Saturday , June 6, 2020

COMMENTARY: Expect Lucrative Perks As Cobranded Travel Cards Try to Stem a Customer Exodus

The Covid-19 crisis is making cobranded travel credit cards less valuable. 

Demand for travel has taken a nosedive 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 aircraft. Airline lounges and hotels have closed. 

All this has made accumulating travel points, the centerpiece appeal of cobranded 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 cobranded travel credit cards. Suddenly, cash-back and cobranded credit cards with retailers are looking a lot more attractive. 

A customer exodus from cobranded travel credit cards will hurt issuers’ revenues in other ways. Airlines and hotel cobranded credit cards accounted for an outsized share of the total $990 billion in cobranded credit card purchase value in 2018, according to Packaged Facts’ “Cobranded and Affinity Cards ” study. 

Wei Ke: Accumulating travel points is “decidedly out of style.”

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 sum 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 to maintain membership and preserve enrollment. 

Cobranded credit card issuers will have to consider discounting annual fees, 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.

Meanwhile, travel suppliers will introduce new programs that enable cardholders to earn and redeem points on travel as well as non-travel-related purchases. Some of these programs might be temporary, others 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 extending frequent-flyer status by 12 months, which means some customers can enjoy their frequent-flyer status until 2022. To best Qantas’s 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 for 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 cardholders. This can include upgrade certificates, one-time lounge access, or meal vouchers.

—Wei Ke is a managing partner at Simon-Kucher & Partners. Daniel Biffl, senior advisor, and Wenbo Li, manager, contributed to this piece.

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