Julian Morris on Airline Rewards

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Travel Awaits – ICLE Senior Scholar Julian Morris was quoted by Travel Awaits in a story about the Credit Card Competition Act’s impact on airlines. You can read full piece here.

In a white paper about the subject, Julian Morris, a senior scholar at the International Center for Law & Economics, argued that the legislation would likely only benefit credit card networks that aren’t Visa or Mastercard as well as big-box retailers. “Unfortunately, the number and scale of those who lose is likely to be far greater than the number and scale of those who win,” Morris wrote.

Morris described the legislation as causing significant disruption with airline-branded credit cards, which are a steady revenue stream for airlines. He explained that airline companies generate relatively thin profit margins, so they rely on revenue generated from loyalty programs in both good and bad economic times. In fact, most of the major airlines report earning nearly $4 billion in annual revenue from co-branded credit cards. He also explained that cardholders with travel rewards rely on the points and discounts that come with their credit cards and for that reason, the programs are popular.

The potential consequence of the bill, as Morris explained, is that credit card companies may offer fewer benefits and discounts. He also argued that the current networks maintain a high standard of security that third-party networks might not be able to match. He added that while airlines may start offering loyalty programs using different networks, they would need customers to either agree to new terms or switch programs. He called it “a timing mismatch effect.”