United’s President Doesn’t Believe You Know the Difference in Credit Cards

During United’s investor call airline President Scott Kirby reiterated his belief that the largest airline a market will sign up customers for their credit card. If they grow in a market they’ll get more credit card signups and make more money from Chase.

Nowhere in the discussion is there anything at all about the features or benefits of that credit card. It’s deterministic — customers will ignore the better card in favor of the one from the larger airline in their home city.

Joe DeNardi from Stifel, who frequently makes the argument that airlines are undervalued because the market doesn’t recognize the contribution of credit card revenue, has told me that his valuation model requires ‘only’ 4-6% growth. He fails to realize that credit card revenue for airlines is more likely to fall than to rise over the next 10-15 years.

He began a question to Scott Kirby, “one area where you don’t have to worry about competitive response is the credit card.” Scott Kirby disagreed — saying it’s competitive to be biggest airline in a city in order to attract credit card customers.

There’s some number of customers about which this is certainly true. But it’s a shrinking base. When analyzing his airline’s route network and pricing Kirby is laser-focused on marginal effects. That’s why it’s so striking that he ignores those when discussing the co-brand credit card market.

If you want to understand why airline co-brand cards are falling behind bank-issued products, one reason is that airline executives simply don’t understand the competitive environment they’re facing. By continuing to cut the frequent flyer program — raising award pricing, failing to make award seats available — they’re driving customers away to other products.

In order for airlines to protect their credit card revenue they need to preserve the value of the program itself, not merely grow the airline.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. Airlines need to come out with more creative ways to award points for CC spend instead of the typical 2 points per $1 on my airline and 1 point per $1 everywhere else. That used to be an okay value but now there are a plethora of cards that are better in every way except offering a free checked bag

  2. I’m 100% convinced that Kirby is much more knowledgeable about this issue than you are. First of all, he has the data, and you just have an opinion. Second of all, it’s common sense.

    The level of financial sophistication — and the level of frequent flyer sophistication — is quite low in America (and the rest of the world). I’d be quite surprised if more than 10% of the people who have airline credit cards could lucidly state the comparative benefits of the various airline cards. Rather, most who get one of these cards do so because they’re at least occasionally flying that airline and think they can earn free trips with that card — and maybe take advantage of some of the more obvious benefits, like a free checked bag.

    So it is glaringly obvious that if UA achieves better market penetration in secondary cities where it increases service, it will obtain more cardholders in those cities. I would say that is a Captain Obvious observation, and far more important than any marginally better feature or benefit offered on that card compared to its competitors.

  3. @iahphx (January 25, 2018 at 3:29 pm) is spot-on – stickiness with financial products is a by-product of good ol’ fashioned American inertia. Anecdotally speaking I have an n=2 validation of this hypothesis within the family – can’t win ’em all.

  4. I think Kirby is well aware of nuances too. The only CC users who understand value of points are hackers who are systemically destroying the value of keeping cards and acquiring points through spend. The knowledgeable users are undermining the system far more than the airlines and limited availability. Ride the wave while you can, days of CC are ending anyway. Gary has pointed this out in other articles.

  5. @iahphx is right. Don’t keep falling into the trap of thinking everyone is like us. We are 1% of the market at best. I know many financially savvy 60 year olds who have only ever applied for 2 or 3 credit cards in their entire lives. They rack up hundreds of thousands of points or miles and when they go to use them and can’t figure out how to get an award ticket, they say “Oh well” and pay cash.

  6. What percent of a airline credit card customers are the die hards versus the casual traveler? I would be a die hard, but both of my parents have the United card because they are closest to IAD. They don’t want to juggle cards, or use spreadsheets, or track spending. So 2 out of a sample size of 3 confirm what Kirby said.

  7. I once flying Delta from SFO, and the lady seating next to me paid for an in-flight meal using her MileagePlus Explorer card. I asked her how come you have a United card and flying Delta? (I know the question is nonsense, but I just wanted to start a chat). She replied “I don’t know I just applied for the card in the airport because I could receive 500 (yes she said 500) miles after spending $5000.” I was just like “it should have been 50000 miles after spending $5000 or perhaps less like $3000 or $1000”. She said “no it was 500 miles.” I asked whether she know what kind of redemption she can have with 500 miles, and she had no idea what a redemption is and how she can use miles. I asked her how long she hold the card, and she said for 2 years. I asked her whether she knows the card has an annual fee, and she said it is like $9 (yes she said $9). Later she told me how she is happy that she is travelling with her children after 9 years because she didn’t have the money to travel with them. And the only time she had a flight in last ten years was when she went to visit her parents two years ago (and that was when she applied for the MileagePlus Explorer card at the airport).
    At this point my brain was exploding …

  8. Airline credit cards are an outdated model. Sure it was great 10 years ago when a roundtrip was only 25,000 miles and everything was a saver award. Now it’s hard to find saver awards especially on Business or First Class awards. There’s Chase, SPG, & Citi with transferrable points and bonus categories. Airlines only give you a bonus when purchasing on that airline. These air travelers. Why not give bonuses on rental cars and hotels and possibly other airlines? Then that would be your go-to credit card for most or all purchases.
    I’d much rather my friends get a Starwood credit card with valuable points and no blackout dates with award redemptions that don’t change or use a 2% cash back credit card where cash is king.

  9. @Miz… Thanks for the real world perspective. Imagibe how much happier customers could be if they could easily convert a year of spending into one or two tickets (with travel companion passes or discount fares on SW or Alaska). Airlines would fill seats with real revenue fares, and customers would pay annual fees, high interest rates, all kinds of credit card surcharges like late fees, and get a round trip ticket or two.

  10. Another thing that should, over time, significantly increase the demand for airline credit cards is the birth of Basic Economy fares. Candidly, this blog — and many others — do an inadequate job of addressing the needs of more “typical” travellers. Like you’ll focus on strategies to redeem for multiple international premium award tickets, but ignore the needs of travellers who only fly a few times a year. For ordinary travellers, you should be screaming at the top of your lungs about the benefits of getting an airline credit card for their next domestic trip (heck, you might even earn a commission if you do). This is the single smartest “frequent flyer move” most travelers can make, since most low domestic fares are now Basic Economy. By getting the credit card, they earn a ton of free miles and, equally importantly, skirt many of the odious new rules of Basic Economy. Like on AA, you get to keep your carry-on, get to check a bag free, and avoid being stuck in Boarding Group 9. Almost no one in the general public seems to understand this. Kirby could probably double sales of Citi AAdvantage and Aviator credit cards if he marketed them this way, but I’m not sure the airline wants to educate folks about how to intelligently fly Basic Economy.

  11. @iahphx – actually you’re wrong on what i have or my role here. four years ago the industry wasn’t talking about the future role of interchange rates in the direction of cobrand revenue, now they are and in fact some cobrand contracts now have provisions for it. i’m right in the middle of these conversations, having them with airline executives and bank issuers.

  12. Can just speak for myself. Am a million miler on United and armed with a Chase Sapphire Reserve and Priority pass am at a point where United’s Mileage Plus program has very little hold over me. All I care about are which airline has the least expensive transatlantic business class (in some cases Premium Economy) tickets across the pond. Happy to fly Delta One, Turkish, KLM or whatever. If United’s program worked the way it did several years ago I would go out of my way to fly United but since they want to treat everyone by the fare they paid then that means I’m free to pick the airline with the best fare to get the best service. United is really shooting themselves in the foot here.
    And I think it’s crazy, by the way, that United credit card holders are boarding group 2 and not 3. That completely negates loyalty by someone actually flying United to reach Premier Executive. Just get cheap credit card and use it only to buy United airline tickets for that benefit and the free bag and otherwise put it in a sock drawer. Use all the other cards for your real spend. This makes no sense either.
    What I will say is that United Business class onboard service has improved massively. Polaris minus (minus the seats or lounges currently) is still a good experience.

  13. My first real credit card was the Continental Card because I lived in a city where they had a lot of flights and I liked the airline. I knew nothing about points or miles except that it made sense to gain miles on an airline I flew most often. Often being 2-3 times a year.

    I still have the (now United) card, at this point only because as my oldest credit card, I don’t want to knock it off my credit history. It costs me closed to zero because it gives me free bags (aka $50-$100 a year benefit). So whatever, I buy my United trips on it.

    I never use it for anything else.

    $1 for 1 mile is idiotic.

  14. “He fails to realize that credit card revenue for airlines is more likely to fall than to rise over the next 10-15 years.”


  15. @Andrew interchange isn’t getting pricier, it’s likely to fall – whether from regulation, lawsuits, or most likely new technology. This has happened in Australia and Europe. Card agreements in the Gulf region explicitly include revisions for falling interchange. And that leaves aside competition from bank proprietary products that will compete down margins.

  16. @Gary: I know the physical form of the plastic card will disappear, but the loyalty tie, the rewards program, will continue with its successor, surely? Just as it does with credit card purchasers made without a card present.

  17. I agree most people are idiots. There was a guy on reddit asking how to get CPUs on EWR-HNL (which is not CPUable btw) from holding the Club card (no elite status AFAIK).

    Would be very interesting (and pretty) to see density maps of airline cardholders across the country!

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