The Airport-Lounge Arms Race

Perhaps, like me, you have a limited imagination, and you do the airport the same way you always have: wait in many long lines, fight for a hard leather chair, pay $15 for a soggy sandwich. Perhaps you walk right by the signs that read this or that lounge and never really wonder what’s behind those private doors. Perhaps you haven’t noticed that in the past couple of decades, those private doors have proliferated and are now in lots of corners of lots of airports. I wouldn’t blame you, because as a financial prospect the private airport lounge doesn’t make much sense. Airport real estate is scarce. Infrastructure is expensive. So why would airlines give you food and a luxury space to wait in for free?

In this episode of Radio Atlantic, former staff writer Amanda Mull explains the logic of the airport lounge. Since 2000, the number of flights taken has increased by 50 percent. At the same time, people spend more time at airports because of security reasons. These changes created fertile ground for an airport-lounge arms race, where the offerings have gotten so luxurious that you can now book a skin-care treatment after you finish your champagne. Mull traces the curious history of the airport lounge and the latest players in the game, and explains why, of course, you are not actually getting anything for free.

Listen to the conversation here:

The following is a transcript of the episode:

[Music]

Hanna Rosin: I’m not sure if this is an embarrassing or a proud confession: I have never been to an airport lounge, and I don’t think that in my true brain I thought they were real.

Amanda Mull: They are real. I had also not been to one until relatively recently.

[Music]

Mull: My first experience in an airport lounge was in 2018, when a friend who I was going to Europe with—I had never been to Europe, never been in an airport lounge. A lot of firsts on this trip. It was a trip for his birthday.

And he had bought an expensive ticket on the flight that we were all on. The rest of us were on much cheaper flights. And he managed to talk all of us into the British Airways lounge in JFK. He’s a very convincing guy—a good talker—so he got us all into the lounge, and I was like, Oh, I have information now that I can’t unlearn.

I know how nice this is. I know the free drinks and the soft chairs and the lack of crowds. But the crowds have expanded since then.

[Music]

Rosin: I’m Hanna Rosin. This is Radio Atlantic. And that was former Atlantic staff writer Amanda Mull clueing me in about airport lounges, which apparently many other people are clued into.

I’m guessing that many of you listeners are more sophisticated than I am. For all I know, you are right now listening to this podcast while sipping champagne at whatever is the newest luxury lounge at LAX.

But whose idea was it to give you that free champagne? Why are these lounges now everywhere? And even though you are technically not paying for the champagne, you must know that you’re not getting it for free. Somewhere down the line, you—or somebody—is paying for it.

Here to explain all of this is Amanda.

Mull: So as people started to return to air travel in the U.S. post-pandemic, I began both reading stories and seeing myself in airports that there was just a huge glut of people trying to get into these lounges—that there were lines forming outside of some of them, that there had been, for some reason, this real uptick in demand among people who were probably traveling a lot also before the pandemic. But, suddenly, a much greater proportion of those people had access to lounges and wanted into lounges.

You also saw, especially in hub airports, a lot of new lounges being built, a lot of construction sites within airports. And there was just enough stuff going on that I began to just wonder: Exactly who is it that gets into the lounges? Why are there so many more people who suddenly have access to lounges? And what is the value proposition, especially for credit-card companies?

Because, traditionally, airport lounges have been the province of airlines, who give it out based on frequent-flier status. Most of us sort of understand how that works on a vague level. But suddenly there were Centurion Lounges and Chase Lounges, and it just seemed like a lot was going into creating these spaces, and more and more of non-functional airport real estate out there was being used for them. And there wasn’t an obvious explanation that I could think of as to why that was happening.

Rosin: So, once upon a time, meaning when you went into the British Airways lounge, you thought of them as these discreet corners here and there. And then, all of a sudden, it feels like they’re a huge thing and they’re everywhere, and why?

Mull: Right, and that period of change from, you know, 2018 to now is a relatively short period of time, especially for constructing things inside airports. There’s a lot of red tape. There’s a lot of difficulties, structurally, in getting things like that built. So the pace at which they were being built suggested a real sense of urgency.

Rosin: Right. This whole thing is a little bit blowing my mind because I have done plenty of traveling, and maybe naive—it never occurred to me that the airport experience could be any different than the airport experience I have had my whole life, which is like, you stand in line, and you pay $5 to $7 for a banana, and then you sort of go along with the hoi polloi and find yourself a little seat to sit in, or you sit on the floor. Like, it just never occurred to me that traveling could be any different than that, but I’m obviously very, very late to this game.

Mull: Yeah, it really hadn’t occurred to me either until, like, that moment, because although I had done a decent bit of traveling—especially because in my mid-20s I moved away from home, moved away from the city where I grew up. So I had to travel for holidays and things like that. I’m from Atlanta, so my home airport was always, like, the busiest airport in the world. And now I’m in New York city. So all of my airline experiences up to that point had been extremely high impact. (Laughs.) Like, you’re playing the airport on hard mode in those situations. There’s no pleasant airports on that itinerary.

Rosin: Yeah, exactly. I mean, the last travel experiences I’ve had, I have the same exact memorable experience, which is: It was such a long line at the Starbucks, and then the people behind the counter yelling that there was a 30-to-40-minute wait so that if you were in a hurry, you should just move on along. I mean, you wouldn’t tolerate that anywhere on Earth. Only in an airport.

Mull: Right.

Rosin: Okay, so the airport lounge—where does it originate?

[Music]

Mull: The backstory of the airport lounge is sort of fantastic. The first one in the U.S. was opened in 1939 by American Airlines in what would become LaGuardia Airport, and it was carved out of a space in Fiorello La Guardia’s office within the airport.

He was mayor at the time. He had received criticism that his office at the airport was too huge, so he let American Airlines use part of that office space as a lounge. And at the time, it was truly for VIPs. The chairman of American Airlines selected who would be allowed into the lounge personally—you know, fliers who were particularly powerful or particularly influential, so politicians, business leaders, people like that.

It was called the Admirals Club. The people who were allowed into it were deemed admirals. And it was really sort of just like a nicer waiting room. You know, it was private. There weren’t eyes on you at the regular terminal. But it wasn’t like a full-service experience.

It was a way for a very powerful executive to confer some favor on other very powerful people in a way that ultimately probably benefited him quite a bit.

[Music]

Rosin: That’s amazing. That’s the very first one. That doesn’t sound anything like the ones now. So how does it evolve?

Mull: Well, it evolves in a few steps. The first big change that came about was: Anti-discrimination laws meant that airlines could no longer just decide who they wanted to let into lounges. They had to develop some sort of system that would make it, theoretically, more accessible to a wider swath of people.

So what they did is decide to allow people to buy memberships. Then, anybody with enough money could get in, and you couldn’t plausibly be charged with discrimination in who you were allowing access to these spaces.

Rosin: Right.

Mull: So that is where it becomes part of the business instead of just part of the sort of clubby nature of—

Rosin: Right, so it’s not just a social atmosphere. Now they realize, Oh, you can actually make money off of these.

Mull: Right. And then during the Carter administration, you have airline deregulation. So suddenly airlines were looking for ways to compete with each other. Because prices on airfares were going down, additional airlines were opening all over the place. You had this moment of really intense competition within the airline industry.

That’s how you end up with frequent-flier programs. A lot of the things that we associate as sort of a given with air travel now were created through this process of deregulation.

Rosin: Interesting, because, culturally, I think of the era, say, moving from the ’60s to the ’80s, when airline travel becomes less obviously glamorous. So it’s interesting that at the time it’s becoming less glamorous, it’s also creating layers of status.

Mull: Right. I think that those things are pretty deeply tied. Before deregulation, all the fares were the same, so the way that airlines competed with each other was through, like: What could they offer you for this very high price? So you had to build in a lot of services and things like that.

Rosin: Like, the best flight attendants, the best drinks. Like it was sort of a marketing campaign?

Mull: Right. There was no price pressure in the airline industry. So you could compete to have, like, the most beautiful flight attendants, the best carving stations on airlines, the most comfortable seats, and things like that. And then once all that regulation goes away, you suddenly end up with just a lot more types of product that are offered in the airline industry.

So you have to offer a lot more things. You want to offer cheap tickets. You want to offer expensive tickets. You want to offer sort of layers or tiers of service level, so that you can appeal to the widest potential population available. And then you also want to create conditions under which customers become loyal.

Because if there’s a lot of competition in price and there’s a lot of options suddenly available, you want to create things that keep people with your airline, and that is where frequent-flier programs begin.

Rosin: Mm-hmm.

Mull: It’s also where the airline lounge becomes an even more professional part of the airline industry. The issue with loyalty programs is you have to figure out more and more and more perks over time in order to keep people happy. And in order to continue bringing new people in at the bottom of the pyramid, you have to add things at the top of the pyramid to move your most long-term, most profitable customers up and up and up.

So you hit an issue where there’s a set of perks that you offer, and then you allow enough people access to those perks that they’re no longer particularly special, or you can no longer guarantee a particular level of service with those perks. If you offer people access to a special space and then that space becomes crowded, it’s no longer really a perk.

Rosin: Got it. Because as you’re pulling more people into this special space, you have to create a special special space and then a more special special space. You have to continuously create layers of luxury.

Mull: Yes, you have to continue adding new things. You have to have a few things in the first place to start to draw people in, and then once that is successful, you have to continue to add in order to continue to draw people. Airport lounges are a big part of that for airlines, because the airport is sort of a miserable place, so there’s a really big premium on having access to a space that gives you slightly less misery. So it turns out—and this becomes more and more true over time—that giving people access to a slightly more comfortable space and some free booze is an incredibly potent loyalty carrot to dangle in front of people.

[Music]

Rosin: When we come back: How the modern airport lounge came to be, why there are so many more of them every year, and why you are actually paying for them even if you never step into one.

[Music]

Rosin: Okay, so we’ve moved through the ’80s. Sounds like the airport-lounge arms race is fully underway. What happens next?

Mull: Yeah, after this deregulation in the ’80s, there’s a couple more things that happen that get us to where we are today. The first thing is 9/11.

[Music]

Mull: When 9/11 happens, you add a lot of process to the airport, and you add a lot of time to the airport.

Before 9/11, you can just sort of breeze right through. I’m old enough that I remember flying a few times before 9/11—like I was a kid, but I did it. Then when that happens and you introduce TSA checkpoints, you ask people to spend a lot more time at the airport because you never know if it’s going to take 45 minutes to get through TSA or if it’s going to take five.

So you have to block out the time necessary in case it takes 45 minutes, which means you have a lot of people just spending more time at the airport than they used to. So you get an increased demand for spaces that you can just sit in for a while and be comfortable, especially from people who travel a lot.

And then, over this same period of time, from 9/11 to the present, you get this explosion in commercial air travel in the U.S. You have, like, 50 percent more flights taken in the U.S. than you had in 2000.

And that is a huge jump in the number of people flying, and they’re largely flying through airports that are sort of old and sort of not well-equipped to handle that enormous jump in volume that happens all of a sudden.

Travel is one of those things where the user base is really disproportionate. A tiny, tiny proportion of people who travel in a given year do a massively disproportionate amount of the total travel done by Americans. Those people are the people disproportionately, at this time, with access to airport lounges because they earned the status the old-fashioned way, by just flying a lot, by spending a lot of money. They are road warriors, work travelers. They are in them all the time.

And so you’ve got those spaces, and then, slowly, more people want to spend time in there because they have to spend more time at the airport to fly at all.

And then you have, in 2013, an entrant to the marketplace that really changes things a lot and that helps set the stage for what we see now, and that is American Express.

Rosin: American Express. That is not what I expected you to say.

Mull: Yeah. American Express is huge in the travel space. They offer a lot of perks and rewards programs that are geared particularly toward people who want to travel. And they have a longstanding relationship with Delta to issue cards that are co-branded, so a Delta American Express.

There’s, like, several tiers of them. They’re extremely popular. And the very expensive ones will get you into the lounge. So American Express sees all this, sees how enthusiastic people are about taking out credit cards in order to get these types of travel perks, specifically, and decides, like: Oh, this is a real spot where people who we want to do business with are willing to hop into a new credit card in order to get access to this specific thing.

So what American Express does is they look around and go, like: Airport lounges are pretty nice, but they are kind of no frills, relative to what they could be. We think that we can offer a better level of service in our own spaces and attach them to credit cards that aren’t tied to an airline.

So American Express still issues a lot of those Delta credit cards. It’s still a very successful program. But in 2013, American Express opens its first Centurion Lounge, at McCarran Airport in Las Vegas, which is the first lounge that does not have an airline partner. So no matter what airline you’re flying, if you have an American Express Platinum card, you can go into the Centurion Lounge. And there’s now a bunch of them in the U.S.

So no matter what airline you’re flying that day, no matter what type of seat you’re sitting in on that flight, you can show your American Express Platinum and go into that lounge.

Rosin: Okay. This is very baffling to me. So, I understand why airlines—I’m following you so far—airlines are competing for customers. Then, suddenly, a credit-card company gets into the business. Why? Are they profitable?

Mull: Airport lounges are not straightforwardly profitable. It is very expensive to operate this type of business. Airport lounges require a ton of staff. They require a ton of capital investment to build something truly nice inside of an airport. They’re perishable-food businesses, bar businesses. You have to keep them extremely clean. You have to have staff there, you know, 20 hours a day in some of them. It is like running the most difficult restaurant in the world because you’re serving a lot of people, and they’re people that are disproportionately used to a really high level of service.

So they are not straightforwardly profitable, but what they’re great for is getting people to sign up for credit cards. And we know that because people sign up for airline credit cards of all types with great enthusiasm.

And that is, I think, the lesson that American Express, and later Chase, took from that, and went, Well, we can make the airport lounges even nicer. We can make everything inside of them free. We can make the food better. We can make the bar better. We can put additional amenities inside of them, and, if people are willing to sign up for airline credit cards in order to get access to these less-good airline lounges, then maybe people will sign up for just regular credit cards in order to get access to these much-better airline lounges. And that has been proven true. American Express was absolutely correct about that.

You know, and they keep building more, larger lounges at additional airports. They just opened one in the Atlanta airport that is like over 20,000 square feet. It features outdoor space. There’s patios that you can go out onto to get some fresh air. There is a huge, living olive tree inside of it. Some of the new ones are really nice spaces.

Rosin: Okay, so we’ve gone far beyond a high-end hotel lobby. Now it sounds like these are genuinely Zen spaces that conjure an atmosphere that’s, like, the opposite of an airport.

Mull: The nicest ones and the newest ones are really nice, genuinely comfortable, genuinely pleasant spaces. Some of them include spa amenities. I went to the Chase Lounge at LaGuardia—which is brand new and arguably the nicest lounge in the U.S., I think—and you get the opportunity to book a 30-minute skin-care treatment for free if you want to while you’re there.

There are some locations that have really nice private showers. So if you are at the end of a business trip and are getting ready to take a red eye home, you can stop and take a shower and put on your pajamas before you get on that flight. You know, there are some real things that are nice and convenient about these.

Rosin: Now, you talked about the post-pandemic crunch of travel. Like, there’s a huge number more people traveling.

Mull: Post-pandemic travel is just a little bit different. The volume isn’t that different. We are almost back to 2019 travel levels. But the thing that really changed, I think, is that post-pandemic, a lot of people signed up for these credit cards because I think a lot of people were planning to travel.

So after people got vaccinated and felt comfortable heading back out, you had all this pent-up demand among the more-affluent tier of people in the U.S., in particular. And they said, Well, if I was ever gonna get a travel-rewards credit card, now’s the time to do it because I’ve got four weddings to go to, and I want to go see my family, and I’ve got this vacation that I’ve been dying to take. So you get this surge of people into these high-fee, very expensive credit cards that give you lounge access.

So you’ve got like a tier of people who are not business travelers, who are not the traditional road warriors, who may have a little bit more flexibility at work now, who may not be back in the office full-time, who may be allowed to work fully remote and from anywhere now. I sort of think of them as work-from-home travelers instead of work travelers. (Laughs.)

Rosin: Mm-hmm.

Mull: That sort of demand settled, I think, at a pretty high level. You have people who are just used to living like this now. And they don’t want to sit at the gate with their legs propped up on their bag if they can avoid it, because they have the resources to get a fancy credit card and maybe sneak in and get some free food and some free drinks.

Rosin: I feel like what you’re transmitting is that this is good. Like, this doesn’t have any—does it have any knock-on effects on the rest of us travelers who aren’t interested? The way you’re describing it, it just solves a practical problem.

Mull: I think, largely, for travelers, I don’t know if it’s good, but I think it’s not bad. There’s no evidence that allowing parts of the airport to be used for these lounges prevents the airport overall from improving its infrastructure.

Rosin: Mm-hmm.

Mull: LaGuardia Airport in New York, it just got done with a very long-term, very comprehensive renovation that made the entire airport nicer. So the investment of private businesses into these lounges and the investment of public money into making the airport nice for everyone can and do coexist.

And because airports are things that are used so disproportionately by a pretty small number of people, making things nicer that are mostly accessible to the people who are most frequently subject to the indignity of the airport doesn’t really violate my sense of fairness. Like, these are the people who have to deal with the airport all the time. I’m fine with them having access to something slightly nicer. Because I don’t travel that much. I can deal with it for less expensive tickets or whatever.

But then, the downsides are less travel related.

[Music]

Mull: That all of these amenities are so deeply mediated by credit cards creates some things that I think are not great in a larger sense. Because interchange fees are so important to all of these credit-card companies—which are the cut of money that the credit-card company takes every time that you swipe or tap your credit card—and because these lounges are accessible mostly to people who have the very high-fee premium cards (high-fee premium cards generally have higher interchange fees than, like, a lower-tier card or a debit card), they make purchases more expensive. Like, they add sort of a middleman fee onto a credit-card purchase. Largely, what that does is then retailers and service providers end up baking those fees into prices.

So even if you are not a person who has a high-fee card and gets access to all of these perks, you are still a person who pays the prices that these interchange fees create. And they—the theory goes at least, that they—help nudge prices upward, in order to finance the perks that are then enjoyed by this, like, very small tier of people.

Rosin: So, essentially, what you’re saying is it spreads the costs to everyone. Like, somebody’s got to pay for those airport lounges, somehow.

Mull: Right. The major downside of this happens outside the realm of travel.

These very high-fee cards have become so popular because there’s so many more of them circulating now than there was in the past. That bakes in more expenses to every purchase that everybody makes because retailers and service providers who are pricing their goods need to consider that, like, 3 or 4 percent, maybe, of these purchases might not go into their pocket at all. It’s going to go directly to the card issuer.

Rosin: Right. So that’s why me, as a never lounger—I will probably remain a never lounger. Who knows? But that’s why I should care about this.

Mull: I think that it is a sort of peek inside how prices actually get made for the goods and services that you buy. There’s such huge demand for lounge access and lounge space that I really don’t see this slowing down anytime soon. One of the only things that really could slow it down would be if financial regulators really came down heavy on interchange fees and capped them in some way.

If you take away that revenue source there, you take away the incentive to continue creating evermore luxurious perks for this particular tier of traveler. But otherwise, I think that we’re going to see a lot more lounges.

Rosin: Right, right. Well, Amanda, I don’t know what to say. Thank you for going to all these luxury airport lounges so we don’t have to. That doesn’t quite work. But thank you for talking about them with me.

Mull: Of course. Thank you.

[Music]

Rosin: This episode of Radio Atlantic was produced by Kevin Townsend. It was edited by Andrea Valdez, fact-checked by Yvonne Kim, and engineered by Rob Smierciak. Claudine Ebeid is the executive producer of Atlantic audio, and Andrea Valdez is our managing editor. I’m Hanna Rosin. Thank you for listening.