The Card Industry Gives T&E a Lift

  Card payments make the travel industry go, so when travel suffers, cards can lose charge volume. Here, CCM documents a slew of new card-linked programs to spur the travel-and-entertainment sector.
  These are tough times for the $500 billion travel-and-entertainment industry, and that's bad news for card issuers and merchant acquirers. When was the last time you paid for a plane ticket or hotel tab with cash or a check?
  The airline industry, which was coming under financial pressure even before the terrorist attacks of Sept. 11, 2001, has lost about $10 billion since then. UAL Corp., parent company of United Airlines, and US Airways Group Inc., are now operating under bankruptcy-court protection. AMR Corp., parent of American Airlines, on Jan. 27 reported that it lost $529 million in 2002's fourth quarter and $3.5 billion for the year.
  "Clearly, results such as the ones we reported today are unsustainable," AMR Chairman and Chief Executive Don Carty said.
  The blood-letting isn't confined to hub-based airlines. ANC Rental Corp., owner of the Alamo and National car-rental companies, filed for bankruptcy in 2001, and Budget Group Inc., owner of Budget Rent A Car, took a similar step in 2002.
  Business travel is down as managers look to trim costs. Conference sponsors are consolidating their offerings. Not surprisingly, hotel occupancies fell during the first six months of 2002 to 59.5%, according to Smith Travel Research, down 3.6% from the same period a year earlier.
  One of the rare pieces of good news on the T&E front came in January when American Express Co. reported that its Travel Related Services unit, which includes AmEx's card and travel-agency businesses, had a record 2002. Net income rose 46% to $2.14 billion from $1.46 billion in 2001.
  But AmEx's profit numbers got most of their shine from the fact that the company took more than $500 million in special charges in 2001 and since then has relentlessly cut costs. TRS' revenues rose only 2% in 2002, to $17.7 billion.
  Cards and T&E have been close buddies since Diners Club, the first general-purpose card, debuted in 1950 as a way for New York businessmen to go out on the town without carrying cash. Card companies closely guard their T&E volume figures, but sources tell CCM that T&E accounts for about 26% of bank card charge volume.
  "It's hugely important to the card industry," says Paul Nelson, vice president of partner marketing for online travel-booking service Travelocity.Com in San Francisco.
  Given the depressed state of the travel industry, it is no surprise that card companies in recent months have come out with a rash of incentives to get cardholders traveling again. Befittingly, AmEx is front and center with a variety of promotions and new offerings. In one example, AmEx in November said that holders of its Delta Air Lines SkyMiles cobranded card could earn double miles every weekend for every dollar spent through Dec. 31.
  Built-In Features
  Also before the 2002 holiday season, AmEx cut up to $150 in fees for cardholders if they booked a trip through an American Express travel agent. The program, called Annual Cardholder Benefit, also provided cardholders with fee-free travelers checks.
  And while not a direct T&E promotion, AmEx last September rolled out new, so-called Preferred charge cards with AmEx's rewards feature built in, a move that will reduce the annual fees holders of green and gold charge cards pay because AmEx's Membership Rewards program had been an add-on. The launch offered Preferred card holders double points for every dollar spent.
  MasterCard International late last year entered into an agreement with Cendant Corp. to promote usage of MasterCard cards at Cendant's vast portfolio of hotels. Cendant's brands include AmeriHost, Days Inn, Howard Johnson, Knights Inn, Ramada, Super 8, Travelodge, Villager and Wingate Inn.
  MasterCard also signed a similar agreement with Hyatt Corp. of Chicago, allowing MasterCard holders who paid for stays at a Hyatt Hotel to receive a free night.
  Not to be outdone, Visa International announced that it will sponsor the Summer and Winter Olympic Games through 2012. As part of its agreement with the International Olympic Committee, Visa cards will be the only ones accepted for certain Olympic-related transactions, including ticket sales and various themed events.
  A partial list of other recent card-related travel news items includes:
  * Juniper Bank, a U.S. affiliate of Canadian Imperial Bank of Commerce, announced in November that it is issuing a cobranded rewards card with AirTran Holdings Inc.'s AirTran Airways. The AirTran A-Plus Visa is tied to the airline's A-Plus Rewards program that enables consumers to earn free flights on AirTran or 14 other airlines.
  * Diners Club said it would give cardholders 10,000 Club Rewards bonus points if they purchased a full-fare, roundtrip, transatlantic flight on British Airways or the Concorde by Feb. 28.
  * Monoline issuer Capital One Financial Corp. in December rolled out its MilesOne Visa Business Card that enables the cardholder to earn one mile for each dollar spent. The cardholder can redeem the miles for a free ticket on any U.S.-based airline.
  * MasterCard announced in October that every cardholder who books stays at vacation homes, villas, cottages and condominiums through Galileo International's RCI Holiday Network would receive either a $50 or $100 gift card until demand exhausts the card supply.
  Purchase, N.Y.-based MasterCard is aggressively challenging Visa for bank card T&E volume. For well over a decade, Visa has positioned itself as the best card for T&E spending, and part of the association's strategy has been to continually attack AmEx.
  MasterCard and partner Travelocity last month renewed a marketing agreement. They say earlier incentive programs like Galileo's have been successful. Several years ago, Travelocity and MasterCard promoted cruises on Royal Caribbean International Cruise Lines. MasterCard gave each passenger a free MasterCard gift card worth $50 to $150 if the passenger paid for the cruise with a MasterCard, says Travelocity's Nelson. The results far exceeded his expectations.
  A Broad Definition
  "I was surprised how many customers switched from paying with their Visa and American Express cards to paying with their MasterCards because they wanted a gift card," he says. "We moved MasterCard's share from 30% to 56%. That means that 56% of the passengers who booked passage on a Royal Caribbean cruise during the promotion paid for the trip with a MasterCard."
  Meanwhile, Elizabeth Ward, MasterCard International's vice president for travel-and-entertainment industries, saw the Hyatt promotion at work first hand. Ward recently pulled out her MasterCard to pay for her room at Toronto's Park Hyatt Hotel. That's when two businessmen waiting in line behind her learned from her that if they paid for their rooms with their MasterCard credit cards, they would receive a free night for every stay in a Hyatt hotel. The men then put their other cards back into their wallets and pulled out MasterCards, Ward says.
  MasterCard is defining the travel market broadly, and not confining itself to airlines, hotels and cruise lines.
  "When most people think of travel, they think of airlines," says Fred Gore, senior vice president for North American Acceptance, noting that MasterCard has made agreements with Greyhound Bus Lines, Amtrak and car-rental agencies to promote the use of its card.
  Under one promotion, MasterCard holders who purchased Amtrak tickets received a 30% discount to 500 nationwide destinations. MasterCard executives came up with the idea of aligning with all modes of transportation four years ago, according to Gore. "We wanted to add to our traction," he says.
  Hassles
  Although it was a national tragedy of indescribable proportions, the aftermath of Sept. 11, especially heightened airport security, may be working to MasterCard's benefit. D.K. Shifflet & Associates, a Falls Church, Va.-based company that surveys 45,000 U.S. households monthly about their travel plans, says that the number of people flying 200 miles to 400 miles dropped 22% between September 2001 and March 2002 because of new hassles at the airport. As a result, more people are driving, riding a bus or taking a train to their destinations, says Doug Shifflet, D.K. Shifflet's founder and chief executive.
  For Visa, the long-running Olympics sponsorships remain key pillars of the association's T&E strategy.
  The Olympics "are the number-one properties in the world," says Michael Lynch, Visa U.S.A.'s senior vice president of event and sponsorship marketing. He adds that Visa's member banks get exclusive marketing rights, including advertising and promotional use of Olympic trademarks and graphics.
  Although the tepid economy and Sept. 11 have combined to knock T&E for a loop, there are a few recovery signs besides AmEx's latest quarterly report. IDine Rewards Networks Inc., the Miami-based provider of discounts on restaurant meals to registered credit card holders, says its business is growing dramatically after slumping briefly after Sept. 11.
  For 2002's fourth quarter, iDine's gross dining sales were $85.5 million, up 69% from $50.6 million in the same 2001 period. Operating revenues grew 66% to $22.9 million from $13.8 million in the year-earlier period, and net income quadrupled to $4.7 million from $1.1 million.
  For the year, iDine earned $19.2 million, up from $3.3 million in 2001.
  A spokesperson attributes much of the recent gains to iDine's growing base of member restaurants and cardholders. The company had just over 9,700 participating restaurants in the fourth quarter, up from about 7,500 a year earlier, and nearly 2.5 million active credit card accounts, up from 1.2 million in 2001's fourth quarter. IDine says it has benefitted from more volume at restaurants near enrollees' homes as opposed to restaurants that draw most of their volume from the business trade.
  Meanwhile, MasterCard's Gore says card transaction volume on airlines is on the upswing, but adds that "there is deep discounting."
  Indeed, business travelers are balking at paying the high air fares they once did. Before the economy started slowing down, business travelers often purchased fully refundable, nonrestricted airplane tickets shortly before their flights, says a spokesperson at the National Business Travel Association, whose members include 1,500 corporate travel agents, hotels, car-rental agencies and airlines.
  "They would purchase a $2,000 full-fare ticket, for example, while someone on the same flight in coach paid $300 for a ticket," the spokesperson says. "Business travelers are booking flights two weeks in advance with a Saturday night stay-over. We consider that pleasure travel. Business travel has become a gray area."
  In a recent published report, American Express said more than 42% of the business tickets it has issued are discounted and nonrefundable, up from 25% in 2000.
  The new cost-consciousness among business travelers means that even if current passenger loadings match pre-2001 levels, card issuers will not get the same interchange revenues they once did because the average transaction is lower. Interchange is the portion of a bank card sale that the merchant acquirer pays to the card issuer.
  Likewise, AmEx, Diners Club, and Morgan Stanley's Discover card, all of which are closed-loop systems that assess merchants discount rates mostly based on a percentage of the sale, lose out when the average ticket falls.
  For the card industry, that leaves few options other than to rev up the marketing machine even higher.