IAG's €1 Billion Loyalty Ambition Depends More on Banks Than Airlines

Most frequent flyers think of Avios as a British Airways reward currency. IAG Loyalty’s growth strategy is built on the opposite framing: Avios is a financial product that airlines happen to benefit from.

What Happened

IAG Loyalty — the entity behind Avios, British Airways Holidays, and the loyalty programs of British Airways, Iberia, Vueling, and Aer Lingus — has set a medium-term target of more than €1 billion in operating profit, up from €593 million in FY2025. Q1 2026 showed the trajectory: loyalty business revenue grew 10%, with profit up 32.6% at a 20.1% margin.

The path to €1 billion doesn’t run primarily through flying customers. Over 80% of loyalty revenue comes from external partners purchasing Avios — and two-thirds of that external revenue comes from financial services: 17 co-brand card partners and 23 points-to-Avios bank relationships. IAG renewed its two largest non-airline partnerships in 2025, with both American Express and JPMorgan Chase extending their agreements.

The margin structure explains the focus. IAG earns roughly twice as much when a bank buys an Avios point — at 40–50% margins — compared to selling the same point to one of its own airlines. For the IAG airlines, Avios is a revenue and engagement tool; for the banks, it’s a customer acquisition and retention product, and they pay for that value accordingly.

Why It Matters

The framing shift from airline loyalty program to financial currency infrastructure has direct implications for Avios collectors. When banks, not airlines, drive the economics, the program’s incentive structure is increasingly optimized around what banks need — card acquisition, spend activation, premium segment retention — rather than around what frequent flyers value.

That’s not inherently bad for points collectors. Strong bank partnerships mean Avios points are easier to earn across non-travel spending categories, and co-brand bonuses have been competitive. But program economics that depend on bank margins are also more vulnerable to the credit card regulatory environment than to airline capacity decisions. A regulatory cap on interchange fees in the UK or EU — the funding mechanism for bank Avios purchases — would hit IAG Loyalty harder than a route reduction at Heathrow.

For Oneworld travelers specifically, IAG Loyalty’s health matters beyond Avios directly. The Oneworld alliance’s redemption ecosystem — accessible to carriers like Alaska, American, Qatar, and others — depends on the individual airline programs that anchor it. The Oneworld expansion and Taj NeuPass partnership coverage from earlier this year shows the alliance extending into hotel loyalty; IAG’s financial stability is what funds continued investment in cross-carrier redemption quality.

Source: Skift

Content created with AI assistance and reviewed for accuracy.