Airport Lounges Are the Hottest Ticket

Issued 21 May 2024

The pandemic unleashed consumer craving for sanctuaries created by carriers and

even credit card banks; this report evaluates lounge economics and consumer

fascination.

Contents

BEHIND THE VELVET ROPE .................................................................................... 4

A BUSINESS WITHIN AN AIRPORT ......................................................................... 6

CREDIT CARDS AND LOUNGES ARE FELLOW TRAVELERS ............................... 9

A GROWING CUSTOMER BASE IS UNCERTAIN .................................................. 12

DELTA DELIVERS THE SKY WITH ITS CLUBS ..................................................... 14

ME TOO: LOUNGES BY LOW COST CARRIERS ................................................. 16

PREMIUM TRAVEL IS FOREVER ........................................................................... 17

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Issued by IdeaWorksCompany.com LLC

Shorewood, Wisconsin, USA

www.IdeaWorksCompany.com

About Jay Sorensen, Writer of the Report

Jay Sorensen’s research and reports have made him a leading authority on frequent flyer

programs and the ancillary revenue movement. He is a regular keynote speaker at ancillary

revenue and airline retail conferences and has testified to the US Congress on ancillary

revenue issues. His published works are relied upon by airline executives throughout the

world and include first-ever

guides on the topics of

ancillary revenue and loyalty

marketing.

Mr. Sorensen has 40 years

experience in product,

partnership, and marketing

development. As president of

the IdeaWorksCompany

consulting firm, he has helped

boost airline revenue, started

loyalty programs and co-

branded credit cards, developed products in the service sector, and helped start an airline

and other travel companies. His career includes 13 years at Midwest Airlines where he was

responsible for marketing, sales, customer service, product development, operations,

planning, financial analysis and budgeting. His favorite activities are hiking, exploring and

camping in US national parks with his family.

About Eric Lucas, Editor of the Report

Eric Lucas is an international journalist whose work has appeared in

Michelin travel guides, Alaska Airlines Beyond Magazine, American

Essence, Epoch Times, Westways and many other publications.

Founding editor of Midwest Airlines Magazine, he is the author of

eight books. Eric has followed and written about the travel industry

for more than 30 years. He lives on San Juan Island, Washington,

where he grows organic garlic, apples, beans and hay; visit him

online at TrailNot4Sissies.com.

Disclosure to Readers of this Report

IdeaWorksCompany makes every effort to ensure the quality of the information in this report.

Before relying on the information, you should obtain appropriate professional advice relevant

to your particular circumstances. IdeaWorksCompany cannot guarantee, and assumes no

legal liability or responsibility for, the accuracy, currency or completeness of the information.

The views expressed in the report are the views of the author, and do not represent the

official view of CarTrawler.

Eric, at his favorite summer retreat, Steens Mountain, Oregon.

Jay with sons Anton and Aleksei at Artist Point in Yellowstone

National Park.

BEHIND THE VELVET ROPE

It was the pop artist Andy Warhol who quipped, "In the future, everyone will be world-

famous for 15 minutes." It relates to the desire of many to achieve a moment of

celebrity status and special treatment. The pandemic introduced us to the need for

physical separation while traveling. This encouraged some to upgrade themselves

to a premium cabin or an extra leg room seat. Small a la carte luxuries, such as

early boarding, an inflight snack, or airport lounge access, help offset the little

miseries that can accompany travel today. This report reviews the business of

lounges and how they are a “must

have” amenity for travelers and

airlines.

I visited a Capital One Café during

a trip to Washington DC. Capital

One is a US-based consumer bank

which competes with airlines by

offering very popular travel reward

credit cards. Their 50+ cafés offer

a lounge-like experience with a full

coffee shop, lounge space, work

stations, meeting rooms, and

“Ambassadors” who deliver bank

product information. These are the

neighborhood equivalent of an

airport lounge, but are open to

anyone.

I asked the café’s ambassadors about its 8,500 square foot cardholder lounge

opened at Washington Dulles Airport in September 2023. These two Capital One

representatives excitedly described a consumer thirst for airport lounges and travel

reward cards. “Consumers walk into the café and eagerly ask how they can gain

access to the Dulles Airport lounge. Many of them have never been to an airline

lounge, but they know it’s something they need to experience.” That’s the amazing

truth of today – everyday consumers have joined globetrotting premium class

travelers in a quest to gain admission behind the velvet rope of airport lounges.

Is it a lounge? Is it a bank? Is it a coffee shop? Is it a

plane? No, it’s a Capital One Café. Image: Capital One.

Airport lounges are hot real estate. Social media and news coverage yields images

of long queues of travelers snaking down airport concourses waiting to enter a realm

of peace and pampering. I’m reminded of a quip by Yogi Berra, the American

baseball great known for memorable aphorisms, “Nobody goes there anymore, it’s

too crowded.” Travelers may promise to

never subject themselves to another 30-

minute wait, but the continuing popularity

suggests they always return.

The problem seems most acute in the US,

which is enjoying a confluence of

contributing activity: the popularity of

premium travel and co-branded credit

cards. This trend defined the US industry

for 2023, and will influence it for many more

years to come, to include the rest of the

world. Why has this occurred and what are

the drivers? I offer five answers to this.

1. More wealth among the wealthy. In the US, household income swelled at a

record pace during the pandemic. From 2019 to 2022, the median net worth of

American families jumped 37%, after adjusting for inflation.

It's the largest

increase ever, according to a federal survey of consumer finances. Many

upscale consumers simply have more money to spend.

2. Personal space is more important. Thanks to the pandemic, everyone

wanted more space around themselves. This translates into demand for

premium seating on aircraft and more airport lounge use.

3. Social media makes us vain and envious. Folks love posting pictures of

perfect lives, and this includes selfies while stretched out in business class.

Many envy the luxe life and this creates the desire to book something better.

4. Influencers influence booking behavior. Bloggers, VIPs, media stars, and

self-promoters are so pervasive and convincing that we too can elevate our

status through an upgrade.

5. Airlines are better at retailing, but poorer with service. Online booking has

enabled airlines to sell direct to travelers, and to use pricing and promotion to

encourage impulse spending. The service part is interesting because

consumers perceive economy travel as "just acceptable" while premium service

raises the experience to something that’s "aspirational."

Changes in U.S. Family Finances from 2019 to 2022, US Federal Reserve report, October 2023.

Crowd control relies upon a velvet rope at this

airline lounge. Image: Jay Sorensen

Global network carriers are well-equipped to succeed in this environment. That’s

because they have the arsenal of hot products: premium cabins, airport lounges,

long distance routes, and robust frequent flyer programs. Low cost carriers (LCCs)

can find themselves at a significant disadvantage in this environment, and that

competitive conflict will make this an interesting space to watch in 2024.

A BUSINESS WITHIN AN AIRPORT

Airplanes come and go, but lounges are a bricks-and-mortar business focused on

place-based hospitality. The lounges operated by airlines and vendors have distinct

revenue streams, product design, employees, and management. While this is the

most visible corner of the market, it represents just one category in the world of

airport lounges. As shown in the table below, lounges can be built to meet the needs

of a variety of purposes, guests, and economic models.

Types of Airport Lounges

Airline

Operated

Airline operated and branded lounge for access by premium class

travelers, elite program members, lounge members, single-visit

pass holders, and guests through airline partnerships. Airline

responsible for location, development, operations, staffing, and

marketing. This category includes branded lounges operated by the

Oneworld, SkyTeam, and Star Alliances.

Shared Use

Lounge is developed, operated, branded, and marketed by an

independent vendor such as Airport Dimensions. The vendor sells

access directly to the public through single-use passes or

participation in lounge access networks, such as Priority Pass.

Clients of the lounge also include airline guests as a supplementary

source of revenue. The airline pays for visits by premium class

travelers.

Airline

Sponsored

Lounge is branded by the bank. Lounge is developed, operated,

and marketed by a vendor. Clients of the lounge are exclusively

bank cardholders. Participation in lounge access networks can

occur if allowed by the bank.

For airline operated lounges, the guest mix is influenced by the route network, airport

type, cabin configuration, loyalty program, and customer strategy. Long-haul

networks with business class require the supporting role of a lounge amenity. At one

time, a focus on business travelers was the singular factor. Today’s increased

demand for premium experiences by leisure travelers has expanded the customer

base. The perks provided by an airline to elite tier loyalty program members will also

determine who visits the lounge. Likewise, co-branded credit cards can include

lounge benefits which increases the guest load of a carrier’s lounge network. The

pie chart below displays the typical source of guests for a US network airline.

Airlines have many levers to adjust passenger traffic. Many of these can be readily

changed such as flight schedules, size of aircraft assigned to a flight, pricing and

inventory management. The same is not true for the lounge business. Yes, an

airline can stop selling daily passes, but this represents the smallest slice of the

business. Other categories, such as annual memberships, have long validity periods

and this explains why moving levers up or down, to increase or decrease lounge

traffic, poses challenges.

Let’s examine the difficulties. Annual memberships have a one-year timeline, elite

status likely represents a 2-year window for changes, and co-branded card

agreements with a bank can have 8- to 10-year terms; and lounges require years to

build. Business success with premium travel, elite tier programs, and credit card

portfolios can overwhelm lounge networks which are inherently challenged by a

surge of visitors. Thus we have social media coverage of guests waiting in line.

Oddly, the obvious popularity of this perk and fear-of-missing-out has contributed to

the popularity of lounges, as suggested by the Yogi Berra quote at the beginning of

this report. Airlines hate this imagery and are eager to bring it under control.

Co-Branded

Card

Related,

40%

Annual

Memberships,

35%

Premium Class

and Elite

Access, 20%

Single Visit

Passes, 5%

Source of Airline Lounge Visits

US network carrier example, systemwide estimate

Source: March 2024 by IdeaWorksCompany from industry experts.

Airline operated lounges encourage loyalty, provide enhanced service, define a

carrier’s brand, and support claims for providing premium service. Building new

lounges takes time and can require piles of money. Delta and Atlanta’s international

airport announced a $33 million lounge project in 2021.

The total price swelled to

$92 million by 2022, which now involves additional concourse-related components.

As of 2024, the 20,000 square foot lounge won’t open for years and is part of a

massive project to improve Atlanta’s concourse D.

Delta is also planning to open a second Sky Club at Seattle at 21,000 square feet.

Construction began in the 3

quarter of 2022 and is expected to be completed by the

end of 2024. The total cost of construction, which includes a new “Club SEA” lounge

sponsored by the airport, is currently estimated at $126 million.

Nancy Knipp, President of the Americas for Airport Dimensions, estimates

construction, finishing, and fixtures cost at $1,400 to $1,800 per square feet for

modestly appointed lounges in the US market. Even when a lounge is simply

renovated, the cost is high. Delta filed a construction permit for $18.7 million when it

renovated and expanded its Sky Club in Nashville in 2020.

Building in an airport

environment became much more expensive within the last 4 years.

Airlines are the primary tenants of airports and this provides an advantage when

negotiating access for lounge space. Other tenants are concessionaires and airports

seek to maximize rent and commissions from

them. Key lounge operators globally include

Airport Dimensions and Plaza Premium.

Lounge operators and sponsors, such as banks,

are often required to promote their business case

in RFPs (Requests for Proposal) submitted to

airports. The RFP will describe the operator’s

plans for the space in terms of fixtures, facilities,

and services. Airports place a strong emphasis

on local culture and locally sourced food and

beverages.

According to Nancy Knipp, leases of this type with

facility improvements typically have a duration of

10 to 15 years, with requirements to refurbish the

lounge at the midterm of a lease. Beyond facility

rent, the airport can receive commissions on sales

activity, which can be 10% to 20%.

City of Atlanta, Georgia, Ordinance 22-O-1808, adopted 21 November 2022.

“Concourse A Building Expansion for Lounges” at the Port of Seattle website reviewed March 2024.

“BNA’s Delta lounge set for major update” Nashville Post article dated 05 February 2022.

Sleep ‘n Fly at Dubai adds sleeping

compartments to the airport

experience. Image: Airport Dimensions

The counter staff at an airline operated lounge are usually employed directly by the

airline. This key customer facing position, along with premium cabin crew, has

regular contact with the highest revenue producing customers. Carriers place a

priority on these interactions and fill lounge positions with knowledgeable,

empathetic, and service-oriented people. Other positions, such as cleaners, food

service, and shower attendants, are filled by employees provided by vendors.

Sodexo and Compass Group are global service providers in this category.

The lounge business extends far beyond the reach of airline operated lounges into

the categories listed in the earlier table. Within the airline category, these are the

lounge networks described by the big global alliances: Oneworld with 600+ lounges,

SkyTeam with 750+ lounges, and Star with 1,000+ lounges – a total of more than

2,350.

The LoungeReview.com website lists a global collection of more than 3,500

lounges, which include all types of lounges from airline operated to those sponsored

by banks.

Shared lounges are popular with travelers because these offer access to everyday

travelers. You don’t need elite status or a business class ticket to enter, just buy a

daily pass or join a lounge membership program, such as LoungeKey and Priority

Pass. Two lounge operators dominate this space: Airport Dimensions and Plaza

Premium Group. They operate networks of proprietary-branded lounges such as

The Club (Airport Dimensions) and Plaza Premium Lounge. Operators can also

support lounges sponsored by airlines, banks, and other entities.

CREDIT CARDS AND LOUNGES ARE FELLOW TRAVELERS

High-spending consumers, premium travel, credit cards with perks, and lounge

access are swirled together in a complicated relationship involving airlines and card-

issuing banks. There should be no surprise that big money is the overlap of this

Venn diagram. Globally, the revenue produced by co-branded credit card programs

associated with airlines exceeds $35 billion.

That’s the money paid by banks to

airlines for the miles and points accrued by cardholders, along with a host of other

activities. Cards of all types can now include lounge access perks with those having

the highest annual fees promising unlimited access.

This report focuses on the partnership between Delta Air Lines and American

Express. That’s because their financial disclosures are more robust than other

airline-bank tie-ups. In its 2023 annual report, Delta disclosed $1.104 billion of

miscellaneous revenue which it said primarily comprised lounge access, including

access provided to certain American Express cardholders.” Let’s assume 70 percent

of this, or more than $772 million, is generated by its Sky Club lounges. That’s in

addition to the billions received for SkyMiles mileage accrual from the SkyMiles

AMEX credit card portfolio.

Oneworld, SkyTeam, and Star Alliance websites reviewed March 2024.

“2023 CarTrawler Worldwide Estimate of Ancillary Revenue,” press release dated 23 January 2024.

There are multiple ways to gain entry to a Sky Club, with a prevalent method being

the purchase of an annual pass. This has proven too popular and elite status has

been added as a criterion to reduce crowding. Those having Medallion status

(Silver, Gold, Platinum, and Diamond) are allowed to purchase an individual annual

membership for $695 or $1,495 for Executive membership which provides access for

two guests. Membership provides unlimited access. To further reduce crowding,

Sky Club stopped selling daily passes. It’s a painful move, as these are regarded as

offering the best operating margin.

Credit cards have become an extremely popular lounge membership alternative. My

visits to Sky Club lounges in March 2024 as a prospective member were met with

Delta employees eager to promote American Express cards offering lounge access.

Employees would describe card lounge entry benefits courtesy of a laminated

brochure kept at the counter. They would then suggest an American Express card,

and didn’t express a preference for the Delta SkyMiles card. The importance of the

relationship is abundantly clear, as equal promotion was given to AMEX’s proprietary

Centurion and Platinum AMEX cards, along with Delta’s own SkyMiles Reserve card.

Delta Sky Clubs and Credit Cards

Card and Fee

Delta Lounge Access

AMEX Centurion

$10,000 initiation,

then $5,000 annually

 Unlimited access (includes AMEX lounge network).

 Must be traveling on a Delta operated flight.*

 Guest fee: $50 (family or up to 2 guests).

Card is invitation only.

AMEX Platinum

$695 annually

 Unlimited access (includes AMEX lounge network).

 Must be traveling on a Delta operated flight.*

 Guest fee: $50 (family or up to 2 guests).

Delta SkyMiles

Reserve

$650 annually

 Unlimited access (includes Centurion lounge network).

 Effective 2025: Limit of 15 visits (multiple lounge

entries during a 24-hour period are a single visit).

 Must be traveling on a Delta operated or marketed

flight (excludes Basic Economy fares).

 For travel on partner flights (such as Air France) not

operated by Delta, lounge fee of $50 applies.

 Guest fee: $50

Notes: Review of Quick Reference Guide provided at Sky Club locations, March

2024. * Delta-marketed flight operated by WestJet also qualifies.

Among the levers to adjust lounge traffic is the access provided by credit cards.

Peak crowding at hub locations has prompted Delta to limit visits by Delta SkyMiles

Reserve cardholders to 15 visits annually starting in 2025. As of yet, the same

restriction has not been announced for the AMEX Centurion and Platinum portfolios.

But the fascinating element is the complexity of these airline-bank friendships; the

banks are also direct competitors of airlines. The big three banks that have

relationships with top carriers (AMEX, Citibank, and Chase) also operate their own

travel reward portfolios. Each offers reward cards that accrue points based upon

charge activity in a manner similar to frequent flyer programs. Points can be

redeemed to book flights, hotels, car rentals, and more, at online portals operated by

the banks.

The Chase Sapphire Reserve Credit Card charges a $550 annual fee and a recent

online offer adds 60,000 bonus points. Booking through the Chase Travel portal

delivers bonus points, such as 5X on flights and 10X on hotels. Very tellingly, the

card includes a lounge benefit: “Complimentary access to 1,300+ airport lounges

worldwide with up to two guests, including every Chase Sapphire Lounge by The

Club location, after an easy one-time enrollment in Priority Pass Select.”

Beyond travel-related accrual and redemption, AMEX and Chase offer a network of

their own branded lounges. The AMEX Centurion-branded network has 40+

locations and Chase, a more recent arrival, has six Sapphire Lounges open. The

flagship location for Chase is the recently opened lounge at New York’s LaGuardia

Airport, which is less than 10 miles from the bank’s global headquarters.

The Chase Sapphire Lounge at LaGuardia, opened in January 2024, features a full buffet, circular

bar, kids’ arcade, wellness spa, and a la carte private suites. The lounge is operated by Airport

Dimensions for Chase. Image: Chase

The narrative so far has not mentioned Capital One. Let’s compare portfolio sizes.

Delta SkyMiles AMEX had 7.5 million cardholders in 2023.

Capital One has more

than 100 million customers, and if it purchases the Discover Card, it will add 300

million more.

Adding Discover will also allow it to develop a card network to

compete with Visa and MasterCard. Capital One labels its reward currency “miles”

in an effort to compare itself to airline reward programs. In addition to its 50+ Capital

One Cafes, the bank has started building airport lounges, which are generally

operated by Plaza Premium Group or TAV Operations Services.

Capital One Lounges are open at

Dallas/Ft. Worth, Denver, and

Washington Dulles. The Venture X

card, with a $395 annual fee, offers

unlimited Capital One Lounge visits

and access to the Plaza Premium

and Priority Pass networks. The

bank also announced new sit-down

dining lounges planned for New

York LaGuardia and Washington

Reagan airports.

Among the big

card-issuing banks, Capital One is

unique because it doesn’t have a

co-brand relationship with an

airline. It’s free of any conflict

which may allow the bank to morph

into a major travel retailer . . . with

airport lounges, cafes, travel

booking portal, and hundreds of

millions of cardholders. At this rate, maybe the bank will start an airline.

A GROWING CUSTOMER BASE IS UNCERTAIN

Research has shown when travelers are happy with the airport experience, they will

spend more time there. Airport Dimensions conducts surveys to learn about airport

travelers. Their November 2023 survey reached 9,300+ travelers in 16 countries,

who took a minimum of two roundtrip flights during a 12-month period. When

queried about trip purpose, 48 percent were leisure travelers, 25 percent visited

friends and relatives, 22 percent traveled for business, and the remaining 5 percent

were commuters or had other purposes. The survey identified a distinct trend for

younger travelers to replace waiting at the gate with other airport activities.

“Airline Loyalty Becomes a Multi-Billion Dollar Club” IdeaWorksCompany report dated 16 April 2024.

What to Know About Capital One’s Proposed Acquisition of Discover,” New York Times article dated

20 February 2024.

“Capital One Just Announced New Airport Lounges and Major Perks at 'Premier Collection' Hotels –

What to Know” article in Travel + Leisure magazine dated 18 October 2022.

Capital One Lounges feature food stations, full bar, and

grab & go food. Image: Capital One

Boomers, those born between 1946 and 1964, disclosed spending 33 percent of

their time waiting at the gate or in a public area before boarding.

For younger

generations, the result drops dramatically to 22 to 26 percent. Younger age cohorts

spend more time browsing online content, gaming, sleeping, and finding something

else to actively occupy time in the airport. The most important response in the

survey reveals what percentage spend time in lounges:

 Boomers (age 60-78): 15 percent.

 Generation X (age 44-59): 12 percent.

 Millennial (age 28-43): 9 percent.

 Generation Z (age 12-27): 7 percent.

The overall average for the survey was 11 percent. These results do provide

concern for the future of consumer demand. Today’s airports have become more

attractive venues for dining, drinking, and retail. There is opportunity for lounges to

attract this spending. Most dramatic is the trend of younger travelers to be less

engaged in loyalty. These are the responses to the survey question “Are you a

member of a frequent flyer program?”

 Boomers (age 60-78): 61 percent.

 Generation X (age 44-59): 55 percent.

 Millennial (age 28-43): 50 percent.

 Generation Z (age 12-27): 38 percent.

The results display a definite trend.

Loyalty program participation leads to

applying for a co-branded credit card,

which has the potential to include

airport lounge perks. Airline

executives know about this worrying

trend and will work diligently to

reverse it.

There is a practical reason for lower

lounge and loyalty potential among

young consumers – less disposable

income. They are earlier in their

careers and most have not reached

peak earning years as others have.

On the plus side of this ledger is the continuous improvement of lounge facilities and

amenities. In addition, lounge access is actively promoted like never before, with

options now presented through an array of credit cards and fare bundles.

These efforts will attract new paid users, with the increased popularity of premium

travel adding even more.

Age cohort definitions: Research Guides, Library of Congress, reviewed March 2024.

How will airlines attract younger travelers, and

convert them to become loyal lounge users and

premium cardholders? Image: Capital One Travel

DELTA DELIVERS THE SKY WITH ITS CLUBS

The idea for this report began with a Delta annual report disclosure of revenue

generated by its Sky Club lounge network. As described earlier, the carrier said it

had 2023 miscellaneous revenue of $1.104 billion, which was “primarily composed of

lounge access, including access provided to certain American Express cardholders,

and codeshare revenues.” Thus began my search to compose a story about airline

operated lounges. Significant research was required to assess the scope and size of

Delta’s US lounge network, along with visits to lounge locations. The table below

summarizes the results of the calculations which were vetted by industry experts to

assess reasonableness.

Delta Sky Club Network – Business Calculations

Lounge Network Metrics

Basis of Metric

Sky Club Locations

US domestic network, February 2024

Average Club Size

12,000 square feet

Estimates calculated from size and/or

seating data found for 39 of 55 locations. In

addition, airport maps were reviewed to

determine size, along with in-person visits.

Average Seating

240

Average Square Feet

per Seat

Guest Turnover by Lounge Category

Turnover factor is used to estimate daily guest traffic for Delta network

Spoke City – Smaller

3X factor

Such as Kansas City, Milwaukee, Raleigh

Spoke City – Larger

5X factor

Such as Chicago, Denver, Miami, Newark

Hub and Major City

7X factor

Such as Atlanta, Boston, Orlando, Seattle

Lounge Visits

Estimated Visits

82,900 daily

30.3 million annually

Turnover factor multiplied by seat capacity

for each individual lounge location

Lounge Financials

Net Paid Visits

24.2 million annually

Assume 80% are paid (credit card benefit or

membership) and 20% are elite status or

premium cabin guests

Annual Revenue

$772.8 million

Assume 70% of $1.104 billion

miscellaneous revenue

Revenue

$31.91 per visit

Annual revenue divided by net paid visits

Operating Expense

$25.00 per visit

Assumption based upon industry expert,

does not include capital expense

Operating Profit

$6.91 per visit

Per-visit revenue less expense

Sources: Delta 2023 financials and IdeaWorksCompany research and assumptions.

Delta is understandably proud of the lounge network it has created. Press releases

announcing new locations or renovations often include details such as square feet

and seating capacity. These details were found for 39 of their 55 US locations;

sometimes both were identified for a lounge, or just seating capacity or square

footage. For lounges with complete details, the average square feet of lounge per

seat was found to be 49, and this result aligns with industry standards. The average

metrics for Delta’s domestic network are estimated to be just under 12,000 square

feet, with a seating capacity average of 240 guests.

Lounge activity varies by location category and size of lounge. Smaller airports have

fewer passengers and flights, and smaller lounges. “Turnover” is a tool to estimate

the number of guests. For example, the turnover factor used for smaller airports,

such as Nashville, was 3X. Multiplying

Nashville’s 275-seat capacity by 3 generates a

result of 825 guests per day. The 13,500 square

foot lounge was renovated in 2022, and its feet-

to-seat ratio is calculated at 49. Larger non-hub

cities, such as Denver and Newark, have more

activity, and a higher turnover factor of 5X. Hub

locations endure the highest level of guest

activity due to successive banks of flights, and

have the highest assigned factor of 7X. The

calculations for one lounge at Atlanta generated

a result of 1,120 daily guests. A visit to the

lounge and conversation with front desk staff

revealed the actual number is 1,300.

Delta’s US lounge network was estimated to

accommodate 30.3 million guest visits during

2023. The actual number of individual travelers

is lower because guests may make more than

one visit per one-way trip. It’s fascinating to

compare the scale of their lounge operations, as

Frontier Airlines flew a total of 30.2 million

passengers the same year. Sky Club traffic

rivals major airlines on a standalone basis.

Annual lounge revenue is estimated to be $772.8

million, which is 70 percent of the $1.104 billion

miscellaneous revenue disclosure. Direct

revenue is provided by individual memberships. Indirect revenue largely comes from

American Express; when cardholders check into a lounge the bank pays a

negotiated fee to Delta. The specifics of this fee are not known and payment caps

may limit AMEX’s exposure for cardholders who make very frequent visits.

A timely tool for travel. Delta’s mobile

app offers advice on lounge availability.

Total lounge visits are reduced to 24.2 million annual when non-paid lounge visits

are deducted. Non-paid visits are generated by business class travelers and elite

tier members who receive the perk of a lounge visit. There may be internal transfers

to compensate Sky Clubs for this activity, but the visits don’t generate external cash.

On an operating basis, Sky Clubs likely generate profits for Delta. But when capital

costs are included, such as building new lounges at a cost of $50+ million, net

income is certainly elusive. But these lounges serve needs that go far beyond a pro-

forma income statement. They are becoming branding icons to attract premium

class passengers and to grow co-branded credit card portfolios. That they appear to

keep their head above water on an operating basis is definitely a plus and may

explain why US carriers have so eagerly improved features such as food and

beverages. The viability of lounges as a standalone business has even tempted

more LCCs to consider the business.

ME TOO: LOUNGES BY LOW COST CARRIERS

Global network airlines are reaching for price-sensitive travelers with basic economy

fares. Likewise, LCCs are seeking premium travelers with a la carte and bundled

options for better seating, food and beverages, and airport lounges. Whereas the list

of carriers operating lounges was once restricted to traditional airlines, the table

below identifies eight LCCs that offer lounges:

Airport Lounges – Low Cost Carriers

Airline Operated and Airline Sponsored

Airline

Lounge Name

Airports

No Charge Admission Policies *

Premium

Cabin

Elite Tier or

credit card+

Passes

Azul

Lounge Azul

Viracopos

Business

Elite tier and

credit card

Single visit

EasyJet

The Gateway

Gatwick

Flexi fares

Single visit

Flydubai

Business Class

Dubai

Business

Elite tier

Flynas

Flynas Lounge

Dammam,

Jeddah, Riyadh

Premium

Elite tier and

credit card

Single visit

GOL

Lounge GOL

Smiles

Rio de Janeiro,

Sao Paulo

Premium

Economy

Elite tier and

credit card

Single visit

Icelandair

Saga Lounge

Keflavik

Saga

Elite tier and

credit card

Jazeera

Airways

Pearl Lounge

Kuwait City

Business

(Cairo flights)

Single visit

SpiceJet

SpiceLounge

Delhi, Kochi,

Hyderabad

Credit card

Single visit

WestJet

Elevation Lounge

Calgary

Business

Elite tier and

credit card

Single visit

* Policies described are for primary travel; companion policies are not described. + Access varies

by elite tier or credit card type. Policies reviewed at airline websites March 2024.

Lounges operated by LCCs,

not surprisingly, are

designed to be mindful of

profits. These are functional

spaces that offer the usual

amenities without the

grandeur increasingly

associated with the lounges

of global network carriers.

In this regard, they do help

reinforce the brand by

presenting affordable luxury.

Some LCCs are seeking

premium travelers by adding

business class cabins. The usual path of development starts with a shared use

lounge where the airline buys passes for its premium travelers. This can grow into

airline-sponsored or airline-operated models as success is found in the premium

market.

Flynas in Saudi Arabia offers lounges at three airports for its premium class

passengers and elite tier FFP members. Access is also offered as an amenity for

Flynas Signature credit cardholders, and sold through the Priority Pass program. Its

newest lounge opened March 2024 in Riyadh’s King Khalid International Airport.

PREMIUM TRAVEL IS FOREVER

I know, it’s a bold statement. But the pandemic helped this genie to escape the

bottle, and it won’t be put back. The pandemic taught all of us the value of placing

space between each other. Extra leg room seating, premium economy, and airport

lounges were tools to achieve what some considered to be lifesaving amenities.

This behavior continued as the world exited the pandemic with many consumers

feeling the need to reward themselves for years of worried living. The good news for

the airline industry is . . . people became comfortable with these extra comforts.

The Flynas lounge is in the booking path; the box is below pre-order meals and above trip

insurance. 125 Saudi Arabian Riyals is about $33.

The Flynas lounge in Riyadh is open 24 hours a day, 7 days a

week, and includes the treat of soft serve ice cream.

Airlines are eager to respond to the opportunity because they know a sizeable piece

of business travel was taken by other new habits developed during the pandemic.

Work-from-home became a necessity and a valued employee perk and opened us to

the technological wonder of Google Meet, Microsoft Teams, and Zoom. Business

travel was crimped because meetings of all types could occur from the comfort of a

kitchen table. Many published statistics reveal 80 percent of the 2019 volume of

business travel has returned, with 20 percent still missing. This has led to fewer high

yield travelers in business class coupled with a smaller presence in lounges.

Premium travel has more than filled the gap in a traffic sense. Airlines have been

increasing the size of premium economy cabins and have become ready retailers of

extra leg room seats. Business class is being priced to appeal to upscale leisure

travelers. These are activities which will naturally lift demand for lounge access,

which is a fellow traveler on the premium path to profits.

The major development in the lounge business has been the influence of credit

cards and the banks that issue them. Higher fee co-branded cards now feature

lounge access. This includes portfolios associated with airlines and the proprietary

cards issued by banks such as Chase Sapphire Reserve. Airlines are

understandably excited by the revenue stream provided by these upscale trends.

The new ideal customer is a cardholder paying a big annual fee for a card with club

perks, who books premium seats, and spends a lot on the card. Lounges have

grown from a gift given to the few, to a strategic tool that delivers billions in premium

class and co-branded revenue. Be forewarned – your customers will have high

expectations.

Behold the amazing alchemy of cards. The annual fee for the United Club Infinite Card is $525 and

it includes access to United Clubs. Membership alone for the lounges costs $650 annually.