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The battle of the VIP lounges
00:17:25
Why are credit card issuers spending millions on building lavish customer hang-outs?
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This BBC podcast is supported by ads outside the uk. I love ravioli. Otanta fame. Since when do you speak Italian? Since we partnered with SAP. Concur. Their integrated travel and expense platform and breakthrough solutions with AI gave me time back to dive into our financial future. We expand into Europe in 2027, so I'm getting ready. Well, you can predict the future. I can predict you'll like that message. What message? Oh, hey, we all got bonuses. You can save for college now. I don't have kids. You don't say SAP conc helps your business move forward faster. Learn more@concur.com what do you think makes the perfect snack? Hmm, it's gotta be when I'm really craving it and it's convenient. Could you be more specific? When it's cravinient. Okay. Like a freshly baked cookie made with real butter, available right down the street at am, pm. Or a savory breakfast sandwich I can grab in just a second at a.m. pM. I'm seeing a pattern here. Well, yeah, we're talking about what I crave, which is anything from am, pm. What more could you want? Stop by am pm where the snacks and drinks are perfectly craveable and convenient. That's Cravenience ampm. Too much good stuff. Hello and welcome to Business Daily from the BBC World Service. I'm Rowan Bridge on today's program. So over on the counter we have a seafood tower as well as caviar and a bottle of champagne which greets our guests inside of the reserve suites. I don't know if you can smell this, but we have our signature scent that is proprietary to the Centurion Lounges. Bigger, bolder, better. There's an arms race taking place right under your nose, but you're probably not aware of it. Airports have become the new battleground of credit card issuers as they seek to attract and retain valued customers. Welcome to the world of the luxury airport lounge and the increasingly extravagant attempts to create customer loyalty. But who's paying for all of this? You know, this credit card system creates a really nasty transfer. Whereas high credit score well off people who get to use the high merchant fee, high reward cards, and then it's the rest of society that has to bear that cost. That's all coming up in today's programme. For most people, I suspect your experience of airline travel is much like mine. You clear security and then you sit around waiting for your flight. Maybe browse the duty free or buy something from one of the outlets selling pricey food and drink. But for those with the Right. Credit card, it can be a very different experience. Customers have a little bit of downtime while they're in the lounge. They could take advantage of one of the five facials that are offered by Facehouse. So It's a quick 30 minute treatment and it's just another extra benefit that I can have while I'm on my travel journey. This, to give it its full title, is the Chase Sapphire Lounge by the Club Chase, being the bank and credit card issuer behind the development. And I'm being shown around by Dana Powells who oversees their lounges. This one was recently ranked by the website the Points Guy as the best new American airport lounge in the country. And this is not your average airport experience. So this is the photo booth that we have as an entrance to our secret game room that we have back here. So come in and take a look. It has a lot of legacy games like pinball, shuffleboard, it has a jukebox and a lot of really iconic New York elements that are designed around here. With the right card, you too can experience the lounge with its amenities and free food and drink. But the extravagance comes as a cost. The card that gets you in has an annual fee of $550. And it gets even more exclusive for between 2 and $3,000, depending on size. You can book a reserve suite for three hours. So each suite has its own private bathroom and shower. And just over there on the marble countertop, is that a lobster salad that I can see? So that is a seafood tower as a welcome food amenity as well as caviar. And you also see champagne there. The new generation of super lounges are a far cry from where it all began. It was American Airlines who invented the airport lounge in New York. At the end of the 1930s, American Airlines opened the first lounge. We think it was 1938, 1939, thereabouts, at LaGuardia not far from here. This is Clint Henderson from the New York based website the Points Guy. The site specializes in news and advice on travel, including airline points and miles. But at the time, they were not the glorious temples with tons of options for food and beverage and nap rooms. They sort of evolved as just like a place you could get a cocktail and get some nuts, potentially maybe some snacks before your flight. Traditionally, the lounges have been associated with airlines. Think British Airways or Emirates. They've often linked up with credit card issuers so you can get a BA branded American Express card. And the more you spend on the card, the more points you earn towards rewards with the airline hit the right levels of points with the right card, and you'll get access to the airport lounge. Welcome to Central Lounge. May I see your card, please? Thank you. Madam Force, may I see you? Just over 10 years ago, though, the modern airport lounge race really began. In 2013, American Express opened the first Centurion Lounge in Las Vegas. It was the first time a credit card company had struck out a loan. Augie Hendley is the head of global travel for American Express. We work with a lot of airlines, particularly Delta and many other lounge partners across the world. But it's also nice to have your own lounge with our own team working there. For us, it's a way of reaching our customers and delivering our Hallmark service hand in hand to every customer who visits the lounge. The company now has 26 own brand lounges around the world. The biggest chunker in the United States, but they've also opened them in Hong Kong, Argentina, and Australia. But building this level of luxury doesn't come cheap. None of those directly connected with the lounges would say what they cost to build or run. But building in airports comes with its own challenges, and these places are open well beyond the normal workday. From what we do know, we're talking tens of millions of dollars. So up to per lounge. Per lounge at times. Clint Henderson from the Points Guy website. The new Centurion Lounge in Atlanta, I believe they spent about $100 million to make that happen. So, yes, it's an arms race and they're getting extraord. First of all, it's super hard to build in airports. It's expensive. You have to have a ton of employees, a ton of workers. Getting in and out of the airports is a pain. You've got all these regulations that you have to follow. So it's a very expensive undertaking. Now, I'm not saying every lounge is $100 million lounge, but I'm saying, you know, we're talking 10, 20, $30 million for an average lounge these days. There's a reason card issuers are spending that sort of money. Dan Bennett leads the behavioral science team at Ogilvy. They're one of the largest ad and marketing firms in the world. It is a piece of plastic with a chip in it that holds your money, but it is something that actually gives you a position in society. It is something that says something about who you are. It is something that can make you feel elevated if you're extending that into other services that do just that. They're not just building rooms at airports. They're building a sense of self. They're building experiences that you can talk about. It's kind of amazing that the financial services have managed to kind of look at some deep core human drivers and then build experiences around that. And that's why they're so successful with them, because they've managed to find the psychological levers to pull rather than just looking at the world through a rational lens. Do you think a lounge makes someone more likely to use their American Express card to pay for stuff, or do you think it makes them think more differently about the brand? There is some amazing evolutionary psychological research. So, for example, if you have a picture of a man and then in the background you have a nice car or a not nice car, even when asked to evaluate the attractiveness of the man, only not the cars in the background, people rate the man as more attractive when he has a nicer car in the background. And so subconsciously, we are assessing these things all of the time. Even when asked not to. We can't turn it off because it's in such primal parts of our brain that we don't have conscious override to. So there's absolutely evidence that kind of status is a huge driver of decision making and of evaluation. This is Capital One's lounge at Dulles Airport in Washington, dc. It has the sort of things you see in the news. At the BBC, we go further so you see clearer. Through frontline reporting, global stories and local insights, we bring you closer to the world's news as it happens. And it starts with a subscription to BBC.com giving you unlimited articles and videos, ad free podcasts and the BBC News channel streaming live 24. 7. Subscribe to trusted independent journalism from the BBC. Find out more@BBC.com Join generation of super Lounges. The bar behind me has craft beers from a local brewery and a specially created cocktail from a local mixologist. The food menu uses local ingredients, there's comfortable seating and attentive staff. And it's all free. Once you get through the door, you can see the appeal if you've got time to kill and a card that gives you access. But these places can also be victims of their own success. That means at peak times, even those eligible to come in might find themselves having to wait. Here in Dulles, that can be up to 30 or 40 minutes. Hi there, Jackie Gifford, editor in chief of Travel and Leisure, coming to you from the Luftbounds of Business Class Lounge Z section of the Frankfurt airport. But once again, it is Hunger Games. True Hunger Games. To get into a lounge and actually find A seat. So when I made that joke, it was like people were, you know, you're angling like looking around, can I find a seat? Waiting for someone to stand up so you can go and grab their seat. So what used to be considered a premium space and sort of a, for a sense of privacy and quiet at that point in time, I think it was really, really, it was really challenging. There was an instance two years ago where my, again, my husband's son and I didn't go. We were not flying first class, but we had the benefits tied to our credit card. We did not go into the lounge because the line was so long. We just went to a regular restaurant at the airport and had a really great experience and it was fine to get a seat. As airports have started to upgrade their dining options, as you know, the sort of, the tearing of some of these lounges is getting more exacting. It is starting to shake out a little bit and you don't feel that pressure that you once did. Card issuers have started to introduce digital wait lists to try and manage the demand. But there's another trend emerging. So what's happening now is you've seen the stratification. Clint Henderson from the points guy again, so you've now got things like the Delta One lounge. This is a whole other level of experience. You get your own dedicated entrance at the airport. You get a shortcut to the security line, you get dining in restaurant or table service. There's all kinds of amenities in these lounges, but they're much harder to get into than they used to be. You have to be flying in Delta 1 business class or something like this. Card issuers aren't just getting into the airport business though. Chase, for example, have had pop up lounges everywhere from the Olympics in Paris to art week in Miami. Dana Powell from Chase. So customers have told us that they're looking for us to introduce them to new things, whether it be destinations, dining experiences or events and experiences. So we're really doubling down on creating those experiential moments for our card members. Really perks over points and how people live their lifestyle is what they've actually come to expect from their card. And other companies are taking a similar approach. This is East 42nd street in the heart of Midtown Manhattan. And right behind me is Grand Central Terminal, perhaps New York's most iconic railway station. And from here it's a short walk to two of the city's most famous landmarks, Times Square and the Chrysler Building. But the reason I'm here is, is the building in front of me. One Vanderbilt, or rather what's inside it. American Express, Centurion New York. And then I brought out the Friedman Taki because you said it, you know, and I couldn't just not. It's still going to have that gochugaru sauce, but it's also going to be. I'm being served on the 55th floor of the skyscraper in what feels like a private member's club, complete with floor to ceiling windows and 360 degree views of new York. This is Centurion New York, which is designed for Centurion card holders. You can't actually apply for the card. You have to be invited by the company to take one out. And no, they won't tell you what the criteria are, but the card comes with a $10,000 sign up fee and an annual fee of $5,000 on top of that. Hi there, I'm Audrey Hendley. I'm the president of American Express Travel. Like other companies I spoke to, American Express don't see themselves just as a card company, but a lifestyle brand. This space is designed primarily for Centurion customers to come and enjoy on their own or bring their guests. And we like to feel like they can have the best of everything and bring the best of our brand out in that time that they're with us when they're here. Customers can book the space if they want and have some people have small weddings here, proposals, you know, bar mitzvahs, you name it. But we also have events for customers here, wine tasting, we bring in famous chefs to. We've had a chef from Nomo. We've had lots of different, like luxury brands come in and talk about the products that they sell. But it's a far cry from using your bank card to buy a cup of coffee or whatever. We're trying to elevate the experience of really trying to communicate that we're a premium lifestyle brand. And this brand is about bringing membership to life. And it's very special for us to be able to meet our customers when they're traveling because we don't have locations in high streets or we don't have branch offices and lounges are a very important way for us to be able to meet our customers, talk to our customers and for them to experience us. We're more than a credit card company or a charge card company. It's more a lifestyle brand. Grab a coffee. Obviously, if you have any banking questions, we're here to help you out. Card issuers have also moved into that staple of the 21st century lifestyle. The coffee shop. When you come in here, it's a relaxed area. Anyone can use their cafe, but if you're a Capital One card user, you get your coffee half price. This place doesn't immediately feel like a bank. It has the exposed vents, the bare brick walls, the barista coffee machine, all the sort of styling we're used to seeing in coffee shops these days. In fact, the only immediate giveaway that you might be in a bank is the neon Capital One sign on the wall and their branded touchscreens. And look a bit closer, you might spot one of their casually dressed people who looks like a customer, but is actually what Capital One calls their ambassadors here to welcome you in and help you with all your banking needs. At their cafe Cum bank in the Georgetown neighbourhood of Washington, D.C. i met Sean Rowley. He's in charge of their network of more than 50 cafes. We're creating a showroom for our products for customers to come in and see, you know, Capital One in action, to touch it, to smell it and even taste it with our cafes and watching them walk out as raving fans and advocates for us is kind of the return that we're looking for. Do you think people go out and go, wow, Capital One's amazing though, or do they go, I had a really nice cheap cup of coffee? I mean, I think you can ask them. I hope they say both. I hope they say I appreciate the value and I hope they say, this is an amazing and different spot and I want to learn more. Hi, I'm Emma Spencer. I work at Tuckernock, a clothing company. There's plenty of cafes in Georgetown. Why come to this one? My team loves going on matcha runs and we can't afford the $7 matcha every couple of times a week, so we come here to get a discount and get half off. Since I'm Capital One member Adam Choudhury, I ordered the mocha chocolate seasonal drink and chocolate croissant. You can do banking here, but does this feel like a cafe or a bank or both to you? To be honest, more of a cafe than a bank. Don't feel like, you know, overwhelmed with, like any pressure about any of their products or it's like, you know, more of a cafe. Were you a Capital One customer before or did you join to get the discount on the coffee was before, but, you know, just approach benefits, you know, not just this perk, but also the perks at the airports. Like, I really enjoy the lounges and, you know, stuff like that. So, yeah, I try to use all of the perks of my credit card, cheap coffee, a nice place to relax, whether on the high street in midtown Manhattan or at the airport. But who pays for all of this? The cardholder? Yes, some of them have upfront fees, but it's broader than that. Lulu Wang's a professor of finance at Northwestern University. He studied how credit cards work and where the costs land. What ends up being the case is that from the perspective of any individual consumer, the rewards are free. Right. Because your own spending behavior is not going to cause the merchant to kind of raise the price for you in particular. But collectively, as a society, they're not free. Right. Because if we impose all these costs on the merchant, that ends up being a cost that is ultimately borne by all of us as consumers. And so this credit card system creates a really nasty transfer, whereas kind of the high credit score, well off people who get to use the high merchant fee, high reward cards. And then it's the kind of the rest of society that has to bear that, that cost. I mean, I think that you could probably make that same argument about a variety of things. You could make that same argument about the cost of food. You could make the same argument about most consumer goods. I'm not sure that, like, lounges are the thing that specifically benefits from that dynamic more than another category. Jen Sharrocks, responsible for Capital One lounges. She was the only one of the three credit card issuers I spoke to willing to address the question head on. Our lounges are really, they're open to any traveler passing through the airport, Capital One cardholder or not. And we are, we're really excited about the both the experience that we've created and the customer response. Whatever the economics of the places I visited, the direction of travel is clear. More lounges and more lifestyle experiences are coming. As card issuers compete against each other. The arms race isn't slowing down. Thanks for listening to Business Daily. There are loads more episodes you can listen to. Just search for Business Daily wherever you get your podcasts. If you want to get in touch, you can reach us at business daily@BBC.co.uk and if you bump into me at an airport, I drink my coffee white with one shot and no sugar. Hey, Ryan, that was a fast trip. It was like you teleported. Yeah, just got in. I'll get all my expenses logged, I promise. Oh, no, you're okay. SAP Concur uses advanced AI so your expense report will practically write itself. Quite the breakthrough. It's like we've been teleported into the future. All right, so, just curious. Would you give us written permission to convert your matter into energy patterns and reassemble you at, say, random travel destinations? Margaret, are you building a teleporter? No. Yes. SAP Concur. Helps your business move forward faster. Learn more@concur.com.