Major airlines warn credit card fee bill could end frequent flyer rewards

Major airlines, including American, United, and Southwest, are opposing a bill that aims to reduce credit card transaction fees, warning it could jeopardize frequent flyer rewards programs. The airlines, along with Boeing, Airbus, and aviation unions, argue the legislation could significantly decrease air travel and negatively impact tourism, as these programs generate billions annually and are heavily reliant on credit card swipe fees. Senator Durbin, a sponsor of the bill, claims it could save merchants and consumers $15 billion annually, but airlines contend that over 31 million Americans hold airline travel reward cards and a majority of frequent flier miles are generated through credit card use.

Analysis

Major U.S. airlines, including American Airlines (AAL), United Airlines (UAL), and Southwest Airlines (LUV), along with aerospace manufacturers like Boeing (BA) and GE Aerospace (GE), are vocally opposing proposed legislation sponsored by Senators Durbin and Marshall aimed at reducing credit card transaction fees charged by Visa (V) and Mastercard (MA). The core contention is that such a bill could dismantle their lucrative frequent flyer rewards programs, which generate billions of dollars annually and are critical to their business models, with Senator Durbin notably characterizing airlines as "basically credit card companies that own some planes." These loyalty programs, exemplified by those of Delta, United, and American (each valued at over $20 billion in 2023 by On Point Loyalty), are significantly reliant on credit card usage, with 57% of all frequent flier miles in 2023 generated this way, leading to nearly 16 million domestic air visitor trips awarded from card-earned points. Airlines argue the bill could consequently reduce air travel and harm tourism, a concern echoed by aviation unions. While proponents suggest the measure could save merchants and consumers $15 billion annually from the over $100 billion in current swipe fees, the airline industry, which successfully defeated a similar effort in 2023, fears a substantial negative impact. This legislative push, potentially attachable to a cryptocurrency bill, occurs amidst existing scrutiny, as the Transportation Department is already investigating major carriers for potentially unfair or deceptive practices related to these loyalty programs, which proved vital for revenue and fundraising during the COVID-19 pandemic's travel downturn.

Key Decisions for Investors

• Investors in airlines (AAL, UAL, LUV, DAL) should closely monitor the progress of the Durbin-Marshall bill, as its passage could significantly erode a high-margin revenue stream and negatively affect loyalty program valuations.
• Holders of Visa (V) and Mastercard (MA) stock should assess the potential impact on transaction fee revenues if the legislation gains traction, which could lead to margin compression for card networks.
• Consider the potential for a significant shift in consumer spending and travel patterns if airline reward programs are substantially altered, which could have secondary impacts on the broader travel and leisure industry, including aerospace suppliers (BA, RTX, GE).
• Acknowledge the existing regulatory risk highlighted by the Transportation Department's ongoing inquiry into airline loyalty programs, which could independently pressure program economics regardless of this specific legislative outcome.