Maui - here's a lengthy explanation:
The airline frequent flyer programme: for love and money
From the linked article
The more successful programmes have progressed far beyond awarding points for miles flown, as airlines add new partners to their lists. Now the FFPs are typically integrated with large external companies, including banks, credit cards, retailers (especially food sellers, sales outlets that no consumer can avoid), as well as car rentals, petrol companies, hotels and other travel- related operators. In all of these cases, a cobweb of loyalties develops which entraps the willing consumer; for example using an airline branded credit card to buy groceries. And that’s where the money comes from.
The airline is simply the gleaming light that attracts the moths. Redeeming points on a set of wine glasses or a gift voucher does not generate the same attraction as a flight on the magic carpet – or an upgrade towards the front of the aircraft. Dependent on where those dollars are being spent too, the frequent flyer family can be grown substantially, in a virtuous spiral. Staple product retailers, such as utilities, telcos and retail chains, are sound partners. Major food conglomerates are the most valuable.
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This is all a very nice position for the airline to be in, as a virtual banker, holding points which almost have the status of currency. Hived-off Air Canada FFP, Groupe Aeroplan, reports that the average elapsed time between earning and redeeming (“burning”) frequent flyer points is 30 months; and some 17% of points are never redeemed. This, as Aeroplan explains, ensures that, “a significant portion of our profitability is based on estimates of the number of GA Loyalty Units that will never be redeemed by the member base.”
It turns the airline into a financial institution.