Air India's negotiations with credit card companies to change with Vistara Merger!

I was talking to a senior guy at SBI Cards, who blew me away by sharing how Vistara’s merger with Air India has given the Tata group much more negotiating power vs credit card companies 🙌🙌

I was talking to a senior guy at SBI Cards, who blew me away by sharing how Vistara’s merger with Air India has given the Tata group much more negotiating power vs credit card companies 🙌🙌

I was one of the crores, who never knew how the relationship between credit card companies and airlines works out.

And after this conversation, I read a ton, and finally, I got it.

Here’s what I learned.

Airlines worldwide run reward point programmes.

And they have ingeniously turned reward points into a currency that not only retains customers but also generates substantial revenue.

This system involves selling loyalty points to CC companies, which then offer these points as incentives to cardholders for their spending.

• Airlines sell points to CC companies at a profit

• CC companies use them as carrots to attract customers to their co-branded cards with conditions of high spending levels

And, for every dollar spent on the card, cardholders get points, which they can redeem for flights.

..

This idea was first implemented by American Airlines as AAdvantage program in 1981 🙌🙌

Then two other major American airlines (Delta and United) followed. And gradually the airlines world over went in for this.

• And given they essentially create points out of thin air, sell them, and only bear the cost when points are redeemed, if at all, they earn very high margins on such point sales to CC companies!

• Meanwhile, for cardholders, this means an opportunity to travel or gain other benefits without directly paying airline fares

Now, come to Tata Group merging Vistara into Air India.

With that, Air India attained 100% monopoly on all business-class seats in India.

• And while IndiGo has launched some such seats in a few aircraft, that is practically not even 5% of the business class travel in India today

• Thus, with ~100% of the market share in business class travel in India, Air India has ever more power to dictate terms on how points are valued and redeemed

• It could mean Air India can push for higher prices for points sold to credit card companies or offer fewer seats for redemption, thereby increasing the point value or scarcity

Hence the leverage in negotiations with Indian CC companies for better terms on point sales! 🙌🙌

Did you know this?

Best,
Jayant Mundhra

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