Why airline credit cards should ‘zag’ while the market ‘zigs’

September 9th, 2020 | Anuj Shahani

In light of COVID-19, it is no surprise that airlines are still struggling to get demand back. According to Comperemedia’s latest consumer sentiment research, just 10% of U.S. consumers report they are prioritizing vacation planning in some capacity. It is no surprise that as an extension, the airline cards, which in many cases carry hundreds of dollars in annual fees, are also struggling to maintain consumer spend. 

How much revenue comes from airlines’ marketing?

Most people underestimate the amount of revenue airlines generate from marketing operations, which promote the mileage programs and associated credit cards. The top airlines typically earn between 43 – 47% from these marketing operations, meaning nearly half the profit of the airline hinges on the miles consumers have come to use and love. These numbers were pre-COVID, and one can only imagine how critical the credit card spend on these cards is to the airlines right now while air travel is minimal.

Recently, we’ve all seen high-annual fee and lifestyle cards offer enhanced earn on grocery, streaming services and online purchases. While good for them, I’m not a fan of this approach. These are the same benefits that one can get from the no-annual fee cards, and to me it does not justify the $95 to $550 annual fee being charged by these cards to provide almost the same benefits.

Airline cards have a currency that is more valuable than cash 

With unemployment rates at 10%+, I am by no means implying that cash is not what the US consumer wants. My point is, we are simultaneously seeing savings rates rocket to 30%+ for the U.S. consumer. I do strongly believe that folks that pay hundreds of dollars in annual fees tend to be the ones who are also saving 30%+ in this environment.

What we think

Airline cards need to focus on travel-related experiences:

  1. Airbnb has offered month-long rentals, and moved this option to the home screen on their app as this is the fastest growing area for bookings. Why can’t United offer that as a redemption option?
  2. Can my American card offer me a bonus for a bundle of flights to be redeemed by 2021?
  3. Can Delta offer installment loans a la Marcus & Jetblue?
  4. Can Southwest create a city-center lounge experience in their major hubs and invite loyal spenders by appointment (a tongue-in-cheek perk from an airline that never gives lounge access at airports)?
  5. Can Jetblue create a quarantine camping experience for their cardholders?

The list of ideas above can go on and on. I do not believe giving me 2X on grocery purchases is going to make me start using my airline card. I use my airline card as it is associated with happiness (vacations with family and friends), and ordering my next Instacart does not carry the same association. I truly view this as an opportunity for airline cards to win back share from the proprietary high annual fee cards that have been gaining traction over the past few years.

Partnerships with hotel chains and car rental chains have always existed, and offer a great opportunity for airline cards to step up and find new ways to help folks (re)shape fall & holiday travel and become top-of-wallet along the way.

Fortune shall favor the innovative and the bold!

As always, please share your thoughts and comments with me on ashahani@mintel.com.

Anuj Shahani

Anuj Shahani

Anuj Shahani is Vice President at Comperemedia, providing thought leadership to Financial Services clients.