Airline Rewards Cards Struggle to Keep Customers Amid Travel Bans
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What problem are airline rewards cards facing nine months into the pandemic?
Here's your Money Briefing for Tuesday, December 8th. I'm J.R. Whelan for The Wall Street Journal. Before the pandemic, airline rewards credit cards offered sizable perks and bonuses to big spending consumers. But travel bans and social distancing have made those perks less appealing, and in some cases, unusable.
And so this is a challenge for the airlines and the issuers, that they're trying to keep these people engaged a good nine months into a pandemic when leisurely travel for most of the population still seems a ways off.
So how are credit card companies hoping to convince grounded travelers not to cancel? Our reporter Anna Maria Andriotis has been keeping tabs on it, and she'll be here with all the details after the break.
Those hefty annual fees on travel rewards credit cards mean billions of dollars for banks and airlines. But nearly a year into the pandemic, consumers who have been grounded as a result of the travel bans are left to wonder if the money for those fees, sometimes in the hundreds of dollars, could have been put to better use.
Why do banks and airlines rely on high-fee travel rewards cards for revenue?
Now some credit card companies are working to convince customers not to cancel. Anna Maria Andriotis covers the credit card industry for The Wall Street Journal, and she's here to discuss it. Anna Maria, thanks for being here.
Great to be speaking with you.
So to start off, can you give us a sense of how important these travel rewards cards are for banks and airlines' bottom lines?
Airline credit cards are among the most coveted rewards cards out there, and that's been the case for over a decade, but certainly that demand from consumers for these cards intensified during the last 10 years or so. Now, consumers want them because it's aspirational, the idea that you can use these cards to get flight upgrades, free seats on flights, et cetera, access to airport lounges, The banks like them in part because travel tends to attract a group of consumers that is well-off, that spends a lot, and to whom banks want to sell other services to as well. And for the airlines, it really is a critical tool for them that essentially allows them to be profitable. So for a long time, it's been looked at, these cards have been looked at as a type of product that has benefited a variety of parties, but those benefits aren't really as clear cut right now, given that we're now into this pandemic a good nine months or so, at least in the U.S.,
So what are the card issuers doing to try to sweeten the benefits of having a travel rewards card when the customer isn't traveling?
How have travel bans and social distancing reduced the appeal of airline perks?
For the issuer, the goal is essentially you want to keep this cardholder. You don't want to see a significant increase in cancellations. So you want to keep them. And so essentially, if you can keep them, even if that means downgrading their card to a cheaper one, that's considered on some levels to still be a kind of win for the issuer. At the same time, the issuers are dealing with the challenge of incentivizing people who have these airline cards to continue spending with them. So overall credit card usage has been down in the US since the pandemic began. However, one of the hardest hit categories of spending has been travel purchases. So with American Express cards, for example, travel and entertainment purchases were down 69% in the third quarter compared to a year prior.
On Visa cards, they were down about the same amount during the same period, about 70%. So travel spending is way down. These cards are geared towards travel spending and the benefits associated with travel. So the issuers have basically, and the airlines, both parties here have essentially been rolling out various incentives to keep people, to keep these cardholders engaged with these cards to continue spending. Like everybody pretty much realizes that, okay, the travel spending being done on these cards in the past That's not realistic to expect that happening right now. So instead, they've been doing things since the start of the pandemic, like rolling out extra points per dollar spent on groceries, maybe even on other services like streaming services or restaurants if it's, you know, to sort of cater to people who are placing delivery orders.
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