Moreover, as many as 60 percent of the miles you earn today don't even come from flying. You earn them from credit-card charges or other purchases. A $500 credit-card charge usually earns you 500 miles of credit. Yet a transcontinental airline ticket, which often costs as little as $500, will usually yield about 5,000 miles of credit. There's no revenue logic to that discrepancy.
(My bolding.)
Sure there is. At redemption time, airlines already value FF miles earned and burned by their top status flyers up to 40x higher than those earned by credit card spend in Brancatelli's scenario.
The math:
$500 credit card spend = 500 miles
$500 airline spend = 5,000 miles
+ 5,000 bonus miles for higher elite status
+ 10,000 higher theoretical value by airlines opening up expanded saver award space for top tier elites
So that $500 spend can be worth in the neighborhood of 40x what a credit card mile is worth towards the same itinerary.
The revenue logic: Because the airline earns 100x the revenue from the same spend. In his scenario: $5.00 of revenue by selling 500 miles at 1¢ each to the credit card company, vs. $500 in the bank by selling an airline ticket.
Correct me if I'm wrong. (Yes, I realize one must count the cost of providing the flights on which to earn miles must be considered, but if the airline didn't operate those flights, there wouldn't be any purpose for the FF plan in the first place.)