Who Owns Travel Loyalty?

**Ravi Shanker** (0:00)
Welcome to Thoughts on the Market. I'm Ravi Shanker, Morgan Stanley's North American Airlines Analyst.

**Jeff Adelson** (0:05)
And I'm Jeff Adelson, Morgan Stanley's US. Consumer Finance Analyst.

**Ravi Shanker** (0:10)
Today, who really owns your travel loyalty? The airline, the bank, the rewards platform or you?
It's Wednesday, June 10th at 7 a.m. in New York.

**Jeff Adelson** (0:23)
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 135 corporates. 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?

**Ravi Shanker** (0:46)
And that's exactly where TravelCo 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 card holder. Most consumers have a credit card, but TravelCo 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?

**Jeff Adelson** (1:27)
So what's actually interesting, Ravi, is that TravelCo branded cards are still relatively under-penetrated. In our survey, about 90% of card holders 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 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 sign-up 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.

**Ravi Shanker** (2:26)
Got it. So consumers seem to care most about value, fees, rates and reward. Cash back still leads by a wide margin. So where do travel-specific rewards fit in?

**Jeff Adelson** (2:37)
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 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.

**Ravi Shanker** (3:04)
So the premium consumer looks different. Why is that customer so important to card issuers?

**Jeff Adelson** (3:09)
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 attracted 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. It has a really long lifetime value. The battle isn't really for the average card holder, it's for the affluent consumer who's driving a disproportionate share of spend in the US economy.

**Ravi Shanker** (3:57)
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?