Who Owns Travel Loyalty?

Summary

Podcast Summary: Thoughts on the Market — "Who Owns Travel Loyalty?"

Date: June 10, 2026
Hosts: Ravi Shankar (Morgan Stanley North American Airlines Analyst)
Jeff Adelson (Morgan Stanley US Consumer Finance Analyst)

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Episode Overview

This episode examines the evolving question of who really "owns" travel loyalty in the current landscape: the airline, the bank, the rewards platform, or the consumer? Drawing on insights from recent industry conferences and survey data, Ravi and Jeff analyze the dynamics behind travel co-branded credit cards, consumer loyalty behaviors, increasing competition between banks and airlines, and the prospects for the future of loyalty-driven revenue.

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Key Discussion Points & Insights

1. Defining the Loyalty Landscape

• Context: Travel co-branded cards sit at the intersection of high-spending consumers, loyalty, and competition for wallet share. While these cards are increasingly important for revenue, achieving true customer loyalty is a nuanced and competitive endeavor.
• Quote:

  “They’ve become a more important revenue stream across travel, banking and hospitality. But it’s not as simple as more travel means more co brand growth. Most customers still want flexibility, cash back and low fees.” — Ravi [00:46]

2. Market Penetration & Consumer Behavior

• Survey Findings:
  • 90% of cardholders use general-purpose cards
  • Only 22% have airline co-branded cards
  • 12% have hotel co-branded cards
• Implication:
  The majority of consumers are relatively loyal to their existing payment methods, and enticing them to switch requires a superior value proposition.
• Quote:

  “Issuers and travel brands aren’t just competing with each other, they’re competing against habit. So to win they need to offer something that’s meaningfully better than what’s already in the consumer’s wallet.” — Jeff [01:27]

3. What Consumers Want: Cash Back vs. Travel Rewards

• General Preference:
  Cash back remains the dominant reward among typical cardholders, but travel-specific rewards have intense appeal for a narrower, high-value segment — frequent travelers and loyalty-program enthusiasts.
• Engagement Differentiators:
  For these consumers, perks like lounge access, upgrades, and loyalty status are highly attractive.
• Quote:

  “Travel rewards don’t need to win with everybody to be valuable. What makes them so powerful is they resonate with a specific group of customers.” — Jeff [02:37]

4. The Importance of the Premium Consumer

• Spending Power:
  • High-income individuals (> $150K/year) spend about twice as much on their primary card and pay nearly twice the annual fee
  • They are more loyal, carry more cards, and represent lower credit risk
• Strategic Value:
  These consumers are the central focus for banks and airlines due to their profitability and stability.
• Quote:

  “The battle isn’t really for the average cardholder. It’s for the affluent consumer who’s driving a disproportionate share of spend in the US economy.” — Jeff [03:09]

5. Partnership or Tug-of-War? Emerging Competition

• Traditional Model:
  Airlines provide loyalty experiences; banks provide card issuance and scale. Both benefit when travel spend increases.
• Shifting Ground:
  • Banks are introducing flexible, proprietary rewards ecosystems, including lounges and transferable points—posing potential competition to airlines’ own programs.
• Investor Lens:
  • Watch whether high-income travel spend continues growing and if exclusive airline rewards remain compelling.
  • Flexibility is increasingly valued by most cardholders, except the most frequent travelers.
• Quote:

  “The future does seem to depend in part on whether these travel brands can continue to deliver on experiences that the consumers really can’t get elsewhere.” — Jeff [04:11]

6. Airlines: Building Loyalty on Solid Product Foundations

• Analogy:
  Like a restaurant needs great food to profit from its wine menu, airlines must have a strong core product to fully capitalize on loyalty and co-brand programs.
• Sustainability:
  Loyalty revenue cannot replace but only enhance core revenues. Quality and consistency in the air are the foundation for any lasting loyalty.
• Quote:

  “You cannot build an incredible loyalty or co brand franchise without having a very strong core airline product.” — Ravi [05:46]

7. The Scale and Profit Margin of Loyalty Revenue

• Growth & Margins:
  • Co-branded card revenues are growing at low double-digit annual rates, faster than core airline revenues
  • Estimated to comprise a low double-digit percent of total industry revenues, with operating margins of 35–50%
  • Considered half of overall mid-cycle airline profitability and much more stable than ticket sales
• Quote:

  “We think it has already grown to be about low double digit percentage of overall revenues… something in the order of 35 to 50% operating margins, if not much higher.” — Ravi [07:03]

8. Consumer Mindset Shifts Post-Pandemic

• Findings:
  Travel spending is now regarded as a near-essential expense.
  • For the average consumer: A top-three spending priority
  • For affluent consumers: The top priority
• Implication:
  The willingness to pursue travel rewards over general rewards is airline-specific but underpinned by a growing, resilient travel market.
• Quote:

  “Travel is now almost a consumer staple spending item rather than being a consumer discretionary spending item that it was before.” — Ravi [08:23]

9. Projections & Scenarios for Growth

• Forecasts:
  • Base case: Co-branded card revenues grow from $25B to $60B in 10 years (double-digit CAGR)
  • Bull case: Expansion in market share could push revenues to $100B
  • Bear case: Increased competition or macro risks could temper profitability but not necessarily shrink the pie
• Key Uncertainties:
  Growth depends on continued prioritization of travel, durable consumer loyalty, and partnership cooperation.
• Quote:

  “In our base case, we have the industry growing at roughly the same double digit CAGR that it has been for the last few years. That sees the market go from about $25 billion today to about 60 billion in the next 10 years.” — Ravi [09:58]

10. Future of Loyalty: Who Really “Owns” the Consumer?

• Conclusion:
  Ultimately, each transaction is a vote for the value of an ecosystem, and the true “owner” of customer loyalty is the party that creates the tightest, most holistic relationship with consumers.
• Quote:

  “The winner isn’t necessarily the company with the best card too. It’s the company that creates so much of the strongest overall relationship with the consumer. And that’s why this competition matters so much across banking, travel and hospitality.” — Jeff [11:23]

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Standout Moments & Memorable Quotes

• On entrenched habits:

  “Issuers and travel brands aren’t just competing with each other, they’re competing against habit.” — Jeff [01:27]

• On the analogy of loyalty economics:

  “If you don’t have really good food and ambience and service, you can’t make money off of the wine menu. Similarly, we think the airlines need to continue to focus on their core product…” — Ravi [05:46]

• On the scale of loyalty revenue:

  “This business can be about half of overall mid cycle profitability, maybe even higher for some of the airlines. Even though it is considered to be an ancillary revenue stream.” — Ravi [07:03]

• On the definition of true loyalty:

  “Every swipe is really a vote for which ecosystem delivers the most value.” — Jeff [11:23]

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Key Timestamps

• [00:23] – Setting the stage: Industry conferences and the central question of customer ownership
• [01:27] – Survey insights: Penetration and consumer loyalty habits
• [02:37] – Travel rewards: The power of a passionate minority
• [03:09] – Importance of premium consumers
• [04:11] – Evolving partnerships and competition between banks and airlines
• [05:46] – Airlines’ core product as the foundation of loyalty revenue
• [07:03] – Why loyalty revenues matter for airlines’ bottom line
• [09:58] – Industry revenue forecasts and scenario analysis
• [11:23] – Ultimate conclusion: The meaning of winning the loyalty game

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Summary

This episode delivers a clear-sighted analysis of the shifting landscape in travel loyalty, underscoring how banks, airlines, and platforms are all vying for the high-spending, loyal consumer. The discussion highlights that while co-branded cards and loyalty programs are lucrative, they must be built atop a robust core product and offer compelling, differentiated value. The future of travel loyalty—and who "owns" it—will go to the ecosystem that forges the deepest, most rewarding relationship with the consumer.

Transcript

[A]

Welcome to Thoughts on the Market. I'm Ravi Shankar, Morgan Stanley's North American Airlines analyst.

[B]

And I'm Jeff Adelson, Morgan Stanley's US Consumer finance analyst.

[A]

Today, who really owns your travel loyalty? The airline, the bank, the rewards platform, or you? It's Wednesday, June 10th at 7am in New York.

[B]

So Ravi, you just came from your annual travel conference and I'm about to head into the second day of Morgan Stanley's 17th annual financials conference here in New York where we're hosting roughly 100. A lot of themes are coming up there. Retail engagement, product innovation, regulatory change, AI digital assets, capital markets recovery, and so on. All of these connect back to our bigger question, who owns the customer relationship?

[A]

And that's exactly where travel co branded cards come in. They sit at the crossroads of premium consumer spending, loyalty and the competition for wallet share. They've become a more important revenue stream across travel, banking and hospitality. But it's not as simple as more travel means more co brand growth. Most customers still want flexibility, cash back and low fees. Premium travelers and loyal airline customers behave differently. Let's start with the cardholder. Most consumers have a credit card, but travel co branded cards are still a much smaller piece of the overall wallet. So how big is the opportunity here and how hard is it to get consumers to switch?

[B]

So what's actually interesting Ravi, is that travel co branded cards are still relatively underpenetrated. In our survey, about 90% of cardholders have a general purpose card While only about 22% have an airline card and 12% having a hotel co brand card. So on the surface the Runway for growth does look significant. The upshot is also that once you get these consumers in the door, they are much higher spending and drive a ton of volume and incremental card economics. For both the banks and and their co brand travel partners, the challenge is that consumers are pretty loyal to their cards or airlines that they already use. So most people aren't actively looking to switch. They tend to add a new card only when the value proposition is compelling enough. And sometimes given these one time nature of the signup bonuses, it results in some churning without keeping the customer for the long term. So ultimately what this all means is issuers and travel brands aren't just competing with each other, they're competing against habit. So to win they need to offer something that's meaningfully better than what's already in the consumer's wallet. Got it.

[A]

So consumers seem to care most about value fees, rates and reward. Cashback still leads by a wide margin so where do travel specific rewards fit in?

[B]

The nuance here matters. Travel rewards don't need to win with everybody to be valuable. What makes them so powerful is they resonate with a specific group of customers. Specifically the ones who are traveling, the frequent travelers, the ones who spend more, and those who engage more deeply with the loyalty. Airline programs, for instance. For those consumers, lounge access, status, benefits, upgrades and airline or hotel points can create a level of engagement that's difficult for just a basic cash back card to replicate.

[A]

So the premium consumer looks different. Why is that customer so important to card issuers?

[B]

So higher income consumers frankly just spend a lot more. They're more loyal, they carry more cards, and they're more willing to pay a higher annual fee if they feel like they're getting the value from the card back after they pay that fee. In our survey, consumers earning over 150,000 per year of income spend roughly twice the amount on their primary card. And they were willing to pay almost twice the annual fee as other income cohorts. They're also attractive from a credit standpoint. From a delinquency perspective, these customers are more likely to pay their balances in full each month and as a result have lower credit risk. And often they keep long standing relationships with their banks or their airline partner. That's why premium card and travel partnerships remain such an important customer acquisition tool for a bank and has a really long lifetime value. The battle isn't really for the average cardholder. It's for the affluent consumer who's driving a disproportionate share of spend in the US economy.

[A]

Got it. So the banks and travel brands are partners today, but they're also starting to potentially compete more directly for the same customer. What should investors watch to see whether this stays a partnership or becomes more of a tug of war?

[B]

So historically this has been a successful partnership, especially in recent years as high income consumer spending pie has grown in the US how this works is airlines provide loyalty and travel experiences. Banks provide the card issuance, distribution, scale and share back those card economics to the airlines. Everybody wins when the travel spend grows. But we're starting to see some things overlap. Banks are building their own premium travel ecosystems. That includes things like flexible rewards, points with the ability to transfer to any airline you want, proprietary lounges away from the airlines and travel benefits that increasingly compete with airline loyalty programs. So what investors should watch from here, in our view, are two things. Number one, is the high income consumer in the travel pie continuing to grow. That's really what's held Everything up and frankly driven the airlines that you cover to realize that they hold this golden ticket, they hold the access to that consumer. So they've begun negotiating for more of the economics away from the card issuers. The second thing we think that you need to watch out for is whether consumers really continue to value these airline specific rewards enough to justify the existing partnership model. Our survey indicated that most consumers still prefer flexible rewards over points tied to a single airline. But among frequent travelers and airline loyalists, the airline ecosystem does remain powerful. So the future does seem to depend in part on whether these travel brands can continue to deliver on experiences that the consumers really can't get elsewhere. So Ravi, maybe switching to you for the airlines, the question I have for you is a little different. How do you turn loyalty into a durable, profitable revenue stream without losing sight of the core travel product?

[A]

That's exactly it kind of. You referenced the strength of the travel ecosystem in your previous response and I think that's exactly what the airlines need to focus on. I think the takeaways for the airlines from the survey is very clear. You cannot have a co brand revenue opportunity in isolation. It is just a layer on top of your core revenues. You cannot build an incredible loyalty or co brand franchise without having a very strong core airline product. The analogy we use in our report is that it's sort of like the restaurant business. Most restaurants usually make the bulk of their profitability off of the wine menu or the liquor menu. Even though you're going there primarily for the food and the ambiance and the service. If you don't have really good food and ambience and service, you can't make money off of the wine menu. Similarly, we think the airlines need to continue to focus on their core product, whether it's their network or their reliability, their safety, where they fly, the quality of the product in the sky, the lounges as you mentioned. And once you get all of that in order, then you can tap into the co brand revenue opportunity over time.

[B]

So maybe just running with that analogy on, you know, co branded revenues becoming a more meaningful part of the airline business, why are they so strategically important in your view? Why should the consumer pay for that bottle of wine that they can get?

[A]

Look, we don't have a full disclosure from the airlines just yet, but we have some nuggets that tell you that this is a very attractive revenue opportunity. Right. So look at some of the numbers we do. We think that this business has been growing at a low double digit CAGR for the industry, which is much faster Than core revenue growth. We think it has already grown to be about low double digit percentage of overall revenues. And from the little info we have, we can surmise that this is a very, very profitable business. Something in the order of 35 to 50% operating margins, if not much higher than that in an industry that is overall working really hard to get to double digit margins on a core basis. So this business can be about half of overall mid cycle profitability, maybe even higher for some of the airlines. Even though it is considered to be an ancillary revenue stream. This is also a very, very stable business that doesn't exhibit the kind of cyclicality or volatility as the core passenger airline business. And so we think the airlines will be looking to grow this for the margins, for the stability and for the honestly growth opportunity over time.

[B]

And if we think about that opportunity growing over time, if consumers really do care more about tangible benefits than brand prestige, as I think our survey indicated, what does that mean for the airlines trying to build that loyalty through these car partnerships?

[A]

It's exactly as you mentioned kind of earlier, that we think both the banks and the airlines need to keep investing in the product. They need to keep giving the consumers enough rewards that make it seem worth the fees and worth the while to subscribe to a travel co brand card versus going with a more generic card that gives you just plain cash back. And I think again it comes down to whether the core airline product is strong enough for the consumer to warrant going down the path of building loyalty with the airline franchise. And if the consumer is committed to travel as a share of the consumer's wallet significantly enough to commit to travel card benefits over generic benefits, we have a lot of confidence in the latter. In that all of our data, all of our surveys since the pandemic have shown that travel is now almost a consumer staple spending item rather than being a consumer discretionary spending item that it was before. And travel is now a significant spending priority after only groceries and household staples for the average consumer. For the high end consumer is the number one spending intent category. So we know that travel is very important. Whether the airline is worth kind of committing to or not is very airline specific in our view.

[B]

If we put this all together and you think about your forecast for the industry and our joint forecast for the co branded card revenues, maybe just talk a little bit about how you think those revenues keep growing so strongly or whether they continue to grow strongly, or is there a risk that this all plateaus at some point in the near future.

[A]

Look, that's a great question and that's why we highlight three possible scenarios in the report. In our base case, we have the industry growing at roughly the same double digit CAGR that it has been for the last few years. That sees the market go from about $25 billion today to about 60 billion in the next 10 years. In our bull case, we have travel as a share of overall spending and travel cards as a percentage of overall credit card issuance, which you highlighted earlier was a pretty low number, actually expand to something more reasonable. And that's where we see the potential for the market almost quadrupling from $25 billion today to 100 billion in the next 10 years. And our bear case, that's when you talk about a macro risk. Second, maybe some kind of slowing down in travel as a spending priority, which we don't think happens. But what's more likely is the point you referenced earlier in response to my question about the relationship between the airlines and the hotel companies versus the credit card issuers. Maybe changing a little bit and this becoming a little more of a free for all in the industry and a little more competitive. That could potentially kind of hurt the economics for the overall industry, even though the size of the pie will continue to grow. So that brings us back to the consumer's wallet. So every time I'm on a trip I have several options. Maybe a cashback card, maybe a premium travel card, maybe an airliner, hotel co brand card. So which one am I reaching for every time I look to swipe?

[B]

Well, I mean I think at its core it really depends. It's a battle at the end of the day for the loyalty of a high quality, sticky and heavy spending consumer. And consumers are largely rational, right? So they're going to go with a card where they think they get the best value and if that's their airline card, where they think they can accrue the best loyalty status and maybe get their first class upgrade every now and then and get unlimited access to the lounges. Maybe they'll choose that. But really in a survey what we learned was most consumers tell us they care about value, flexibility and rewards. So the highest value consumers I just mentioned are also looking for experiences, convenience and status. So that's why the banks, airlines and hotels are all investing so aggressively in these premium ecosystems to try to lock them in and keep them loyal. Every swipe is really a vote for which ecosystem delivers the most value. If you think about it, right, the winner isn't necessarily the company with the best card too. It's the company that creates so much of the strongest overall relationship with the consumer. And that's why this competition matters so much across banking, travel and hospitality. So we are watching this competition. So far it's working. It's a rising tide that's lifting all boats. But as I mentioned before, it really will only continue to work if our forecasts are right and the high income consumer views this as a less of a discretionary spend item and more of a stable spend item. And if that pie and the high income consumer continues to grow in the US then this relationship can continue to work for the foreseeable future.

[A]

We think that makes a ton of sense. Jeff, thanks so much for joining me on the show today.

[B]

Thanks Ravi. It was my pleasure.

[A]

And to our listeners, thanks for listening. If you enjoy thoughts in the market, please leave us a review wherever you get your podcasts and share with a friend or colleague today.

[B]

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