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  1. Analysis
March 29, 2012

Co-brand cards: In it together

Erik Howell and Maria Popova from First Annapolis Consulting consider the opportunities for airline and hotel co-brands, and profile the top 25 global players And Airline co-brands are particularly widely recognised by issuers as highly attractive products due to their attractiveness to lower-risk, higher-spend customers, the strength of frequent flyer programme marketing, and their widely understood value proposition.

By Verdict Staff

Erik Howell and Maria Popova from First Annapolis Consulting consider the opportunities for airline and hotel co-brands, and profile the top 25 global players


One of the most enduring credit card products is the travel co-brand. And Airline co-brands are particularly widely recognised by issuers as highly attractive products due to their attractiveness to lower-risk, higher-spend customers, the strength of frequent flyer programme marketing, and their widely understood value proposition.

In the US, the average active airline co-brand account spends over six times more than a generic bank-branded account, and over three times more than retail co-brands. Co-brand credit cards are also a major source of revenue for airline partners, and their importance to both issuers and airlines is illustrated by the financial assistance (in the form of prepaid miles and secured loans) provided by issuers to their airline partners during bankruptcy or financial distress (for instance Chase/United and American Express/Delta).

Hotel co-brands are often viewed as “second best” by issuers, but from the customer’s perspective have a very attractive (some would argue more attractive) value proposition relative to airline co-brands. However, hotel co-brands are much less prevalent than airline co-brands outside the US.

To ascertain different approaches to airline and hotel co-brands, First Annapolis Consulting examined the co-brand offerings of the 25 largest airline and hotel groups in the world (ranked based on 2010 average seat kilometers per week and total number of rooms, respectively). We found substantial differences between the top 25 airlines and hotels in terms of co-brand penetration, product sets, and geographical coverage, but also several new opportunities for both issuers and brand partners.


Programme coverage

While all of the top 25 global airlines had a co-brand programme, only 11 of the top 25 global hotels had a co-brand partnership. Airline co-brands have a widespread presence around the globe, whereas hotel co-brands remain mostly US-focused. While several airlines such as American Airlines and Lufthansa have co-brands in a large number of countries, most of the top 25 airlines have co-brands only in the home country or a small number of adjacent markets.


Issuers and Networks

In the Americas and Europe, airlines typically partner exclusively with one bank issuer per country, while in Asia and the Middle East, airlines often have multiple issuing partners in the same country. Of the top hotel chains, only Hilton in the US uses more than one issuer (American Express and Citi).

The lack of issuers with true global or regional coverage necessitates that in most cases, airlines form partnerships with a different issuer in each country. However, a small handful of airlines have formed partnerships with one issuer for multiple countries in a region (like Delta Airlines and Citi). Among airline co-brand issuers, Citi and American Express have the broadest geographical reach, and there are a few issuers with multiple programmes in a particular region or country (such as JCB in Japan, Chase in the US).

Given the smaller number of hotel co-brands and their concentration in the US and UK, the list of issuers with more than one hotel co-brand is fairly short: American Express, Bank of America/MBNA, Barclaycard, and Chase.

Among networks, Visa has the lion’s share of the number of hotel co-brand products (67%), while airline products are more evenly distributed between Visa and MasterCard (39% and 37%, respectively). Between its proprietary cards and its Global Network Services relationships, American Express has 17% of airline co-brands, while Diners Club, JCB, and CUP have much smaller shares.


Products and Value Propositions

Part of the success of airline co-brands is their widely understood rewards structure of earning (in most cases) 1 mile per unit of cardholder spending. In many products, double miles are earned for purchases made at the airline.

While this specific “earn rate” varies by product, in recent years several airlines have introduced premium products with higher annual fees and higher earn rates (e.g., Delta, American Airlines, Emirates, Continental, Air Canada, Quantas, KLM, and ANA). Delta also introduced a no annual fee product with a lower earn rate. Overall, only 7% of airline co-brand products had no annual fee (as opposed to 42% for hotels), and 44% of airline co-brand products had an annual fee of over $150 (against  4% for hotels).

The fiinverse relationship between annual fees and miles earned as a percentage of cardholder spending is therefore not surprising.

On a US dollar basis, airline co-brand annual fees average $100 – $135 in all regions except the Middle East, which averages $197. On average, cardholders in Asia need to spend around $61,000 in order to earn 25,000 miles, while in the North and South America, 25,000 miles can be earned with around $25,000 in spending.

On average across regions, $30,500 in cardholder spending is required to earn a rewards ticket within the same region (assuming 10% of spend is on the airline, and not adjusting for differences in rewards ticket values between regions). On a normalised basis across regions, the average top-25 airline co-brand requires $33,500 in cardholder spending to earn 25,000 miles.

Because the number of hotel programmes is smaller, the range of card products is also simpler. Hilton and Marriott in the US offer premium card products, as does Melia in Spain. In order to differentiate from airline co-brands, hotel co-brands typically offer a strong cardholder value proposition combing lower annual fees and a faster path to rewards.

Annual fees are generally lower than those of airlines, and average $30 – $40 in the US and Europe. The average spend required to earn a free night stay is $7,000, and 23% of hotel products offer a free night stay for under $3,000 in spend.

Both airline and hotel co-brand programmes give bonus points to new cardholders with the exception of a few programmes in Latin America and Asia. Annual fee waivers for the first year are also common. Hotel co-brands in particular offer very attractive new account and anniversary bonus packages to cardholders. Moreover, several hotel co-brands offer “fast track” loyalty programme status upgrade procedures.



Marketing for airline and hotel co-brand programmes varies widely by country. In North America, direct mail and the internet are the primary marketing channels, while in Europe, telemarketing is more common. Local regulatory policies also heavily influence the channels used. For example, in Europe many countries require physical signatures by the applicant, so mass advertising, person to person marketing (e.g., displays in airports), and the use of couriers in response to Internet applications is common. While marketing offers typically focus on bonus miles/points for applying, there is more variety and creativity in the use of channels (in-flight advertisements on cocktail napkins and seat back tray tables, and refer a friend offers).


Opportunities for Issuers and Partners

Although airline and hotel co-brand programmes are already highly successful, based on First Annapolis Consulting’s survey of the top 25 global airlines and hotels we identified four key opportunities to expand the reach and penetration of these programmes.


Expanding Programme Score

As noted above, while all of the top airlines have a co-brand programme, many limit the geographic scope of their programme to their home country market. For airlines with international routes, exploring new partnerships in secondary markets is an opportunity to expand the reach of their frequent flyer programmes via a proven loyalty product. For hotels, which have few co-brand programmes outside the US and UK, there is significant opportunity to launch new programmes in other markets.


Launching New Products

Both airline and hotel programmes have the opportunity to increase the penetration of existing markets by broadening their product range.

Both types of programmes are well suited to introduce new premium or super premium products to compete with the trend towards bank issuers targeting the affluent market. Introducing lower priced products with reduced earn rates to further penetrate the mass market, such as Delta and American Express have done, is also a potential option for both mature programmes as well as in developing markets in order to penetrate the growing segment of aspirational and emerging affluent customers.

When launching new products, airline and hotel partners can also consider establishing a direct contractual relationship with a network (instead of via their issuer) in order to take advantage of network resources and marketing support.


Enhancing Existing Products

Another path to expansion is to enhance the features of existing products, such as by providing special redemption options for cardholders, adding special partner-related benefits exclusively for cardholders (e.g., priority boarding, extra checked bag, lounge access, etc.), or by adding lifestyle benefits (e.g., concierge services). These enhancements increase the attractiveness of the product to cardholders and can help maintain relevance in the increasingly competitive affluent segment.

The emerging opportunities presented by mobile commerce also provide opportunities for innovation and differentiation. For example, Swiss-based Loylogic’s PointsPay product enables customers to use frequent flyer miles to pay for merchandise at the physical POS via a mobile solution around the globe.


Maximising Sales

Finally, issuers and partners can increase their use of unique partner sales channels to increase programme penetration. For airlines, this could include solicitors in airports, on board promotions by flight attendants, on board advertisements, increased visibility in lounges, etc. For hotels, this could include targeted offers at check-in, increased visibility of promotions in rooms, and the like. While the effectiveness of marketing tactics and cost per acquisition varies by market, both issuers and partners should continually test new marketing concepts.

Through these four opportunities, issuing banks and their airline and hotel partners have the opportunity to grow these already successful programmes. While in First Annapolis’s experience, specific opportunities vary depending on the partner and the local market, our examination of co-brand programmes for the top 25 global airline and hotel groups shows that even with these variations, the core attractiveness of these programmes to issuers, cardholders, and partners is strong, and that the programmes are well positioned for further growth.

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