I enjoy the benefits of an airline's "signature" credit card: miles per dollar spent, an annual travel incentive, waived fees, and the like. I wonder what the airline gets out of the deal.
From a company (airline/hotel/retailer) perspective, here are some advantages:
- Branding - Having a cobranded card is a branding exercise. If the rewards program is good and the issued cards are frequently used, the business can keep itself on top of mind, both with the customer using the card and perhaps at the point of sale.
- Customer Retention - As @Philipp noted, the perks/rewards program helps with customer retention. As an example, airlines may give perks such as elite status upgrades, preferred boarding, more rewards points earning multipliers, waived fees, etc. With these customer perks, cardholders are more likely to utilize that business
- Card Network Benefits - Costco's Citibank/Visa deal is believed to have saved the retailer over $220M in lower interchange fees (see excerpt story below), a huge advantage in the low margin retail world:
The deal is expected to save Costco up to $220 million, due to lower interchange fees. Additionally, Costco's new Visa rewards cards give customers a better deal than the old AmEx cards, which could prompt them to shop at Costco more frequently.
- Companies can sell points - Selling points that the credit card issuing bank doles out as rewards is a big business, as this article notes:
There’s tremendous money at stake. Remember that banks are the largest buyer of frequent flyer miles. 2/3rds of American AAdvantage miles are awarded by partners rather than by the airline for flying for instance. And banks are the biggest customers.
In summary (per this article):
Airlines and hotels love having their card products in the hands of consumers, and not just because they’re getting paid for points and benefits. Their customers carry the travel provider’s brand around in their wallet and that increases loyalty, and thus wallet share — the percentage of total travel spend that goes to the airline or hotel. Just having an airline credit card increases the likelihood that the consumer will choose the airline for future flights.
Promoting a brand, attracting more customers, lowering interchange fees, and getting paid by the issuing bank while doing so - what's not to like from a business's perspective?
- The airline might get a commission per customer from the credit card company
- It's a way for the airline to retain you as a customer. By giving you all those loyalty benefits they prevent you from using a different airline. This also benefits the credit card company: When you own multiple credit cards but only get the mentioned benefits when you use one of them, you will use that card whenever possible.
Want to post a slightly different point of view:
In addition to providing you with benefits that will result in customer retention, there's a big bonus in providing you with benefits or rewards that you can only redeem by spending money at the provider that rewarded you.
Instead of just generically rewarding you with value you could spend elsewhere, they're giving you rewards that only have value if you re-invest your money back into the company.
The most extreme version of this was when coal miners were paid with 'scrip coins' for their salary, which were only valid in the company store.
Everything that was purchased with those coins generated revenue for the company, and they had no value outside of the company. In this extreme example, the rewards being given for mining coal more or less turned the recipients of those rewards into consumer-slaves.