During United’s investor call airline President Scott Kirby reiterated his belief that the largest airline a market will sign up customers for their credit card. If they grow in a market they’ll get more credit card signups and make more money from Chase.
Nowhere in the discussion is there anything at all about the features or benefits of that credit card. It’s deterministic — customers will ignore the better card in favor of the one from the larger airline in their home city.
Joe DeNardi from Stifel, who frequently makes the argument that airlines are undervalued because the market doesn’t recognize the contribution of credit card revenue, has told me that his valuation model requires ‘only’ 4-6% growth. He fails to realize that credit card revenue for airlines is more likely to fall than to rise over the next 10-15 years.
He began a question to Scott Kirby, “one area where you don’t have to worry about competitive response is the credit card.” Scott Kirby disagreed — saying it’s competitive to be biggest airline in a city in order to attract credit card customers.
There’s some number of customers about which this is certainly true. But it’s a shrinking base. When analyzing his airline’s route network and pricing Kirby is laser-focused on marginal effects. That’s why it’s so striking that he ignores those when discussing the co-brand credit card market.
If you want to understand why airline co-brand cards are falling behind bank-issued products, one reason is that airline executives simply don’t understand the competitive environment they’re facing. By continuing to cut the frequent flyer program — raising award pricing, failing to make award seats available — they’re driving customers away to other products.
In order for airlines to protect their credit card revenue they need to preserve the value of the program itself, not merely grow the airline.