Credit Card Competition Act Could Hurt Corp. Travel Programs

In June 2023, bipartisan members of Congress introduced a bill that aims to change regulations for competition in credit card transactions. Dubbed the Credit Card Competition Act, this piece of legislature if passed could have a significant impact on co-branded credit cards and loyalty programs. 

What does that have to do with corporate travel? Possibly a lot more than might immediately come to mind.

As we learned during the pandemic, the value of loyalty programs could be equal to or outstrip flight operation revenue for some airlines. According to an April 2021 Harvard Business Review article, United Airlines used its Mileage Plus program to secure $6.8 billion in funding. Delta Air Lines (SkyMiles) followed with $9 billion in funding, and American Airlines raised $10 billion with the "largest ever financing transaction in aviation history," backed by the intellectual property and cash flows tied to its AAdvantage program. 

As of February 2023, those three reward programs were worth a combined total of nearly $74 billion, according to the most recent estimate from On Point Loyalty.

Co-branded credit cards provide a significant portion of the value of those programs, particularly as carriers, including American, Delta and United, have changed programs in recent years to increase their focus on credit card spend to earn points toward elite status.

How the credit card partnerships work varies per carrier and card provider, but essentially, the credit card issuer pays airlines for points that it then rewards to reward program cardholder members for purchases using that card. That exchange goes toward an airline's bottom line.

What the CCCA aims to do, in simplified terms, is break up the nearly 80 percent "duopoly" Visa and Mastercard have on the credit card market, where they earn "interchange fees" for each transaction paid for with credit cards. American Express makes up most of the rest of the remaining 20 percent. The act wants the largest financial credit card issuers to enable at least two networks to process those charges, not just the one listed on the credit card. 

That means a merchant might choose a third-party network to process the transaction, usually at a lower fee than typically charged by the card issuer. The result? The transaction might not get processed by the reward partner, the airlines wouldn't get their point income and loyalty program members wouldn't get their points. 

This change could drastically upend the way airline, and other loyalty programs, are managed and operated. The airline industry in particular has been vocal about the potential fallout. 

United CEO Scott Kirby on a third-quarter earnings call said that if the bill passed, it "would kill rewards programs. They would not exist anymore." Industry group Airlines for America—which said that 63 percent of all frequent flyer points issued in 2022 were generated by credit card use—has a page on its website to help individuals easily write their congressional representatives to express their opposition to the bill. 

Another airline executive at the launch of a new nonstop route from a tertiary destination said that the "flights are not possible without our co-branded credit card partnerships and our loyalty program." The executive, speaking on background, would not provide further detail on how their employer specifically used revenue from those programs, but added that that revenue was used to "grow, maintain and improve" their services and customer experiences.

And that's where corporate travel programs come in. 

Some airlines have cut status perks that are granted during corporate contract negotiations, giving travel buyers less leeway to give their business travelers status on a carrier. Travel managers, especially for small and midsize companies, encourage their travelers to sign up for these reward programs so they can earn status on their own. This could mean they get those perks such as early boarding, a better seat, a free checked bag or access to the airport lounge that is no longer available to be doled out. 

Without the ability to use credit card points to gain status, that might mean more business travelers would pay for those ancillary products and file for reimbursement on their T&E reports, thereby increasing the travel costs to their company. 

If these travelers end up losing status, they also will have a less enjoyable flight experience, and could possibly choose to travel less. There's also the benefit most people don't like to talk about which is when an employee earns points for business travel, then gets to use those points for personal trips. All these potential situations could make for less satisfied employees.

And if airlines do use those funds to supplement certain routes, it could negatively affect the ability to access certain destinations that might be needed for business.

There also is the issue of corporate credit cards that reward the companies paying for them as opposed to the travelers. 

Could airlines loyalty programs actually disappear if the CCCA passes? That's not entirely likely since about 30 million people hold a U.S. airline credit card, according to A4A, and these programs are extremely popular. But could it mean these programs return to the way they looked when flight segments and miles flown were what counted for reward points? Possibly.

There's also precedent that these programs might disappear or be drastically altered. A similar provision aimed at debit cards was enacted into the Dodd-Frank Act of 2010, which resulted in the elimination of nearly all debit card rewards, according to A4A.

Another unintended consequence could be increased costs for travel businesses. "Without revenue from affinity cards, many travel companies would be unprofitable and would be compelled to increase prices," according to the U.S. Travel Association.

According to people familiar with the matter, the act does not necessarily have strong bipartisan support in Congress—at the moment. But it could get added to legislation for a vote "at any time." 

Will it come up for a vote in 2024? It's hard to say. But it is something to keep an eye on.