Why are banks cutting down on free airport lounge visits?

An airport lounge

A common sight at the airports these days, especially in large cities like Mumbai, New Delhi and Bengaluru, are crowded airport lounges. Once the privilege of the high-flying corporate executive or the luxury traveller, airport lounges today see queues extending, on some days, to the food court. That is in part due to the complimentary offers that banks and credit card companies extend to their customers. These entities too are now feeling the pinch—since they have to cover the cost of lounge access, even if they have bargained the fees lower—and are now cutting back.

For instance, IDFC First Bank and ICICI Bank have introduced new minimum spending criteria on some of the credit cards to be eligible for airport lounge access. Further, Cashback SBI Card, which was launched in September 2022, has discontinued airport lounge benefits from May 1. Needless to say, this has left several card holders disappointed.

How some credit cards are cutting down on complimentary airport lounge benefits

So what is behind this?

How does free airport lounge access work?

Banks offer free airport lounge access through two methods. The first is through a partnered card network. “Here, banks purchase bulk free lounge visits from the card network associated with the credit card,” said Sumanta Mandal, founder, TechnoFino, a firm that tracks credit card trends. The network providers have already partnered with various airport lounges worldwide.

Also read: How to get the best out of your credit card

Say your bank has partnered with the MasterCard network for issuing their credit cards. The bank then pays a per-visit fee to MasterCard and extends free airport lounge access to its customers.

The second is through the aggregator company approach. “Here, banks directly tie up with an aggregator such as PriorityPass or Dreamfolks. These aggregators connect the banks with airport lounges across the world,” Mandal said. Here too, he said, banks pay a per-visit fee to the aggregator company, which purchases lounge visits in bulk from the actual airport lounge providers, ultimately granting customers free airport lounge access.

Is it really free?

The banks are bearing the expense of providing the free airport lounge access to its cardholders. “The per-visit charges vary based on the bank's bargaining power and location,” Mandal said. For instance, if you were to access airport lounges in India without a credit card offering this benefit, you will end up paying between Rs 800 and Rs 2,500, depending on the location. Mandal added that for banks, this rate is lower than the regular public rate. The banks pay between Rs 200 and 1,000 per visit, depending on the location and their negotiating strength.

Also read: Reeling under credit card debt? Try balance transfer to reduce debt burden

“The costs for international lounges would be higher, because in a domestic lounge, the charge is to use the space and a modest meal, but in an international lounge alcoholic beverages and other facilities are offered,” said Ajay Awtaney, editor of LifeFromALounge.com. So the overall costing for the operator is higher, which is passed on to the bank.

Entry-level and mid-range cardholders are making the airport lounges crowded

In 2017-18, banks issuing credit cards were giving out free lounge access benefits only to holders of premium credit cards. It was gaining the attention of customers who aspired to have one such card in their wallets. This feature was instantly popular with frequent business travellers and came in handy for companies to hand over to key personnel.

During and after the COVID-19 pandemic, banks issuing the credit cards started giving free access to airport lounges on entry-level and mid-range cards, even as issuance to premium cards continued. “It started turning out to be a battle for market share with the feature of free airport lounge access as the top selling point. Many banks were kind of offering lifetime-free cards or first year-free cards to the customers,” Awtaney said. The result is that airport lounges are overcrowded these days and there are long queues seen at the airport to enter them.

“Over a period, it has changed to banking customers taking over the airport lounge demand, and the real premium cabin customers or frequent fliers really are not getting access to the lounge because of this whole crowding out,” Awtaney added.

Revised lounge access terms for cardholders

“There are segments of cardholders who acquire the lifetime free cards or mid-range cards and not put any business on them, and then still use the airport lounge facilities offered by these cards,” Awtaney said. So, for banks, these are loss-making customers.

Banks may not cancel the product because they've not done business with them. But they can definitely reduce their costs associated with a card, Awtaney added. So the banks have changed product features to limit the number of lounge visits. For example, IDFC First Bank has kept criteria on some of their cards, for instance, minimum spending of least Rs 5,000 a month, to get lounge access (see table).

“In response to the increasing costs, some card issuers had to remove free lounge access benefits from certain credit cards,” Mandal said.