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How credit card companies are saving the travel industry during COVID-19

Aug. 04, 2020
8 min read
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It’s no secret that airlines and hotels are hurting. Almost daily, there are additional reports of schedule cutbacks, employee furloughs or organizations on the brink of bankruptcy.

Yet travel companies are persisting in this challenging environment. The injection of funding for the aviation industry from the U.S. government under the CARES Act has also kept employees on payroll and put a band-aid on significant losses.

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(Photo by ANDREW CABALLERO-REYNOLDS/AFP via Getty Images)
(Photo by ANDREW CABALLERO-REYNOLDS/AFP via Getty Images)

However, the $50 billion in CARES Act funding for airlines, as well as the $350 billion set aside for small businesses and hospitality, is running dry. As Sara Nelson, president of the Association of Flight Attendants said in an interview with TPG, a second round of coronavirus relief is needed to save tens of thousands of jobs in the airline sector.

But it’s not just the government that is providing an immediate cash infusion. Some airlines and hotels are receiving funds another way, too -- from credit card issuers.

While it’s not a new concept, the sale of points and miles to card companies during this particular economic downturn is giving a significant boost to travel companies in urgent need of capital.

Related reading: Banks are spending millions on points and miles: What it means for loyalty programs

How cobranded cards work 

(Photo by The Points Guy)
(Photo by The Points Guy)

Cobranded credit cards rely on a relationship between an issuer (i.e. American Express) and a marketing partner (i.e. Delta). Consumers then sign up for a card if they have an affinity to a certain brand, loyalty to an airline or simply want to make use of the card’s perks and bonuses.

For issuers and the marketing company, it can also be a potentially lucrative relationship -- especially if the marketing company (i.e. Delta) already has a built-in audience. All in all, if things go right, it can be a win-win-win for consumers, travel companies and the issuing card company.

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In 2018, cobranded credit cards generated $990 billion in purchase value. That’s up 7.9% from 2016.

How card issuers are helping travel companies now

In its earnings call last week, American Express announced its most recent travel currency purchase, the latest in a slew of sales in recent months. Amex renewed a multi-year agreement with British Airways and parent company International Airlines Group (IAG), in a deal it said was worth $955 million.

British Airways -- and many other airlines and hotels -- are burning through millions of dollars daily.

IAG, which also owns other European carriers like Iberia and Aer Lingus, is reportedly losing 200 million euros per week. Analysts speculate that IAG’s liquidity is down to four billion euros, from 10 billion at the end of April. A deal of this nature provides temporary relief for cash-strapped corporations.

British Airways and Iberia Planes at LHR
(Photo by Fasttailwind/Shutterstock)

Like with most of these cobranded deals, Amex pre-purchased British Airways travel currency, Avios points. The up-front purchase of points are “a way for us to help out our partners but also to help out our shareholders as well,” said American Express Chairman and CEO Steve Squeri.

At a macro level, the International Air Transport Association (IATA) expects the global airline industry to lose $84.3 billion in 2020 alone. Hotels aren’t faring any better. Through the end of 2020, a report from U.S. Travel Association estimates $505 billion in losses for the domestic travel industry, including hospitality.

Amex’s purchase of Avios follows a deal in May with Marriott worth $920 million (with both Chase and American Express). Marriott’s profit plunged 92% in the first quarter of 2020 and the company announced in mid-March that it was furloughing tens of thousands of employees worldwide.

Additionally, Hilton’s sale of Honors points to Amex totaled $1 billion earlier this year. Amex is said to be using those points for future promotions, rewards and incentives.

In all of these instances, travel companies pre-sold points and miles to raise emergency funding.

Related reading: Review of the British Airways Visa Signature card

How card issuers -- and consumers -- may benefit 

It’s not only good business for marketing companies like British Airways, Marriott and Hilton either.

Interestingly, consumers -- at least for American Express -- are actually spending more on cobranded cards compared to proprietary Amex cards, including The Platinum Card® from American Express, American Express® Gold Card or the Blue Cash Preferred® Card from American Express.

“When I look at the Delta [card] and when I look at the Hilton card, these are cards that were actually performing even better than some of our proprietary cards,” said Squeri.

(Photo by Eric Helgas/The Points Guy)
(Photo by Eric Helgas/The Points Guy)

That means card issuers stand to gain from buying points from travel companies -- perhaps even in the shorter term -- if consumers continue to gravitate toward cobranded cards.

Related reading: Best hotel cobranded cards

With that said, points and miles sales are considered a long-term strategy. “Over the life of these deals, these will be good things for our shareholders and good things for our customers,” Squeri added.

For cardholders, that means the potential for more category bonuses (as we’ve already seen, but only for a limited-time), as well as increased sign-up offers for new card applicants.

However, this also comes at the risk of devaluations as TPG’s Ethan Steinberg details. Instead of flooding the market with points, keeping them in reserves by the banks may drop the risk of a loyalty program devaluation.

Bottom line 

With U.S. GDP down 9.5% in the second quarter of 2020, consumer confidence and spending won’t return in the immediate future as the pandemic lives on. However, card issuers are helping dig travel companies out of a deep hole by pre-purchasing points during a period of economic distress.

Moving forward, it wouldn’t be surprising to see other travel programs take a similar approach to receive a dose of emergency funding from card companies.

For the rest of us, we can only hope that means better card offers and bonuses without an impending devaluation in what our points are worth.

Featured image by (Photo by Zach Griff/The Points Guy)

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How we chose these cards

Our points-obsessed staff uses a plethora of credit cards on a daily basis. If anyone on our team wouldn’t recommend it to a friend or a family member, we wouldn’t recommend it on The Points Guy either. Our opinions are our own, and have not been reviewed, approved, or endorsed by our advertising partners.
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TPG featured card

Best for the well-traveled foodie
TPG Editor‘s Rating
Card Rating is based on the opinion of TPG‘s editors and is not influenced by the card issuer.
4 / 5
Go to review
Apply for American Express® Gold Card
at American Express's secure site

Rewards

3 - 4X points
4XEarn 4X Membership Rewards® Points at Restaurants, plus takeout and delivery in the U.S.
4XEarn 4X Membership Rewards® points at U.S. supermarkets (on up to $25,000 per calendar year in purchases, then 1X).
3XEarn 3X Membership Rewards® points on flights booked directly with airlines or on amextravel.com.

Intro offer

60,000 points
Earn 60,000 Membership Rewards® points after you spend $4,000 on eligible purchases with your new Card within the first 6 months of Card Membership.

Annual Fee

$250

Recommended Credit

670-850
Excellent/Good
Credit ranges are a variation of FICO© Score 8, one of many types of credit scores lenders may use when considering your credit card application.

Why We Chose It

There's a lot to love about the Amex Gold card. It's been a fan favorite during the pandemic because of its fantastic rewards rate on restaurants (that includes takeout and delivery in the U.S.!) and U.S. supermarkets. If you're hitting the skies soon, you'll also earn bonus points on travel. Paired with up to $120 in Uber Cash (for U.S. Uber rides or Uber Eats orders) and up to $120 in annual dining statement credits at eligible partners, there's no reason that the foodie shouldn't add this card to their wallet. Enrollment required.

Pros

  • 4x on dining at restaurants and U.S. supermarkets (on the first $25,000 in purchases per calendar year; then 1x)
  • 3x on flights booked directly with the airline or with Amex Travel
  • Welcome bonus of 60,000 points after spending $4,000 in the first six months

Cons

  • Weak on travel outside of flights and everyday spending bonus categories
  • Not as useful for those living outside the U.S.
  • Some may have trouble using Uber/food credits
  • Few travel perks and protections
  • Earn 60,000 Membership Rewards® points after you spend $4,000 on eligible purchases with your new Card within the first 6 months of Card Membership.
  • Earn 4X Membership Rewards® Points at Restaurants, plus takeout and delivery in the U.S., and earn 4X Membership Rewards® points at U.S. supermarkets (on up to $25,000 per calendar year in purchases, then 1X).
  • Earn 3X Membership Rewards® points on flights booked directly with airlines or on amextravel.com.
  • $120 Uber Cash on Gold: Add your Gold Card to your Uber account and each month automatically get $10 in Uber Cash for Uber Eats orders or Uber rides in the U.S., totaling up to $120 per year.
  • $120 Dining Credit: Satisfy your cravings and earn up to $10 in statement credits monthly when you pay with the American Express® Gold Card at Grubhub, The Cheesecake Factory, Goldbelly, Wine.com, Milk Bar and select Shake Shack locations. Enrollment required.
  • Choose the color that suits your style. Gold or Rose Gold.
  • No Foreign Transaction Fees.
  • Annual Fee is $250.
  • Terms Apply.
  • See Rates & Fees
Apply for American Express® Gold Card
at American Express's secure site
Terms & restrictions apply. See rates & fees
Best for the well-traveled foodie
TPG Editor‘s Rating
Card Rating is based on the opinion of TPG‘s editors and is not influenced by the card issuer.
4 / 5
Go to review

Rewards Rate

4XEarn 4X Membership Rewards® Points at Restaurants, plus takeout and delivery in the U.S.
4XEarn 4X Membership Rewards® points at U.S. supermarkets (on up to $25,000 per calendar year in purchases, then 1X).
3XEarn 3X Membership Rewards® points on flights booked directly with airlines or on amextravel.com.
  • Intro Offer
    Earn 60,000 Membership Rewards® points after you spend $4,000 on eligible purchases with your new Card within the first 6 months of Card Membership.

    60,000 points
  • Annual Fee

    $250
  • Recommended Credit
    Credit ranges are a variation of FICO© Score 8, one of many types of credit scores lenders may use when considering your credit card application.

    670-850
    Excellent/Good

Why We Chose It

There's a lot to love about the Amex Gold card. It's been a fan favorite during the pandemic because of its fantastic rewards rate on restaurants (that includes takeout and delivery in the U.S.!) and U.S. supermarkets. If you're hitting the skies soon, you'll also earn bonus points on travel. Paired with up to $120 in Uber Cash (for U.S. Uber rides or Uber Eats orders) and up to $120 in annual dining statement credits at eligible partners, there's no reason that the foodie shouldn't add this card to their wallet. Enrollment required.

Pros

  • 4x on dining at restaurants and U.S. supermarkets (on the first $25,000 in purchases per calendar year; then 1x)
  • 3x on flights booked directly with the airline or with Amex Travel
  • Welcome bonus of 60,000 points after spending $4,000 in the first six months

Cons

  • Weak on travel outside of flights and everyday spending bonus categories
  • Not as useful for those living outside the U.S.
  • Some may have trouble using Uber/food credits
  • Few travel perks and protections
  • Earn 60,000 Membership Rewards® points after you spend $4,000 on eligible purchases with your new Card within the first 6 months of Card Membership.
  • Earn 4X Membership Rewards® Points at Restaurants, plus takeout and delivery in the U.S., and earn 4X Membership Rewards® points at U.S. supermarkets (on up to $25,000 per calendar year in purchases, then 1X).
  • Earn 3X Membership Rewards® points on flights booked directly with airlines or on amextravel.com.
  • $120 Uber Cash on Gold: Add your Gold Card to your Uber account and each month automatically get $10 in Uber Cash for Uber Eats orders or Uber rides in the U.S., totaling up to $120 per year.
  • $120 Dining Credit: Satisfy your cravings and earn up to $10 in statement credits monthly when you pay with the American Express® Gold Card at Grubhub, The Cheesecake Factory, Goldbelly, Wine.com, Milk Bar and select Shake Shack locations. Enrollment required.
  • Choose the color that suits your style. Gold or Rose Gold.
  • No Foreign Transaction Fees.
  • Annual Fee is $250.
  • Terms Apply.
  • See Rates & Fees