It is no secret that US airline loyalty programs drive the bulk of their profits from co-brand credit card relationships. When those partnerships drive a removal of traditional program benefits, however, it becomes nearly impossible to argue that airline or travel loyalty is the prime motivation for the program. And with Delta Air Lines‘ latest decision to remove a key SkyTeam benefit from its members, the program’s transition is arguably complete.
The airline’s SkyClub lounges are overcrowded. Lines to get in are not uncommon. And the crowding can be very easily traced to the proliferation in premium co-brand credit card holders. The American Express relationship drives billions in annual revenue. And now the carrier will favor those cardholders over its own frequent flyer elites. First reported by The Airline Observer on Monday, Delta will no longer allow its elites flying long-haul in economy class or Comfort+ access to a lounge before their international trip. This is a cornerstone SkyTeam Elite Plus benefit.
At least it used to be.
As for tracing the crowding to a shift in passenger demographics tied to the co-brand credit card programs, one need only look at the past two years of commentary about the value of the co-brand portfolio, and how many travelers are signing up for the cards. Here are excepts from prepared comments over the past two years of quarterly earnings calls (emphasis added).
While the passenger revenue environment remains challenging, we’re encouraged that efforts to diversify our revenue streams have paid off. Our American Empress remuneration in 2020 was nearly $3 billion, down only 30% on a year-over-year basis. In fact, American Express has shared its spending on our co-branded card portfolio has performed in line to slightly better than their overall card portfolio spend in 2020.
We’ve also seen our customers continue to invest in the Delta brand using their American Express co-brand cards, demonstrating the resiliency of this unique revenue stream. Despite a large reduction in T&E categories, March co-brand spend on the card, overall, was up relative to March 2019 levels.
Engagement is also coming through the performance of our co-brand credit card program as customers are increasingly seeing the value proposition and continue to aspire for travel, status and premium experience. For the quarter, co-brand spend was 110% recovered to 2019 levels, driven by improving T&E spend indicating customers’ desire to explore the world and reconnect with friends and family. We exited the quarter with co-brand spend around 115% recovered for the month of June. New co-brand account acquisitions improved more than 75% sequentially and were around 90% recovered to 2019 levels for the quarter.
We’re seeing more demand for our premium co-brand credit cards with both new and existing cardholders as more customers are increasing, seeing the value proposition. Our well-defined and proven strategy of focusing on the customer positions Delta well for many years ahead.
In March…we achieved record co-brand acquisitions, co-brand spend, and cargo revenue.
During the quarter, we acquired a record number of new SkyMiles members and our co-brand spend continues to far outpace 2019, up 39% in the month of March.
Loyalty is an important driver of our third pillar, increasing our revenue diversification… Remuneration from American Express during the quarter of $1.2 billion was 25% higher than 2019, a new quarterly record that keeps us on track for our full-year goal of more than $5 billion in remuneration.
Loyalty to the Delta brand is growing at record levels. We acquired another record number of new SkyMiles members in the quarter and achieved record spend and acquisitions on our Amex co-brand card. More than one in four new cards acquired were Platinum and Reserve cards. Our premium tier is providing another proof point on the growing demand for premium products and brands.
Our growing loyalty base drives high-margin revenue and supports continued growth in our valuable co-brand relationship with American Express. SkyMiles acquisitions are running 40% above 2019 with over 60% of our passenger revenues now generated by SkyMiles members.
In the third quarter, record spend and strong acquisitions on our Amex co-brand cards resulted in $1.4 billion of Amex remuneration.
Clearly Delta sees value in bringing these cobrand cardholders into its business model. And the billions of dollars annually coming from AmEx helps justify that decision.
Loyalty isn’t dead. It just looks a lot more like a credit card transaction these days than ever before.
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