Airline lounges serve millions of guests annually and make the airlines billions of dollars.
Airline lounges are a “money-making” amenity for millions of travelers and for millions in airline revenues. The COVID pandemic unleashed consumer craving and revenge travel. Even without business travelers, leisure travelers looked for amenities to relieve the little miseries that can accompany travel today. Airport lounges have become a hugely popular answer for leisure travelers who want to have a more pleasant trip.
Revenge travel has packed hordes of leisure travelers into airports They are seeking premium experiences — so much so that overcrowding is a thorny issue, with social media documenting long lines in airport concourses. This is partly because higher fees for co-branded credit cards now feature lounge access.
Airline-operated lounges encourage loyalty, provide enhanced service, define a carrier’s brand, and support claims for providing premium service. Building new lounges takes time and can require piles of money.
The revenue stream provided by these upscale sanctuaries and new lounges is making money for the airlines. They are appearing in airports worldwide. The guide, Airport Lounges are the Hottest Ticket, describes lounges’ economics and consumer fascination with these airport retreats. I have taken the liberty of using the research of Jay Sorenson, the study’s author, in this post.
Credit cards and airline lounges are fellow travelers.
High-spending consumers, premium travel, credit cards with perks, and lounge access are swirled together in a complicated relationship involving airlines and card-issuing banks. It should be no surprise that big money is the overlap of this locally; the revenue produced by co-branded credit card programs is about $35 billion. That’s the money paid by banks to airlines for the miles and points accrued by cardholders, along with a host of other activities. Cards of all types can now include lounge access perks.
The problem seems most acute in the US, which is enjoying a confluence of contributing activity: the popularity of premium travel and co-branded credit cards. This trend defined the US industry for 2023, and will influence it for many more years to come to include the rest of the world.
Why has this occurred and what are the drivers? I offer five answers to this.
- Many upscale consumers simply have more money to spend. In the US, household income grew rapidly during the pandemic. From 2019 to 2022, the median net worth of American families jumped 37 percent after adjusting for inflation.
- Everyone wants more personal space, which is more critical thanks to the pandemic. This translates into demand for premium seating on aircraft and more airport lounge use.
- Social media makes us vain and envious. Folks love posting pictures of perfect lives, including selfies while stretched out in business class. Many envy the luxe life, which creates the desire to book something better.
- Influencers influence booking behavior. We can elevate our status through an upgrade. It is called Revenge TOnline booking by airlines has enabled airlines to sell directly to travelers and to use pricing and promotion to encourage impulse spending. The service part is interesting because consumers perceive economy travel as “just acceptable,” while premium service raises the experience to something “aspirational.”
The report focuses on the relationship between Delta Air Lines and American Express.
Because their financial disclosures are more detailed than those of other airline-bank tie-ups, in its 2023 annual report, Delta Air Lines disclosed $1.104 billion of miscellaneous revenue, primarily comprised of lounge access, including access provided to certain American Express cardholders.”
The highlight of development in the lounge business has been the influence of credit cards and the banks that issue them. Many cards now feature lounge access for additional upfront fees. This includes portfolios associated with airlines and the proprietary cards issued by banks such as Chase Sapphire Reserve. Airlines are excited by the revenue stream provided by these upscale trends.
The ideal customer is a cardholder paying a big annual fee for a card with club perks. They also buy premium seats and spend a lot on the card. Lounges have grown from a gift given to the few to a strategic tool that delivers billions in premium class and co-branded revenue.
Airport-Lounges-are-the-Hottest-Ticket
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Charlie Leocha is the President of Travelers United. He has been working in Washington, DC, for the past 14 years with Congress, the Department of Transportation, and industry stakeholders on travel issues. He was the first consumer representative to the Advisory Committee for Aviation Consumer Protections appointed by the Secretary of Transportation from 2012 through 2018.
