Originally Posted by
milypan
I think it's pretty clear that a lot of the miles programs cost them more than 1 cent per mile. Most telling is the fact that mileage transfers are typically only available on "premium" cards with AFs. If miles cost them less than 1 cent, they'd encourage as many cardholders as possible to redeem for miles instead of cash. Also consider that Chase Freedom Unlimited only earns 1.5 pts/dollar, while Citi Double Cash earns 2 cents/dollar. I don't think that's because Citi cards are more generous than Chase cards -- if anything the opposite is true. Rather it's because UR points can be redeemed for miles or travel (in conjunction with a premium card), while Double Cash literally just earns cash.
I don't think that is necessarily the case. The AF on the premium cards is meant to cover the extra benefits such as lounge access and whatnot, not the rewards for spending. People are willing to get premium cards because they find the miles/points more valuable, which has nothing to do with how much the bank paid for them.
Also remember that there is more competition among cash back cards. Anyone can "buy" cash and give it out to customers, but only a few selected companies can obtain miles from a given airline. Therefore, those companies can charge an annual fee without losing business.