The Balance of Power in Travel Rewards Is Shifting
For years, banks held the upper hand in co-branded credit card partnerships with airlines and hotel chains. Issuers controlled the customer relationship, set the reward structures, and collected the bulk of the economics. That equation is flipping, and travel merchants need to understand what it means for their business.
New research from Morgan Stanley projects that revenue from airline- and hotel-branded credit cards could quadruple over the next decade, climbing from roughly $24 billion annually today to as much as $100 billion by 2035. The headline figure masks a more nuanced story: the distribution of that revenue is shifting decisively toward travel brands, and away from the banks that issue the cards.
Travel Brands Are Claiming a Larger Share
The numbers are striking. Delta Air Lines collected $8.2 billion from American Express in 2025, an 11% increase from the prior year, and the carrier has stated it expects that figure to reach $10 billion over the next few years. American Airlines pulled in $6.2 billion from co-brand and partner agreements in the same period, roughly four times its adjusted operating income. These are not ancillary revenue streams. For many carriers, co-brand payments now anchor the financial model.
Royalty fees that issuers pay to airline and hotel partners have been rising at low double-digit annual rates, outpacing broader industry growth, according to research from TD Cowen. Morgan Stanley analyst Ravi Shanker described the co-brand segment as significantly underpenetrated, with meaningful opportunity remaining, but warned that the segment could remain a niche product rather than crossing into the mainstream.
“The premium card pie is growing, but airlines and hotels may be taking a larger slice,” Shanker said in the firm’s report. “At the same time, airlines and hotel companies are gaining greater bargaining power when negotiating co-brand agreements.”
Why the use Is Shifting
A confluence of factors is giving travel brands more muscle in renewal negotiations. Co-branded cards have become one of the fiercest battlegrounds in consumer finance, with issuers competing aggressively for affluent customers who travel. For airlines and hotels, that competition means their brand has tangible value that issuers need access to.
The renewal cycle has accelerated across the industry. American Airlines and Citi finalized a 10-year exclusive agreement in late 2024, consolidating all American-branded cards under a single issuer starting in 2026. The terms of these deals are increasingly favorable to travel brands as carriers and hotel chains use competing has as use.
A Morgan Stanley AlphaWise survey of roughly 3,500 U.S. Consumers found that annual fees remain the top factor driving card adoption. But higher-income cardholders placed much greater value on travel-specific perks such as lounge access, which helps explain why issuers continue investing in premium ecosystems even as their margins compress.
What This Means for Travel Merchants and Operators
The implications extend beyond the boardrooms of major carriers. As airlines and hotels negotiate more favorable economics from card issuers, the downstream effects ripple through the broader travel ecosystem. Loyalty programs are becoming more valuable assets. Brand partnerships are being renegotiated. And the definition of what constitutes a travel merchant’s core business is blurring.
James Lemon, Stripe’s Global Industry Lead for Hospitality, Travel and Leisure, noted at the recent TravelTech Show that 2026 has seen an explosion of innovation across the travel ecosystem, fueled by financial services, payment technology and AI. “Travellers are changing the way they discover, search, book and pay for travel,” Lemon said. “Behind the scenes, virtual cards are becoming more sophisticated and programmable, while innovative treasury tools and stablecoins are giving companies new ways to manage money digitally.”
Research from the TravelTech Show’s annual operator survey found that multiple payment options and virtual credit card integrations have increased as customer demand for greater choice and flexibility rises. Transaction fees remain the top challenge cited by operators, at 21%, followed by integration complexity at 17% and user experience limitations at 9%.
The Road Ahead
Banks face two forces moving against them simultaneously, and the pressure shows no clear sign of easing. Airlines and hotels are demanding better financial terms with each contract renewal, while consumers expect richer perks every year. Morgan Stanley’s Jeff Adelson noted that premium and travel cards have strategic importance for acquiring affluent consumers, which explains why issuers continue investing heavily in rewards and benefits even as their take shrinks.
For travel merchants and operators, the takeaway is clear. The economics of loyalty, brand partnerships, and customer relationships are being renegotiated in real time. Co-brand revenue is not just a line item for airlines and hotels. It is becoming the business model. Merchants who understand this shift, and position themselves accordingly, will be better placed to capture value as the balance of power continues to move.
Sources: Morgan Stanley Premium Travel Co-Brand Credit Card Market Outlook; TD Cowen Research on Co-Brand Implications; Delta Air Lines 2025 Form 10-K; American Airlines 2025 Form 10-K; Breaking Travel News / TravelTech Show Research 2026; Stripe Industry Commentary.
