange rates over time).
Positive changes: It's not all negative - occasionally airlines reduce mileage prices on certain routes or offer "sweet spot" bargains. Dynamic pricing can drop miles needed for off-peak flights. But these are usually outweighed by broader inflation. For instance, Delta touted that with dynamic pricing some cheap flights cost fewer miles than the old 25k award , which is true, but simultaneously their business class awards "shot up in price again and again... and again". Overall, the real value of miles has trended downward.

The Real Value of Miles Over Time: A Quantitative Perspective

How much is a mile worth, and how has that changed? One way to gauge real value is to look at cents per mile - the monetary equivalent a mile fetches when redeemed. This varies by program and how miles are used, but we can compare expert valuations over time. The Points Guy (TPG), a travel site, publishes monthly valuations for points and miles. As of mid-2025, TPG's data-driven valuations were approximately :

Delta SkyMiles: ~$0.0125 (1.25¢) per mile (up slightly from 1.2¢ previously).
United MileagePlus: ~$0.0135 (1.35¢) per mile.
American AAdvantage: ~$0.015 (1.5¢) per mile (recently downgraded from 1.65¢ in prior valuations).
Most other airline currencies (Alaska, Air Canada, British Airways Avios, etc.) fall in the ~1.3-1.5¢ range per mile/point.

These valuations already build in the many devaluations up to 2025. Historically, if we go back a decade or more, miles were often valued more highly. For example, in the early 2010s, AAdvantage miles were commonly pegged ~1.8¢ or more (because AA had many lucrative partner awards and a generous chart), and Delta miles were around 1.1-1.2¢ (Delta was notorious for weak value even then, hence the nickname "SkyPesos"). The precise figures vary, but the trend is that each mile buys fewer cents of ticket value as time goes on. The "exchange rate" of miles to dollars slips lower, which is the very definition of inflation in a currency.

Another way to see this: Award flight costs versus cash prices. In 1995, a domestic US ticket might be $250 or 25,000 miles - roughly a penny per mile. By 2023, that $250 ticket might be 25,000 miles if you're lucky, but many flights priced $250 in cash require far more than 25k miles. If a $250 ticket costs 40,000 miles, the mile is worth 0.625¢. Meanwhile, high-demand flights that cost $1000 cash might be 100,000 miles (still ~1¢ per mile). The dynamic model tends to peg mile value to ~1-1.5¢ generally. But airlines also devalue by making fewer low-mile seats available, forcing members into higher-cost options or last-minute redemptions at poor value. Furthermore, miles often expire or go unused. When miles expire worthless, their realized value is $0 - akin to 100% inflation loss for those points. (Many programs have removed expiration or make it avoidable, but breakage still occurs when members can't redeem in time.)

It's insightful to look at the total supply of miles and outstanding liability in the system over time. A 2005 estimate by The Economist found 14 trillion frequent-flyer miles outstanding worldwide, worth about $700 billion. By implication, the average value was about 5¢ per mile then (likely overestimated; if using typical 1-2¢ values, 14 trillion miles would be $140-280B, but perhaps many were credit card points or retail points counted differently). Regardless, the total "money supply" of miles has only grown. Airlines issue billions more points each year than are redeemed - a gap which increases liability unless accounted for by devaluation (similar to printing money faster than economic output, causing inflation). Airlines are mindful of this: if too many miles accumulate, they risk a flood of redemptions that swamp seat inventory (like a bank run). In fact, Pan Am in 1984 suffered a run of mileage redemptions that contributed to a major quarterly loss , an oft-cited example of the danger of over-generous miles. To counter this, airlines either spur redemption via promotions or devalue the currency to discourage hoarding. Indeed, Aeroplan (Air Canada) recently ran ads telling members to burn points now rather than later - effectively, use them or lose value. This is much like a central bank urging people to spend money if deflation (or in this case, internal inflation) threatens the economy.

In summary, by all quantitative measures, the "real" value of miles has declined over time. You need more miles to get the same seat than you did a decade ago, and a mile today buys you less airfare than a mile did in the past. Frequent-flyer miles inherently depreciate - which is why sophisticated travelers treat them as a wasting asset, to be earned and burned quickly rather than saved for the distant future.

Economic Theory: Loyalty Points as Fiat Money and Seigniorage

Frequent-flyer currencies share striking similarities with fiat currencies in macroeconomics:

Unbacked Currency: Like dollars or euros, miles have value by loyalty program decree rather than intrinsic backing. They are a proprietary currency that the issuing airline can create at will. There is no hard peg to any commodity or external standard. An airline declares how many miles a flight is "worth," analogous to a government declaring an arbitrary paper note to be legal tender. The IRS even ruled in 1993 that because of administrative difficulty, frequent-flyer miles would not be taxed as income when earned. This effectively blessed miles as a kind of private scrip outside normal financial regulation - "the Wild West of regulation and oversight". Airlines thus freely print and manage their currency without needing to, say, hold reserves.
Central Bank with No Oversight: In a sovereign fiat system, a central bank (ideally independent) controls money supply, and there are often political or market checks on hyperinflation. In contrast, for airline miles "there's no independent central bank or constitutional constraint to avoid inflation". The airline is both issuer and regulator. As Gary Leff quipped, airlines run one of the few private industries that prints its own currency and the government doesn't object. The airline's incentive, unlike a government's, is profit maximization and liability management, not public interest. This tends to result in deliberate over-issuance (to sell more miles) followed by devaluation - a cycle any student of monetary policy would recognize.
Seigniorage (Profit from Issuance): Airlines earn enormous profits from creating and selling miles, much like governments earn seigniorage (the difference between the value of money and the cost to produce it). When an airline sells 10,000 miles to a bank for, say, $150 (1.5¢ each), the cost to the airline to eventually honor those miles might be far less - perhaps a seat that would have flown empty or a wholesale reimbursement to a partner. One analysis found that for American Airlines in 2015, the incremental cost of fulfilling a 25,000-mile economy award was only about $35 (just 0.14¢ per mile). Meanwhile the airline was selling miles for around 1.2¢ apiece to banks. This gap is pure margin. The point.me report notes American's mileage sales in 2019 were at a 53% operating margin ; Delta's at 39%, United's 44%. These margins dwarf the single-digit margins of core airline operations. Effectively, airlines sell a promise for much more than it costs to keep that promise, and accounting rules even allow them to book a portion of mileage sales as immediate revenue/profit (the "marketing component") while deferring the rest as a liability. This is analogous to a central bank printing money: the central bank swaps paper (or digital entries) for real assets and can profit from the difference. An oft-cited anecdote is that in the 2000s, people could buy U.S. Mint $1 coins on a credit card (earning miles), then deposit the coins at the bank - essentially buying miles with U.S. dollars at face value and the Mint picked up the credit card fees (this loophole was closed). In that case, the U.S. government was providing seigniorage to mileage-earners. Normally, however, it's the airline enjoying seigniorage: they trade miles (created at near-zero cost) for revenue and loyalty.
Inflation and Devaluation as Policy Tools: Just as a central bank might use inflation to erode the real value of its debts, airlines use devaluation to erode the real value of their mileage liabilities. If an airline faces too large a liability (too many miles outstanding), it can effectively "default" partially by raising award prices - akin to paying back a debt in debased currency. A vivid example came from Alaska Airlines: in 2008 Alaska tightened its mileage expiration policy (miles expire after 2 years instead of 3). This caused a chunk of miles to expire sooner (an implicit devaluation). In doing so, Alaska reduced its total outstanding miles liability and was able to recognize $42.3 million of additional revenue, slashing its net loss by 24% that year. Accounting-wise, when the estimated value of each mile is lowered or the breakage (never-used portion) is raised, the airline can move some deferred liability into the "profit" column. In essence, devaluation can directly pad profits. Airlines know this and can time such changes for when they could use the earnings boost (so-called "earnings smoothing" incentives). This is analogous to a government printing money in hard times to inflate away debt - a form of hidden taxation on holders of the currency.
Money Supply and Velocity: In economic terms, one can even apply the equation MV = PQ to miles. M = total miles in circulation; V = velocity (how quickly miles are earned and redeemed); P = "price" of awards in miles; Q = quantity of award seats. If members hoard miles (low velocity) and M grows, either Q (award seats) must grow or P (price in miles) must rise to avoid shortages. In a growing airline network, capacity (Q) could grow. But in recent years, airline seat capacity hasn't kept pace with miles issued (planes fly full). The outcome is exactly what we see: either it's hard to redeem miles (capacity controls) or the "price" in miles goes up. Airlines, acting as the central bankers, generally choose to raise prices (devalue) rather than let too many seats go out virtually free. This is a classic inflationary response to an oversupply of currency relative to goods.
No Alternative Currencies / Oligopoly: One reason airlines get away with aggressive devaluation is that travelers have limited alternatives. The U.S. carriers form an oligopoly (four mega-airlines control ~80% of the market). If all airlines inflate their currencies in lockstep, consumers cannot easily "switch currencies" for a better deal. It's as if all central banks agreed to debase in unison - currency holders (frequent flyers) have no refuge, especially since transferring miles between programs is generally impossible or lossy. This lack of competition in many hubs means airlines don't fear devaluation undermining loyalty: where else will the customer go?. In economic terms, the lack of convertibility (you can't freely exchange SkyMiles for Avios at par, for example) and market power of airlines give them immense pricing power over their currency.

In short, frequent-flyer programs operate as private currencies with deliberately managed inflation. Airlines enjoy seigniorage-like profits from miles, and they exercise monopoly-like control over their value. Ganesh Sitaraman, a law professor, aptly summarized: "Like the Federal Reserve, airlines issue currency-points-out of thin air. They also get to decide how much that currency is worth and what it can be spent on.". He notes this explains why the system feels opaque and unfair to consumers: airlines can reduce the value of points after the fact, essentially devaluing members' savings unilaterally. Indeed, airlines even sell miles directly to consumers at rates above their average value (e.g. 3¢ per mile in some promotions) - relying on the opacity, or the emotional appeal of "getting a trip," to find buyers even when financially it's often a bad deal.

Why Is Inflation Built Into Mileage Programs? Intentional Devaluation and Its Rationale

Given the above, it's clear that mileage inflation is not accidental - it's baked into the business model. Airlines intentionally engineer the gradual (and sometimes sudden) devaluation of miles for several interlocking reasons:

Managing Financial Liabilities: Every mile in a customer's account is a potential future free flight - a liability for the airline. If too many miles accumulate relative to the airline's ability to seat passengers "for free," the balance sheet liability grows and can scare investors or creditors. Devaluation is a tool to shrink the liability in real terms. By increasing award prices or expiring miles, airlines reduce the outstanding "debt" they owe in flights. For instance, when American Airlines revalued its program under new accounting rules, its deferred revenue liability jumped to $3.8B (from $2.45B under old rules) - and you can imagine that gave a strong incentive to find ways to trim that number. Alaska's 2008 expiry change, freeing $42 million as noted, is a concrete example of liability management via policy change. In investor terms, airlines sometimes speak of the "breakage" and "yield" of miles; small tweaks there can turn into big bottom-line impacts. Inflation of the currency effectively cancels a portion of the airline's debt to members.
Encouraging Redemption (Controlled Burn): Paradoxically, airlines want customers to redeem miles - but in a "controlled and steady way". Redemption increases engagement and makes customers feel rewarded (which builds loyalty). It also removes liability from the books as miles are used up. The ideal scenario for an airline is that members earn and burn in a predictable cadence, without hoarding. If members hoard miles for too long, it creates the overhang of future demand that could hit at once (the "run on the bank" scenario). By signaling that miles will lose value (through repeated devaluations), airlines nudge customers to redeem sooner rather than later. This both limits the liability build-up and drives active use of the airline's services (since redemption often involves booking flights, paying fees, etc.). For example, United's CEO has explicitly said they want members to use miles and not sit on them indefinitely. Aeroplan's campaign telling people to use points now is an open acknowledgement that inflation is planned - better for the airline if you spend today's miles now than if you wait and they have to deliver more value later. So, built-in inflation creates a "use it or lose it" pressure that benefits the airline by managing the flow of redemptions.
Increasing Cash Flow via Sales and Engagement: Rapid devaluation cycles can actually spur more sales of miles in the short term. Customers, fearing future inflation, might be tempted by credit card sign-up bonuses or mileage sales now, thinking "earn while you can, then burn quickly." This keeps the churn of miles high. Airlines and banks also capitalize on big announced devaluations by marketing cards heavily before the change (e.g. "Last chance to lock in current award prices - get our card now for 60k miles!"). In a way, each devaluation is followed by a period of customers adjusting to a "new normal," and then the cycle repeats, often accompanied by even bigger bonus offers (since the cost of awarding 100k miles to a customer has effectively gone down after a devaluation). In 2020, many airlines pre-sold miles to banks to raise liquidity (Delta, United each mortgaged their programs for ~$6 billion in financing). Those moves flooded more miles into circulation, virtually guaranteeing future devaluation to balance the books. The airlines, of course, knew this - but raising cash in the short term was deemed worth the trade-off.
Customer Behavior and Tier Status Engineering: Sometimes devaluation is used to shape customer behavior beyond just spending miles. For example, Delta's recent overhaul of SkyMiles (2023) drastically raised the spending required for elite status and curtailed lounge access via cards. While not a straight devaluation of miles, it devalued the side benefits of the program to refocus on high-revenue customers. This caused outrage among frequent flyers, yet Delta calculated that the most profitable customers would adapt while lower-margin customers' complaints were an acceptable cost. In a broader sense, airlines devalue to ensure their rewards target the behavior they currently most want - e.g., encouraging credit card spend rather than mileage running on flights, or steering redemptions to routes where they have excess capacity. By adjusting pricing (in miles) constantly, they can manipulate demand: make some awards "cheap" in miles to burn off points in off-peak periods, and make popular awards exorbitantly priced to discourage too many from being taken. It's a yield management tool, not unlike how airlines price fares to manage demand.
Financial Reporting and Stock Performance: Publicly traded airlines know that large loyalty program liabilities and generous customer promises can be viewed negatively by investors (seen as potential future cost). They have every incentive to periodically trim those liabilities through program changes. Wall Street is well aware of the value of these programs - in fact, in 2020 analysts valued United's MileagePlus program at $22 billion, *higher than United's entire market cap at the time ($10.6B)*. This disparity implies that if an airline didn't manage its program optimally, the tail (loyalty program) could wag the dog (airline business). Airlines therefore balance on a knife's edge: keep the program profitable and attractive enough to keep customers flying and spending, but not so rich that liabilities balloon uncontrollably or that the cost of award travel undermines revenue travel. Inflation is the release valve that allows them to keep selling miles (bringing in cash) without "printing" an unbounded liability. By devaluing, they reset the clock. As an analogy, think of a company that continually issues gift cards but quietly reduces what each gift card can buy over time - it can keep selling more without ever truly owing full value on all of them.
Competitive Lockstep: Airlines also devalue because their competitors do. When one airline increases award prices or removes an attractive redemption option, others often follow (or had already converged). Consumers might punish one airline for a singular devaluation by shifting loyalty, but when all programs are steadily devaluing, the competitive risk is mitigated. This tacit coordination (not necessarily explicit collusion, but an understanding of matching moves) ensures that a customer who is angry that Delta now requires 150k miles for a Europe ticket won't find a haven in United or American, because those programs will also price similarly high. Thus, from a game theory perspective, inflation is built-in across the industry. (This is something regulators are looking at - the DOT's 2024 inquiry is asking if programs "reduce competition or consumer choice", given the oligopoly conditions.)
Psychological Factors: Airlines know that many customers do not perform a rigorous currency value analysis on their miles. The perception of getting a "free flight" often outweighs the devaluation in the minds of the casual traveler. Thus airlines can devalue, face some outcry from points enthusiasts, but the broader customer base carries on, swiping their credit card for miles and feeling rewarded. It's analogous to how moderate inflation in an economy, if gradual, often goes unnoticed by the general public in daily life. Only the sharp devaluations risk backlash. Even then, airlines carefully manage PR: they often couch devaluations as "program enhancements" or accompany them with minor positive tweaks (e.g. "we've removed blackout dates" or "we now offer more award seat availability - but at higher prices"). Because points are complex and "monopoly money" to many, airlines exploit that opacity. A Cornell study once found many loyalty members undervalue their miles or let them expire unused - essentially donating value back to the airline. This breakage is revenue for the airline and reduces inflation pressure (less currency chasing goods).

Given these factors, it's unsurprising that industry commentators liken loyalty point inflation to an engineered outcome. "Airlines make more money from mileage programs than from flying planes," and it shows in how they manage those programs. Airlines have even been referred to as "essentially hedge funds or banks that fly airplanes on the side." The Atlantic piece by Sitaraman notes the financialization of airlines: they've become "quasi-banks" taking in what are effectively deposits (mileage sales, credit card spend) and paying out rewards at their discretion. And like banks, if too many people try to cash in at once, there's a crisis - so they forestall it by devaluing gradually.

Expert and Industry Commentary

The practices above have attracted the attention of government and consumer advocates. In September 2024, the U.S. DOT (under Sec. Pete Buttigieg) announced an investigation into frequent-flyer programs of the major airlines, focusing on whether mileage devaluations and opaque rules constitute unfair or anticompetitive practices. Buttigieg noted "these rewards are controlled by a company that can unilaterally change their value", and the agency is probing if consumers are truly getting the value promised. Senators and state attorneys general have also raised questions, especially after pandemic loyalty program bailouts and changes. While no regulations exist yet, one could envision requirements for transparency (e.g. advance notice of devaluation, clearer disclosures of point value) emerging if authorities deem the current "Wild West" harmful.

Industry experts often counsel consumers to view miles as an asset that depreciates. The founder of The Points Guy bluntly advises that given constant devaluations, "earn 'em and burn 'em" is the best strategy - use your points for that vacation sooner rather than later. Michael Ashton (the "Inflation Guy" economist) wrote that "loyalty miles are now money... a wasting asset in real terms. They don't earn interest, so your best strategy is to spend them as quickly as you can". Gary Leff, a prominent frequent-flyer analyst, uses a monetarist lens: if the supply of miles grows faster than the supply of award seats, inflation (devaluation) is inevitable. He notes almost no cases where miles have gained value; the trajectory is nearly always downward. Nonetheless, he also points out that for those who earn and burn adeptly, mileage programs can still deliver outsized value and amazing experiences - essentially one can stay ahead of inflation by exploiting sweet spots or promotions. This is much like an investor saying "inflation is high, but you can invest in ways to beat it if you're smart." The average consumer, however, will simply suffer the inflation quietly.

Airline executives speak in careful terms about this. They frame changes as making programs "sustainable" or "aligned with profitability." In earnings calls, they highlight the revenue from selling miles and the need to manage redemption costs. For example, Delta's CEO in 2023 defended SkyMiles changes by saying they have to ensure the perks given don't exceed the value brought in by customers, implicitly acknowledging they had too many miles chasing limited seats (hence higher requirements). America's leadership similarly has shifted to promoting their program as a "spend-based ecosystem" - telling of the philosophy that it's become a currency system in itself.

Conclusion

Frequent-flyer miles function as a shadow currency with built-in inflation. Airlines create miles to drive loyalty and revenue, but by doing so they constantly increase the currency supply and must devalue it over time to maintain balance (and profit). The result is an economically fascinating system: one in which private companies act as central banks, their customers unknowingly play the role of currency holders facing devaluation, and loyalty is the commodity being transacted. The analogy to fiat money is more than glib - it's real in terms of scale (hundreds of billions in value), dynamics (issuance, inflation, seigniorage), and even user experience (if you don't keep an eye on your "points inflation," you lose value). For scientifically minded travelers, the implication is to treat miles and points as you would an emerging-market currency: diversify your holdings, monitor policy changes, and deploy your assets before they lose value.

Looking forward, unless regulation intervenes, we can expect this built-in inflation to continue. Airlines will keep walking the tightrope of making loyalty programs sufficiently enticing (so people engage and keep this shadow economy thriving ) while steadily devaluing the currencies to protect their financial interests. In the words of one LinkedIn commentary: "The miles game isn't just about free travel - it's about understanding a $300 billion shadow economy most people don't even know they're part of." As this shadow economy grows, the invisible inflation tax on frequent flyers will keep rising - making it ever more important for consumers to spend their miles wisely, swiftly, and with full awareness that today's windfall of points may be tomorrow's penny stock.

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