Morgan Stanley sees travel credit cards testing banks’ edge | Official Website of Louis Velazquez, entrepreneur, finance guy and tech innovator

Airline and hotel credit card holders now have access to a wider array of benefits, including expanded lounge access and larger sign-up bonuses.

Co-branded travel credit cards have become one of the fiercest battlegrounds in consumer finance, with issuers spending heavily on rewards to attract affluent customers.

New research from Morgan Stanley projects that revenue from airline- and hotel-branded cards could quadruple over the next decade, potentially reaching $100 billion by 2035.

That headline number, however, hides a growing tension that could change the economics of travel rewards. Banks issuing those cards are surrendering a growing share to airline and hotel partners, and every contract renewal tilts the balance further against them.

Co-brand travel credit card revenue could hit $100 billion in a decade

Revenue from co-branded travel credit cards currently totals about $24 billion a year, and the firm’s best-case scenario projects that figure reaching $100 billion by 2035.

That scenario assumes travel card penetration doubles from 10% to 20% of the overall market, driven by younger consumers’ growing preference for experiential spending.

The base case projects growth to $60 billion, with affluent households maintaining healthy spending habits and no major shift in card adoption.

The bear case, which assumes cooling travel demand and a pullback among higher earners, puts the ceiling closer to $40 billion.

Premium travel cards have outpaced the broader credit card market since 2019, with revenue growing about 10% annually versus 6% industry-wide, the Morgan Stanley report found.

Airlines and hotels are claiming a bigger slice of co-branded credit-card profits

The revenue pool is expanding, but its distribution is shifting toward airlines and hotels as they extract better financial terms with each new renewal cycle.

Royalty fees that issuers pay to airline partners have been rising at low double-digit annual rates, outpacing broader industry growth, according to a TD Cowen research note on co-brand implications for airlines and card issuers.

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Delta Air Lines illustrates how large these payments have grown, with co-brand revenue now anchoring the carrier’s bottom line in meaningful ways.

Delta collected $8.2 billion from American Express in 2025, up 11% from the prior year, according to its December-quarter and full-year 2025 earnings release.

Delta said in its 2025 Form 10-K that it expects remuneration from American Express to grow to $10 billion “over the next few years,” which would represent a 22% increase from 2025.

American Airlines pulled in $6.2 billion from co-brand and partner agreements in the same period, roughly four times its adjusted operating income, its fiscal year 2025 Form 10-K showed.

“For card issuers, premium and travel cards have a strategic importance to acquire affluent consumers, helping explain why they continue to invest more heavily in rewards and benefits,” Jeff Adelson, who covers consumer finance stocks at Morgan Stanley Research, said in the report.

“At the same time, airlines and hotel companies are gaining greater bargaining power when negotiating co-brand agreements,” Adelson added.

Airlines and hotels are strengthening their grip on the economics of co-branded credit cards as rising fees shift more profits away from issuers.

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Banks are caught between airlines, hotels, and cardholders

Banks face two forces moving against them simultaneously, and the pressure shows no clear sign of easing in the near term.

On one side, airlines and hotels are demanding better financial terms with each contract renewal, while on the other, consumers expect richer perks every year.

“The premium card pie is growing, but airlines and hotels may be taking a larger slice,” Ravi Shanker, lead North America airline analyst at Morgan Stanley Research, said.

He described the co-brand segment as significantly underpenetrated and said meaningful opportunity remains for travel co-brand card issuers, though he warned the segment could remain a niche product rather than crossing into the mainstream.

A Morgan Stanley AlphaWise survey of about 3,500 U.S. consumers found that annual fees remain the top factor driving card adoption, according to the firm’s research.

Higher-income cardholders, however, placed much greater value on travel-specific perks such as lounge access, which helps explain why issuers continue investing in premium ecosystems.

Recent deals reveal how leverage is shifting toward travel brands

The co-brand renewal cycle has accelerated across the industry recently, and the terms increasingly favor airlines and hotel chains over the issuing banks.

American Airlines and Citi finalized a 10-year exclusive agreement, consolidating all American-branded cards under a single issuer starting in 2026.

American Airlines CEO Robert Isom said in a December 2024 press release that the carrier’s long-standing partnership with Citi has been central to its co-branded card program’s success.

The strength of our relationship with Citi has enabled us to deliver first-class products and customer service to millions of AAdvantage cardmembers.

Alaska Air Group extended its Bank of America partnership in a multiyear deal revealed April 20, 2026, with co-brand remuneration growing 10% in 2025, according to the companies’ joint press release.

Risks that could deepen the co-branded credit-card profit squeeze

The margin pressure has not driven banks away from the travel credit card business, and competition for affluent customers has only grown fiercer across the industry.

David Robertson of the Nilson Report warned that if redeeming airline miles becomes too difficult, some cardholders may abandon airline-branded products entirely, Reuters reported.

That shift would pressure the banks that purchase miles in bulk, potentially weakening a revenue stream both sides have come to rely on.

Payments analyst Brian Riley cautioned that a downturn could push issuers to cut co-brand marketing and tighten lending, slowing new card acquisitions, Reuters noted.

Both sides of the partnership still have strong incentives to keep investing in premium card ecosystems and to expand the perks that cardholders expect.

Whether banks can sustain those investments without surrendering too much at the negotiating table is the central question in Morgan Stanley’s outlook.