Episode summary
Who Owns Travel Loyalty?
Thoughts on the Market (Morgan Stanley)
· · 13 min · Guests: Ravi Shanker, Jeff Adelson
Summary
Travel co-branded cards sit at the center of a contest for affluent, sticky customers between banks and airlines. The guest says the category is still underpenetrated: about 90% of card holders have a general purpose card, while only 22% have an airline card and 12% have a hotel co-brand card. That leaves room for growth, but switching is hard because consumers already trust their existing cards and often only change for a compelling sign-up offer.
The guest argues that the real prize is not the average shopper but the high-income traveler. In the survey, consumers earning over $150,000 a year spend roughly twice as much on their primary card and are willing to pay almost twice the annual fee. They are also more creditworthy and more likely to pay in full, which makes them valuable to banks and travel partners alike. At the same time, banks are building their own premium travel ecosystems, so the partnership model is becoming more competitive.
For airlines, the guest says co-brand revenue is only durable if the core airline product remains strong. He estimates co-brand revenue is growing faster than core revenue, already represents a low double-digit percentage of airline revenues, and can carry 35% to 50% operating margins or more. In the base case, the market grows from about $25 billion today to $60 billion in 10 years; in the bull case, it could nearly quadruple to $100 billion.
Key takeaways
- The guest says travel co-branded cards remain underpenetrated, with only 22% airline card ownership and 12% hotel co-brand ownership versus 90% general purpose card ownership.
- The guest argues the most valuable customers are high-income travelers, who spend roughly twice as much and are willing to pay almost twice the annual fee.
- The guest says airline co-brand economics can be highly attractive, with margins around 35% to 50% and a business that is far less cyclical than core passenger revenue.
- The guest's base case sees co-brand revenues rising from about $25 billion today to $60 billion over 10 years.
- The guest warns the model gets riskier if banks' premium travel ecosystems keep overlapping with airline loyalty programs.
Notable quotes
“about 90% of card holders have a general purpose card while only about 22% have an airline card and 12% having an hotel co-brand card”
“higher income consumers frankly just spend a lot more. They're more loyal. They carry more cards and they're more willing to pay a higher annual fee”
“this business has been growing at a low double-digit ker for the industry, which is much faster than core revenue growth”
“Something in the order of 35 to 50% operating margins, if not much higher than that, in an industry that is overall working really hard to get to double-digit margins”
“the market go from about $25 billion today to about 60 billion in the next 10 years”
How the episode opens
Welcome to Thoughts on the Market. I'm Ravi Shanker, Morgan Stanley's North American Airlines analyst. And I'm Jeff Ad, Morgan Stanley's US consumer finance analyst.
Today, who really owns your travel loyalty? The airline, the bank, the rewards platform, or you? It's Wednesday, June 10th at 7 a.m.
in New York. So Ravi, you just came from your annual travel conference and I'm about to head into the second day of Morgan Stanley's 17th annual financials conference here in New York where we're hosting roughly 135 corporates. A lot of themes are coming up there.
Retail engagement, product innovation, regulatory change, AI, digital assets, capital markets, recovery, and so on. All of these connect back to our bigger question, who owns the customer relationship? And that's exactly where travel co-branded cards come in.
They sit at the crossroads of premium consumer spending, loyalty, and the competition for wallet share. They've become a more important revenue stream across travel, banking, and hospitality. But it's not as simple as more travel means more co-brand growth.
Most customers still want flexibility, cash back, and low fees. Premium travelers and loyal airline customers behave differently. Let's start with the card holder.
Most consumers have a credit card, but travel co-branded cards are still a much smaller piece of the overall wallet. So, how big is the opportunity here and how hard is it to get consumers to switch? So, what's actually interesting, Ravi, is that travel co-branded cards are still relatively underpenetrated.
In our survey, about 90% of card holders have a general purpose card while only about 22% have an airline card and 12% having an hotel co-brand card. So on the surface, the runway for growth does look significant. The upshot is also that once you get these consumers in the door, they are much higher spending and drive a ton of volume and incremental card economics for both the banks and their co-brand travel partners.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- travel loyalty
- affluent travelers
- banks
- airlines
- competition
Companies and tickers mentioned
- MS
- Morgan Stanley
Watch the episode
Watch “Who Owns Travel Loyalty?” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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