Who Owns Travel Loyalty?

Summary

Morgan Stanley analysts Ravi Shanker and Jeff Adelson discuss the economics of travel co-branded credit cards and the battle for affluent, loyal travelers. They argue that co-branded card revenues are a high-margin, fast-growing profit stream for airlines, supported by survey data showing travel has become a consumer staple. The relationship between banks and airlines is both collaborative and increasingly competitive, with the future depending on the strength of each airline's core product and the continued growth of high-income consumer spending.

• Travel co-branded cards remain underpenetrated, with airline cards held by 22% and hotel cards by 12% of cardholders.
• Affluent consumers spend twice as much on primary cards and are willing to pay higher fees, making them highly sought after.
• Cashback still leads consumer preferences, but travel-specific rewards resonate strongly with frequent travelers and loyalists.
• Co-branded card revenues for airlines are growing at a low double-digit CAGR with estimated operating margins of 35-50% or higher.
• Banks are increasingly building their own premium travel ecosystems, creating potential competition with airline loyalty programs.
• The base-case forecast sees the co-branded card market growing from $25 billion to $60 billion over 10 years, with a bull case of $100 billion.
• A key risk is that intensifying competition between banks and travel brands could erode industry economics even as the market expands.