Cobranded travel credit cards — including some of the most popular and profitable in the payment card industry — are looking at darker skies because of COVID-19.
Even before federal travel restrictions took effect this month, consumers sharply pulled back from traveling amid the risk of infection in airplane cabins and cruise ships. This likely pushed travel cards linked to airlines, hotels and cruise ships to the bottom of wallets.
“Cobranded airline credit cards are the most successful partnership products in credit card history and their near-term value will be massively diminished,” said Eric Grover, a principal with Intrepid Ventures.
Read more: Complete coverage of the coronavirus impact
Because cobranded travel card customers typically earn points at a higher rate for spending on airline tickets and lodging, transaction volume on these cards is likely to slide dramatically with diminished global travel, Grover noted.
The captive audiences for marketing these cards — centered in airports, on planes and in hotel lobbies — vanished almost overnight.
“Cardholders won’t see a lot of value in signing up for travel cards or racking up frequent flyer points they can’t or won’t use,” Grover said.
The cobranded travel card crash is especially precipitous because it follows an era when cards targeting luxury travelers drove annual fees and signup bonuses to unprecedented heights, along with the cost for maintaining these programs.
American Express, JPMorgan Chase and Citigroup are among top issuers of elite cobranded travel credit cards, and none were available to detail any possible coronavirus effects on their rewards programs.
Consumers are likely to shift their spending toward cards that generate loyalty points good for redeeming cash or merchandise, said Brian Riley, a director in credit card advisory at Mercator.
“Cobranded airline and cruise lines will see less interest from consumers, and cash-back rewards cards are winners,” Riley said.
The AICPA believes taxpayers will be able to avoid penalties if they write “COVID-19” at the top of their return.
The biggest increase came in the advisory practice, where revenue rose 29.4 percent, followed by tax at 8.8 percent and assurance by 6.0 percent.
The performance of about $3 billion in hotel and other loans flagged by the Dallas company as high-risk has been a "a pleasant surprise," its chief credit officer said at an industry conference.
Overall profits for cobranded travel credit cards may plummet for the year, some observers predicted.
Some credit card issuers and travel partners may face serious financial problems, depending on their capital reserves and risk-management programs, said Rodman Reef, a consultant with Reef Karson Consulting.
“Merchant acquirers for airline credit cards need to keep funds in an escrow account in case of mass flight cancellations, and the risk is shared between the issuers and the airline,” Reef said.
The card networks set certain risk and capital requirements for issuers, but even if reserves are at minimum levels, issuers could take steep hits, Reef sd.
“There’s a lot of strategy behind cobranded cards to make these programs profitable for both issuers and travel partners and it can get tricky when unexpected losses occur,” he said.
At best, this year may be a wash for cobranded travel card issuers, said Wei Ke, a partner with Simon-Kucher, a marketing strategy firm with offices in New York and Toronto.
Even when the virus threat abates, it will take many more months for travel card programs to recover because they depend on aggressive marketing to maintain a steady user base in an industry with high turnover due to competition, Ke said.
Most cobranded airline credit cards dangle sign-up bonuses of tens of thousands of rewards points god for redeeming free flights, but those offers are most appealing when consumers have immediate travel plans.
“A big part of the marketing pitch for cobranded cards is that you’re looking to fly right away, and that’s obviously not going to happen for most prospects,” Ke said.
But cobranded card issuers — which often command annual fees in the hundreds of dollars — aren’t going to let customers slip away, and Ke expects card brands and travel partners will implement some creative marketing strategies to cope.
Evolving payments technology and partnerships could provide some survival options.
For example, a growing number of major card brands recently have integrated with Amazon and PayPal, enabling users to spend their loyalty points with online retailers, and travel card issuers could get creative with that trend, Ke suggested.
“The redemption rate for spending credit card loyalty points at e-commerce merchants tends to be about half the value of cash, but travel card issuers could find ways to boost or extend the value of those points so users will keep transacting and earning points they could spend on non-travel purchases,” Ke said.
Cobranded travel card issuers could also consider waiving the steep annual fees most travel cards charge, "or at least reducing annual fees temporarily to retain customers,” Ke said.
Higher-end cobranded travel cards could rejigger loyalty mechanisms to favor non-travel purchases, or add bonuses for spending in other categories that users could apply to future travel expenditures.
“We may see some innovative new options emerge, because cobranded travel cards typically are very lucrative and issuers have a lot invested in these customers, and vice versa,” Ke said.
Cruise line-based credit cards may not pursue alternative strategies at this point because most charge no annual fee and their loyalty programs are straightforward.
For example, Princess Cruises, which — along with several other major cruise lines — halted all cruises last week until further notice, offers the Princess Cruises Visa Signature issued by Barclays US. The card has no annual fee. Users receive 10,000 points with their first Princess Cruises purchase, 2 points for every dollar spent on all Princess purchases and 1 point for all other purchases.
Bank of America has the cobranded Royal Caribbean Visa Signature card, which has no annual fee and a similar points structure to Princess Cruises.
Synchrony issues the Norwegian Reward World Mastercard, which offers double points for purchases at Norwegian.com or Norwegian Air, along with all dining and grocery purchases, and 1 point per dollar elsewhere.
“It will be interesting to see how payment volumes shift on cobranded cards this year,” said Mercator’s Riley.
