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Got Baggage? How Premium Airline Cards Benefit Consumers, Issuers, and Airlines

(New York, NY):  Few topics provoke as much consumer rage as the indignities of air travel.  Along with endless airport security lines and vanishing leg room, add-on fees are a major source of irritation for flyers.  Last year consumers spent a whopping $3.8 billion just on checked baggage fees, according to the Department of Transportation, and another $3 billion for the privilege of changing their flights.

Airline rewards cards, long favored by mileage hoarders, offer a way for consumers to fight back. By selecting the right credit card, savvy travelers can enjoy priority boarding, checked baggage, and make last-minute flight changes without racking up additional charges. And these premium benefits are broadening the appeal of airline rewards cards, according to recent research by Auriemma Group.

“People want to earn free trips: mileage is aspirational,” says Jaclyn Holmes, the Auriemma senior manager who directed the study. “But when it comes to the day-to-day flying experience, benefits like priority boarding or a free checked bag can make all the difference.”  Even consumers who would normally balk at paying an annual fee may change their minds when they consider avoided costs, she noted. “Over half of consumers who carry cards with premium benefits value these privileges more than the miles they earn for spending.”

Premium benefits are important to consumers, but they are important to airlines and issuers as well. Airline rewards cards with these benefits create an opportunity to better connect with the consumer, to provide them with a more positive experience, and to keep them brand loyal.

“Airlines and their card-issuing partners should continue to highlight the core benefits of mileage, how it is earned, and how it can be used,” says Holmes, “but it is equally important to focus on premium benefits offered, as they may be the tipping point in how consumers select their payment method and airline. Airline reward cardholders expect to be earning miles on their spending; to entice them you need to do more, you need to show them that your product will improve their travel experience.”

Survey Methodology

The study was conducted online within the United States by an independent field service provider on behalf of Auriemma Consulting Group in February 2016, among 800 U.S. credit card users (“cardholders”). The number of interviews completed on a monthly basis is sufficient to allow for statistical significance testing between sub-groups at the 95% confidence level ± 5%, unless otherwise noted.

About Auriemma Group

Auriemma is a boutique management consulting firm with specialized focus on the Payments and Lending space.  We deliver actionable solutions and insights that add value to our clients’ business activities across a broad set of industry topics and disciplines.  For more information, call (212) 323-7000.

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Auriemma Advises Toyota Financial Savings Bank on Its Transition from Self-Issuance to Co-Brand

Auriemma Group advised Toyota Financial Savings Bank (TFSB) on strategy and execution of TFSB’s transition from a self-issuer of its Toyota and Lexus card programs to a co-brand credit card partnership with Alliance Data Systems (ADS).  Auriemma managed the TFSB issuer and network partner selection processes, and supported the negotiation of its issuer and portfolio sale agreements with ADS, along with its selected payment network contract.

Read more here.

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Cards Market Continues to Deliberate on the Future of Co-Branding

(London): 2016 is likely to be a pivotal year for the UK’s credit card market as issuers realise the full impact of interchange reduction on profitability. In recent months, response strategies have become clearer, and a number of issuers have cut-back or entirely removed rewards programmes.

Consequently, within the co-brand market, there is a heightened sense of caution as both issuers and partners work to maintain a compelling and profitable customer proposition.

Despite the pressure of a reduced value pool, co-branding still remains an important element of the credit card market. With a number of issuer programmes having their benefits reduced, customers are increasingly likely to find better value from retail propositions who have a lower cost of providing benefits than traditional issuer led rewards.

‘Customers highly value the rewards offered by co-branded cards and despite the more testing economics, issuers and partners must work together to deliver on customer expectations’ said Mark Jackson, Managing Director of Auriemma’s Partnership practice. ‘Engaged cardholders are much more loyal to the partner’s brand, buying more products over a longer period of time, while improving the underlying performance of the partner’s business. Those that can retain a strong proposition and marketable customer base will be best positioned to reap the benefits of a successful partnership’.

Impending regulation could ultimately galvanise the industry and we may see a number of issuers and partners positively altering the construct of propositions rather than simply diluting rewards. A mindset shift is required to be able to operate in the new environment – Auriemma recommends that partners discover the true motivational factors that drive cardholder spend and focus their programmes around this.

Auriemma constantly supports partners and issuers in navigating through the regulation process with engagements ranging from strategic reviews and programme launches to programme optimisation and new product development. Our range of engagements allow us to deeply understand how different businesses are affected by regulation and advise how individual programmes can adapt most effectively.

About Auriemma Group

Auriemma is a boutique management consulting firm with specialised focus on the Payments and Lending space. We deliver actionable solutions and insights that add value to our clients’ business activities across a broad set of industry topics and disciplines. Please contact Mark Jackson mark.jackson@auriemma.group.

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Auriemma Sees Continued Strong Issuer Competition in the Co-Brand Market in 2015

(New York, NY):  The co-brand credit card marketplace should again be abuzz in 2015, according to Auriemma Group, a boutique management consultancy focused on the consumer payments industry.  Auriemma has seen several new market entrants in the co-brand issuing space, along with a renewed interest in co-brands from long-established players that shied away from the co-brand market following the financial crisis.  While some of the newer institutions have been vying for smaller / de-novo co-brand portfolios in order to build their capabilities, gain experience, and establish a reputation in the market before attempting to win larger deals, others have big ambitions right out of the gate.  “We anticipate several big co-brands hitting the open market in 2015, and expect competition for these deals, especially deals in the T&E sector, to be fierce,” said Sean Clark, Managing Associate on the Partnerships team at Auriemma.

Although issuer interest is expected to remain strongest for large T&E programs such as airlines and hotels, enthusiasm is growing for new sectors, and also for older sectors that had previously been viewed less favorably.  “The strength of the market does not just apply to the largest T&E or retail deals,” said Clark, “we are finding strong issuer interest for de novo co-brands, as well as for programs in such sectors as auto and online retail.”  Furthermore, the lines have blurred between the co-brand and private label credit card markets, as issuers are increasingly playing on both sides and vying for both kinds of deals.

The intensified interest among issuing banks in the co-brand/private label space is partially due to an overall improvement in the macroeconomic environment.  Consumer confidence has gradually recovered since the Great Recession, leading to a positive outlook among financial institutions.  More specifically, banks have a renewed focus on their credit card businesses.  Credit cards have shown a high level of profitability for banks, especially over other forms of consumer lending such as mortgage and auto lending.  Net credit losses across the industry are also near historic lows, which have precipitated this expanded interest.

About Auriemma Consulting Group

Auriemma is a boutique management consulting firm with specialized focus on the Payments and Lending space. We deliver actionable solutions and insights that add value to our clients’ business activities across a broad set of industry topics and disciplines.

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