The COVID-19 crisis is making co-branded travel credit cards less valuable.
Demand for travel has taken a nose dive amid flight restrictions to international destinations, mandatory stay-at-home orders and rising alarm over the Coronavirus pandemic. Airlines have had to cancel flights and ground thousands of aircrafts. Airline lounges and hotels have closed.
All this has made accumulating travel points, the centerpiece appeal of co-branded travel credit cards, decidedly out of style. Affluent customers who happily forked over up to $550 a year in annual fees to enjoy lucrative frequent flyer points, access to airport travel lounges, complimentary flights and other travel perks, are now reassessing the value of their co-branded travel credit cards. Suddenly cash-back and co-branded credit cards with retailers are looking a lot more attractive.
A customer exodus from co-branded travel credit cards will hurt issuers’ revenues in other ways. Airlines and hotel co-branded credit cards accounted for an outsized share of the total $990 billion in co-branded credit card purchase value in the US in 2018, according to Packaged Facts Co-branded and Affinity cards study.
The stakes are equally high for travel suppliers. Delta reported earning $3.4 billion from its relationship with American Express in 2018 and has projected that will grow to $7 billion annually by 2023. These cards also help to reinforce customer loyalty for the airline.
With so much at stake, travel suppliers and credit card issuers must dramatically step-up efforts to enhance the value of their reward programs in the coming weeks and months in order to maintain membership and preserve enrollment.
Issuers will find ways to Enhance Value
Co-branded credit card issuers will have to consider discounting annual-fee, adding non-travel related perks to the reward program, or extending qualification periods for new cardholders to give them more time to earn lucrative signup bonus offers. The travel downturn also presents an opportunity for credit card issuers to reach out to travel suppliers to pre-purchase miles or points at a discount. These issuers can then use a portion of those points or miles for promotional activities to reward existing or new cardholders.
Travel Suppliers Step up with Lucrative Offers
Meanwhile, travel suppliers will introduce new programs that enable card holders to earn and redeem points on travel as well as non-travel related purchases. Some of these programs might be temporary, others more permanent. For cardholders who do travel, travel suppliers are likely to sweeten the pie with extra perks such as lower cost redemptions, enhanced upgrade options, value-adds and enhanced value with third parties.
Qantas and Virgin Australia have already made bold changes in an effort to make their frequent flyer programs more valuable to loyal customers. Qantas is automatically extended frequent flyers status by 12 months which means some customers can enjoy their frequent flyer status until 2022. To best Qantas’ offer, Virgin is gifting frequent flyer members up to 210 status credits in addition to a 12-month extension on their current frequent flyer status. Other companies like Singapore Airlines, Hilton, and Marriott have all extended the life of points, earned-night bonuses and elite status of their loyal customers.
In addition to program extensions and status gifts, travel suppliers will also have to find creative ways to introduce exclusive rewards to loyal card holders. This can include upgrade certificates, one-time lounge access, or meal vouchers.
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The COVID-19 crisis is making co-branded travel credit cards less valuable.
Demand for travel has taken a nose dive amid flight restrictions to international destinations, mandatory stay-at-home orders and rising alarm over the Coronavirus pandemic. Airlines have had to cancel flights and ground thousands of aircrafts. Airline lounges and hotels have closed.
All this has made accumulating travel points, the centerpiece appeal of co-branded travel credit cards, decidedly out of style. Affluent customers who happily forked over up to $550 a year in annual fees to enjoy lucrative frequent flyer points, access to airport travel lounges, complimentary flights and other travel perks, are now reassessing the value of their co-branded travel credit cards. Suddenly cash-back and co-branded credit cards with retailers are looking a lot more attractive.
A customer exodus from co-branded travel credit cards will hurt issuers’ revenues in other ways. Airlines and hotel co-branded credit cards accounted for an outsized share of the total $990 billion in co-branded credit card purchase value in the US in 2018, according to Packaged Facts Co-branded and Affinity cards study.
The stakes are equally high for travel suppliers. Delta reported earning $3.4 billion from its relationship with American Express in 2018 and has projected that will grow to $7 billion annually by 2023. These cards also help to reinforce customer loyalty for the airline.
With so much at stake, travel suppliers and credit card issuers must dramatically step-up efforts to enhance the value of their reward programs in the coming weeks and months in order to maintain membership and preserve enrollment.
Issuers will find ways to Enhance Value
Co-branded credit card issuers will have to consider discounting annual-fee, adding non-travel related perks to the reward program, or extending qualification periods for new cardholders to give them more time to earn lucrative signup bonus offers. The travel downturn also presents an opportunity for credit card issuers to reach out to travel suppliers to pre-purchase miles or points at a discount. These issuers can then use a portion of those points or miles for promotional activities to reward existing or new cardholders.
Travel Suppliers Step up with Lucrative Offers
Meanwhile, travel suppliers will introduce new programs that enable card holders to earn and redeem points on travel as well as non-travel related purchases. Some of these programs might be temporary, others more permanent. For cardholders who do travel, travel suppliers are likely to sweeten the pie with extra perks such as lower cost redemptions, enhanced upgrade options, value-adds and enhanced value with third parties.
Qantas and Virgin Australia have already made bold changes in an effort to make their frequent flyer programs more valuable to loyal customers. Qantas is automatically extended frequent flyers status by 12 months which means some customers can enjoy their frequent flyer status until 2022. To best Qantas’ offer, Virgin is gifting frequent flyer members up to 210 status credits in addition to a 12-month extension on their current frequent flyer status. Other companies like Singapore Airlines, Hilton, and Marriott have all extended the life of points, earned-night bonuses and elite status of their loyal customers.
In addition to program extensions and status gifts, travel suppliers will also have to find creative ways to introduce exclusive rewards to loyal card holders. This can include upgrade certificates, one-time lounge access, or meal vouchers.
Written by Wei Ke,managing partner, Daniel Biffl senior advisor and Wenbo Li, manager, at global consulting firm Simon-Kucher & Partners
