Star Alliance credit card coming this fall

Why would an airline alliance launch a loyalty credit card? The obvious answer is money. Co-brand credit cards are massive drivers of revenue for airlines. But historically that has applied at the airline level, not at the alliance level. Star Alliance will change that later this year when the group launches its own card.

CEO Jeffrey Goh declined to share which geographic market the card would cover or which bank partner would issue it. He also skipped over pretty much any useful detail on what the benefits would be or how points would be earned and redeemed. He did, however, confirm an expected Q3 2022 launch date.

Despite presenting a common marketing front, many alliance benefits, particularly around frequent flyer programs, are negotiated bilaterally. That presents challenges in identifying which benefits can be delivered from a co-brand card, and figuring out how to account for them.

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Status-lite approach to paid loyalty

Typically a co-branded credit card offers status-lite options to consumers. That could be in the form of waived fees (e.g. checked bags, priority boarding), lounge access, award pricing discounts, or increased access to award inventory. The cards can also deliver add-on benefits for those who already hold status. United’s approach to making award tickets upgrade-eligible for cardholders is one example.

It would be relatively easy for the alliance to manage integration of complimentary lounge access as a benefit of its new card, because the infrastructure already exists. But most of the other benefits typically associated with credit card “elite” status would be much harder to implement. Again, because the accounting is more difficult.

"The industry is lacking in a settlement process" for ancillary sales like seat assignments. Goh hopes that @staralliance can also solve that problem. #APEXTECH #PaxEx

— Seth Miller (@WandrMe) January 30, 2019

In January 2019 Goh suggested that the alliance’s technology backbone could be enhanced to manage interline settlement for ancillary payments. Airlines are still not selling those benefits for each other, suggesting that the development remains ongoing. Or it could be introduced and trialed as part of this new card launch.

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Points and rewards

The other key benefit to cobranded cards, of course, is the points. Extrapolating that from the individual program approach to a broader alliance-wide offering comes with certain challenges.

One complicating factor for partner reward redemption is the bilateral nature of the negotiated rates for award seats. Combine that with limited inventory, and an alliance-backed points program becomes very challenging, very quickly.

But in 2018 Goh noted that roughly half the member program offered some sort of dynamic redemption option. He also believed at that time that dynamic award pricing was the key to improving the inventory available to members, “The question is can we rise to the challenge of dynamic redemption across the alliance. And you’ll probably hear us make announcements about that in due course.”

In his 2019 APEX TECH presentation Goh explicitly mentioned a centralized award booking interface, managed through the alliance network rather than the individual airlines. This would, of course, take advantage of the dynamic pricing approach to award seats.

Even as availability becomes “much more dynamic, much more available” for awards across the alliance, member carriers will need to protect their in-house programs. With a dynamic pricing model in play, airlines could be much more flexible in how they make seats available to partners while still protecting their own loyalty program and revenue management in general.

Pulling this all together, it would seem that the airlines could negotiate a “dynamic award” pricing model with the alliance, essentially publishing a price per segment or per itinerary into the system the same way they publish basic award space inventory today. The Star Alliance booking engine would then determine the total price for an award by combining the pricing components from the individual carriers. Convert that number to a number of points that covers the payouts to the airlines, and the alliance could very well deliver its own loyalty program and reward pricing.

This would depend on many technical improvements and policy changes, most notably a willingness of the airlines to publish the dynamic award space in that way.

Or the alliance could simply buy revenue tickets from its member carriers, again converting the points to a dollar amount internally to cover the transaction. That’s unlikely to deliver great value, but it could work.

There’s also the option the points earned via the Star Alliance credit care would transfer into the various member programs. The technology is much easier to implement this approach, but it does not take advantage of all the cool stuff Goh’s been pushing for so many years.

Positioning the card

Ultimately the Alliance needs to position the card either where member airlines don’t have a competing product, or position it such that it does not compete directly with their offerings. Expecting another approach would be foolish, considering the member airlines have to approve the alliance making the move. And none of them want to erode their own loyalty program value.