Changing Credit Card Landscape: Airport Lounge Access Fades

Years back, credit cards were not seen as a necessity. But, as credit cards are a highly profitable business for a bank, they wanted customers to buy them anyway. The problem was that we Indians looked at credit or loans from a not-so-appealing perspective and were wary of buying one.

So, banks considered appealing to customers by giving loyalty points, rewards, discounts, cashback and much more. The sales were good. But then most leading banks added the feature of getting free access to the airport lounge on premium and non-premium cards!

Now, the airport lounge is a luxury and is costly. People think twice before booking it. But who would prefer something other than the luxury treatment for free? Anybody would. Hence, owning a credit card which offers free lounge access became an attraction, and credit card sales skyrocketed.

But things have taken a U-turn now, and banks are taking small steps backwards by curbing lounge access for non-premium users.

Is this the new cost-cutting spree of banks, and will this work out? Let’s find out.

What’s Happening in Lounge Access?

Over the years, airport lounges have become increasingly crowded, and credit cards have played a significant role in this trend. Recent data from the Reserve Bank of India (RBI) reveals a rising number of active credit cards, with 86.52 crore cards in April 2023 compared to 85.30 crore in March 2023.

However, card issuers are shifting their focus, as a PwC report highlights. Instead of relying on traditional methods like signup rewards and airport lounge access, they prioritise reward programs and flexible redemption options.

This shift is driven by the cost-effectiveness of offering rewards compared to lounge access. For example, HDFC Bank, India’s largest private lender, used to provide complimentary lounge access to 50 lounges for domestic flights. However, as of May 15, 2023, they have reduced the number to 18.

Axis Bank is also restructuring its lounge policy in line with this trend. According to BQ Prime, the bank has recently announced a reduction in airport lounge access for its credit cardholders, effective June 1st, 2023. Previously, the bank offered access to domestic and international terminals, but now it only limits complimentary access to domestic terminals.

But, Why Curb Lounge Access and Not Discounts?

The increasing cost of lounges has become a significant concern for card issuers. A few years ago, banks allocated only 0.10% of the total product cost to lounge access. However, this cost has risen to 0.25%, as per The Ken. This substantial increase poses a financial burden on card issuers, as other expenses such as rewards, cashback, and loyalty programs are typically funded through the Merchant Discounting Rate (MDR) charged by banks.

Will This Affect The Credit Card Sales?

Reducing airport lounge access for non-premium credit cards may impact credit card sales in the short term. Customers who were specifically interested in lounge access as a perk may now consider opting for premium cards that still offer this benefit. This could result in a temporary dip in sales for non-premium cards. However, in the long term, the sales of premium cards may perform well due to the continued demand for lounge access.

On the other hand, India’s Buy Now Pay Later (BNPL) sector has experienced significant growth in recent years. While BNPL options have their own credit limits and limited acceptance compared to card payments, they have emerged as an alternative for millennials and Gen-Z customers who prefer to avoid paying interest on credit cards. According to the PwC report, this trend indicates that these customers are actively seeking alternatives, and BNPL is becoming their preferred solution.

The article is for information purposes only. This is not an investment advice.
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