Airlines, planemakers oppose credit card fee crackdown that could imperil free flight offers

Major airlines, along with aviation unions and aerospace manufacturers, are opposing proposed legislation that would reduce Visa and Mastercard transaction fees, arguing it could jeopardize airline rewards programs. The industry claims the bill, sponsored by Senators Durbin and Marshall, could significantly reduce air travel and harm tourism, as 57% of frequent flier miles are generated by airline credit card use; Durbin contends the measure would save merchants and consumers $15 billion annually. Airlines generate billions in revenue from these branded credit cards, with loyalty programs of Delta, United, and American each valued at over $20 billion last year.

Analysis

Major airlines, including American Airlines (AAL), United Airlines (UAL), and Southwest Airlines (LUV), alongside aerospace manufacturers like Boeing (BA) and RTX (RTX), and aviation unions, are actively opposing new legislation aimed at reducing credit card transaction fees charged by Visa (V) and Mastercard (MA). This opposition is rooted in the substantial financial reliance of airlines on their branded credit card programs, which generate billions of dollars annually; for instance, the loyalty programs of Delta Air Lines (DAL), United, and American were each valued at over $20 billion in 2023. The industry warns that the proposed bill, sponsored by Senators Durbin and Marshall, could necessitate the discontinuation of these rewards cards, which accounted for 57% of all frequent flier miles issued in 2023 and facilitated nearly 16 million domestic air visitor trips through point redemptions. Such an outcome, they argue, could significantly diminish air travel and harm the tourism industry. Conversely, proponents, including Senator Durbin who characterized airlines as "basically credit card companies that own some planes," contend the measure could yield $15 billion in annual savings for merchants and consumers from the current $100 billion+ in annual swipe fees. The legislative effort, which airlines successfully defeated in 2023, now faces potential attachment to a cryptocurrency bill, compounding uncertainty, particularly as the Transportation Department initiated an inquiry in 2023 into airline loyalty programs for potentially unfair or deceptive practices. The overall sentiment is moderately negative, reflecting the defensive stance of the affected industries against this regulatory threat.

Key Decisions for Investors

• Investors exposed to airline equities, particularly AAL, UAL, LUV, and DAL, should closely track legislative developments concerning the proposed transaction fee cap, given the material contribution of loyalty programs to their revenues and profitability.
• Holders of Visa (V) and Mastercard (MA) shares must consider the direct risk to fee-based revenues should the Durbin-Marshall bill gain traction, and evaluate the potential financial impact against the likelihood of its passage.
• The ongoing legislative efforts and existing regulatory inquiries into airline loyalty programs introduce a significant uncertainty that could influence consumer behavior and rewards-driven spending, meriting careful consideration for portfolios with exposure to the travel, leisure, and financial services sectors.