In an aspirational and upwardly mobile India, where many people are flying for the first time, everyone looks forward to a perk called airport lounge access before their flight. There are many reasons for the dreadful queues you see at airport lounges, big or small, across the country. I believe they are all correlated to the propensity of Indian travellers to be value seekers at their core.
Airport Lounge Access is a superhit feature that gets tongues wagging because:
- Over 80% of Indian domestic air travel is on no-frill carriers as per September 2023 numbers, which means about 91 Million people flew through September 2023 without a meal service or in-flight entertainment attached to their tickets. Since airlines only have limited meal options, and it is an Indian thing to look out for hot food, many people throng the lounges before their flights. Besides, many Indians find meals on flights a pricy deal, and with their debit or credit cards, they get food for free before their flights.
- Not just that, food is an excellent form of entertainment over shopping.
- Airport food is expensive compared to the same food served outside the airport. Yet again, lounges serve meals for a price next to free (INR 2 on Visa and Amex cards, and INR 25 (Refundable) on MasterCard).
In essence, what has happened over the years has been that those who do not travel so much are excited about accessing an airport lounge and checking out what it is all about, while airports have systemically eliminated the lounges where they did not get a share of revenue, such as the Vistara Lounge and Lufthansa Lounge at Delhi Airport.
How Many people access Airport Lounges in India with their Bank privileges? About a million (10 lakhs) a month
While there is no clear answer to this, Dreamfolks, which claims to be India’s largest airport services intermediary, has some clues. As per Dreamfolks, 2.73 Million people used lounges via their intermediary services in the July – September 2023 quarter, and 2.63 Million people used lounges via their setup in April – June 2023. That makes a total of 5.36 Million people accessing the lounges using credit cards, which sit on the Dreamfolks platform in six months.
Since Dreamfolks claims to have about 90% of the market share in this market, and Priority Pass/Collinson has the remaining 10%, that means about 6 million people use their credit/debit card privileges to access airport lounges in India during April – September 2023. And this does not even include numbers for lounge access via the airlines themselves, who will ask you to access a lounge because you are flying business class or are a Platinum member.
Oh, and to add context for you, Dreamfolks thinks that, at the moment, not more than 40% of credit card holders in India are offered lounge access in the first place.
Costs to the Bank shot up 60% for every lounge trip you make!
The root cause of why you are seeing an increasing number of Banks cut back on complimentary Lounge Access is the cost that has gone through the roof over the past year and the associated commotion at airports as well. India has about 400,000 square feet of airport lounge space in 58 lounges across India.
Lounge Access has been a critical pull for all sorts of credit cards over the years, and banks have actively marketed this benefit. Not one trip at the airport in the past year and a half has gone without an executive of a Bank trying to sell me a credit card so that I could go to the lounge (pointing me in the direction), even when I was heading there anyway.
Now, I’m not the kind of fellow who casts judgment on who should or shouldn’t be in a Lounge because, at the end of the day, we are all using a free perk offered by a Bank or an airline. However, I actively seek out airlines or lounges that are closed to a limited set of users so that I don’t have to wait to get in, for instance, lounge access via status over lounge access via credit cards.
When banks started indiscriminately rolling out lounge access as candy to sell more cards, they were coming out of COVID-19 and needed a hero feature to bring in users, who were also coming out of COVID-19 and spending on cards had shaken up. But an essential element of their predictions went wrong along the way, which has meant course correction now.
As per Dreamfolks, about two years ago, they were billing their clients (the Banks) INR 600 per visit to the lounge on a blended basis (some lounges may cost less and some more, but the average cost per trip billed by Dreamfolks was INR 600). As of Q2FY24 (July – September 2023), this price per trip has shot up to INR 990, and just a quarter ago (April – June 2023), this price was INR 950. So, as you can note, the fees that the Bank pays every time you swipe your card at the lounge went up 60% in 24 months.
As per some people in the Banking industry, the costs for lounge access shot up from 0.10% to 0.25% of the product cost, necessitating this change.
Banks are not done curtailing lounge access YET!
HDFC Bank is just the latest actor to curtail lounge access or put new conditions around accessing lounges with their cards. Earlier this year, ICICI Bank, Axis Bank, American Express and IDFC Bank were other banks that moved to rein in lounge access this year, providing it on entry-level cards and mid-tier cards only against a minimum spend clause now. Others, such as SBI Cards, cut up lounge access altogether from some entry-level cards in 2023.
But this is the start of a phenomenon and not the end of it. On a recent investor call, the CEO of Dreamfolks, Liberatha Kallat, spoke about the structural changes in the cards industry. Per her, what used to be a blanket card benefit for customers is slowly being changed to a spend-based structure by such banks.
The broader change put forth by the banks will be visible beginning November-December, she said, which means more is coming. She refused to take names, stating that NDAs with the banks prevented them from talking about the banks that have put in motion such changes to their lounge offerings.
Lounge Access as free candy will no longer be the case. Will it lead to the upmarketisation of the lounge proposition at airports that dropped the quality of their meals to profit from the crowds who did not care about the quality but just looked for a “free” meal at the airport? Or will it lead to more cancellations of cards because people no longer will retain them? Only time will tell. The message is clear: all banks are not yet restructuring their lounge access offerings, and more is coming.
What do you think will eventually happen to lounge access with credit cards? Will it stay in its current form or go away altogether?
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