Your Miles Could Disappear: Airlines Warn of Credit Card Bill Fallout

Some of the industry’s largest airlines have joined forces to oppose legislation that aims to reduce fees charged by Visa and Mastercard on credit card transactions.

Put forth by Senators Dick Durbin (D-Il) and Roger Marshall (R-KS), the measure seeks to increase credit card network competition. To achieve that goal, the bill would require that merchants have options beyond Visa and Mastercard for processing transactions when consumers swipe credit cards for purchases.

The bill’s political sponsors say Visa and Mastercard have a stranglehold on the credit card network industry, which has driven up card processing fees for merchants. That in turn, is triggering higher costs for consumers.

In a letter sent to Congress Monday, airlines said the bill, known as the Credit Card Competition Act, would almost certainly bring an end to rewards credit cards used by consumers to accumulate frequent flier miles.

“Americans value and enjoy credit card rewards programs because they reward consumers for dollars that they would be spending no matter what. Many may be unpleasantly surprised if Congress disrupts those programs," states the letter from a coalition of airline industry heavyweights, including United Airlines, Southwest Airlines and American Airlines. Letter signatories also included plane makers like Boeing and Airbus, and industry labor unions.

Opponents of the measure say it would impose “onerous, unnecessary regulations on business-to-business credit card transactions.”

New regulations, however, are merely one of the concerns raised in the letter, which indicates that the fallout could be far more widespread.

Passage of the bill could also impact consumers who carry airlines rewards cards, as well as on the country’s travel and tourism industry as a whole. Ultimately, opponents argue, “the legislation could “lead to significantly fewer passengers and flights."

More than 31 million Americans hold airline travel reward cards and 57 percent of all frequent flier miles and points issued in 2023 were generated by airline credit card use, according to the letter. In addition, some 16 million domestic air visitor trips were the result of points earned through use of an airline-branded credit card.

But why would the bill's impacts be so far reaching, exactly? Here's a closer look.

How credit card fees support rewards programs

Though it may not be immediately obvious, there is a direct connection between the fees charged by Visa and Mastercard on transactions and the existence of frequent flyer cards offered by airlines.

Julian Kheel, CEO of Points Path, a platform that helps travelers book tickets using points, offers some perspective on the connection between credit card fees and airline rewards programs.

To begin with, every time a consumer, taps or swipes their credit card, the merchant that accepts the card pays a small fee to networks like Visa and Mastercard, as well as to the bank that issued the card, explains Kheel.

“Part of this fee helps cover the costs of maintaining the international credit card system. It’s how your card works just as smoothly in Tokyo as it does at your local coffee shop,” says Kheel.

Another slice of that fee, meanwhile, funds the rewards consumers earn, like cash back, points, and airline miles.

“But if the Durbin-Marshall plan becomes law and results in a reduction of those fees, airlines and banks won’t have the money to keep those rewards going, which would mean a significant cutback to credit card perks,” explains Kheel.

Phillip Parker, whose been covering the payments industry since 2009 for the financial education website CardPaymentOptions.com, offers a similar take regarding what's at stake should the proposed measure pass.

“When you use a rewards credit card, the bank that issued your card earns a small fee from Visa or Mastercard for handling that transaction,” explains Parker. "A significant portion of that fee is used by the bank to fund rewards programs, such as frequent flyer miles.”

"This system essentially pays for the miles programs that so many travelers use and appreciate,” Parker adds.

In other words, without the fees charged by Visa and Mastercard, the system would not be able to pay for itself. “If those transaction fees charged by Visa and Mastercard were to be eliminated or drastically cut, the primary source of funding for these rewards would largely disappear,” Parker continues.

That would leave banks with very little money to purchase miles or offer other rich rewards. As a result, airlines would likely find it unsustainable to continue their current frequent flyer programs linked to credit cards, because “the financial model supporting them would be broken,” said Parker.

The bottom line according to Kheel is that “this isn’t just a scare story or airlines crying wolf."

Debit card changes offer historic perspective

It’s worth noting that this is not the first time that politicians have attempted to reduce fees associated with a bank card, thus triggering the elimination of rewards and perks programs.

A previous measure aimed at debit cards passed 15 years ago. As a result, debit cards, which used to offer rich rewards like credit cards currently do, stopped offering such benefits.

“In 2010, an amendment was added to the Dodd-Frank financial act that restricted debit card fees,” Kheel explains. “As a result, banks killed off debit card rewards practically overnight.”

The sponsor of the debit card fee cap was also Durbin.

The Illinois senator has said airlines generate billions of dollars annually in fees from their branded credit cards, adding that airlines are “basically credit card companies that own some planes."

Durbin has also previously stated that the proposed bill could save merchants and consumers $15 billion annually in fees charged for credit card transactions.

It is indeed true that airlines make a great deal of money from their branded credit cards, said Kheel and Parker. But both experts point out that the money generated by credit cards allows airlines to keep airline tickets less expensive for consumers. 

“Many airlines make as much money (or more) from their credit card programs as they do from actually flying passengers on their planes,” concludes Kheel. “However, that extra revenue from credit cards is what allows airlines to keep airfares relatively low. If that revenue disappears, it's guaranteed that ticket prices will rise, and you'll pay more to fly.”

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