American Express retreats from Priority Pass restaurants and resort credits

In the last few weeks a couple pieces of news have come out from American Express:

While the former change in principle affects more cardholders, I think the latter change gives a better clue to what’s going on here.

Very few American Express cards offer Priority Pass membership

To the best of my knowledge (leave a comment if I missed any) the only American Express cards currently available which offer Priority Pass Select memberships are:

  • Platinum business and personal charge cards (unlimited visits)

  • Centurion charge cards (unlimited visits)

  • Marriott Bonvoy Brilliant credit cards (unlimited visits)

  • Hilton Honors Aspire credit cards (unlimited visits)

  • Hilton Honors Ascend credit cards (10 free visits per calendar year)

  • Hilton Honors Business credit cards (10 free visits per calendar year)

The first 4 cards have annual fees of $450-$595; by comparison the Hilton Honors Ascend and Business cards are a steal at $95 per year.

Priority Pass restaurant credits should be a win-win situation

There are a few moving pieces it’s important to understand about the economics of a Priority Pass restaurant relationship:

  • breakage: restaurants get a flat fee for a maximum value. In May, 2018, for example, Priority Pass reimbursed Timberline Steaks & Grill at Denver International Airport $23 per check-in. Of course, customers with unlimited Priority Pass memberships and unlimited guests may not use their entire $28 per person credit if they’re just popping by for a drink or an appetizer.

  • overage: on the other hand, a cardholder and guests who order more than $28 each, after tax, doesn’t receive a discount on the overage. So while an 18% discount ($5 off $28) may sound like a lot if you order exactly $25.85 before tax, you get a 0% discount on every dollar you spend over that amount.

The labor squeeze

If you have ever looked at the description of a Priority Pass restaurant, you’ll have noticed that they emphatically, entirely, and comprehensively do not include gratuities in the value you’re able to redeem during a restaurant visit. In jurisdictions with a “tipped minimum wage,” i.e. places where employers are not required to pay their employees the minimum wage, the restaurant gets to keep the entire value of the Priority Pass redemption while the tipped staff’s income is reduced by the amount Priority Pass customers tip less than paying customers.

On the margin, this should modestly increase the value of Priority Pass redemptions to restaurants since the increased value of the sales accrue to the restaurant’s management while the increased intensity of the work is paid for through customers’ tips.

Priority Pass restaurants (and lounges) can and do throttle access

The flip side of that is during periods of high demand, when lounges and restaurants in the Priority Pass network simply refuse to accommodate Priority Pass customers, collecting the full value of their sales without passing along a discount. This issue first came to my attention through the Alaska Boardroom lounges, where Priority Pass customers were routinely turned away during peak periods, but it has since spread and lots of people are familiar with the ubiquitous signs telling Priority Pass cardholders to get lost.

Most people don’t visit Hilton resorts most years — and American Express wants to keep it that way

Once you start to think in terms of breakage and overage, the restriction on prepaid advance purchase rates for Aspire resort credits makes perfect sense: some share of Aspire cardholders books stays at eligible Hilton resort properties each cardmember year. Perhaps it’s as high as 70%, leaving a hypothetical 30% breakage rate on the $250 resort credit. But if 90% of Aspire cardholders stay at an eligible Hilton property every 2 years, then the calculation potentially changes: those cardmembers will be able to redeem their resort credit every year: once when they make an advanced purchase rate reservation before their cardmember anniversary, and once when they arrive for their stay after their cardmember anniversary.

That reduced breakage rate has the potential to radically increase the product’s cost to American Express, just as the miscalibration between Hilton annual fees and Priority Pass reimbursements caused their current panic. But at the end of the day, it’s also not sustainable to offer high-cost, low-value credit cards in a competitive market.

My guess: Priority Pass restaurants will be back in the next year or two

It’s hard to make predictions — especially about the future. But given the short notice American Express gave for cutting off Priority Pass’s expanding network of restaurant locations, it seems like an obvious timing problem: Priority Pass has already entered into contracts with its participating locations, so it couldn’t afford to give American Express a discount. American Express takes years to adjust its annual membership fees. That meant the only place American Express had the option of stopping the bleeding was to cut off restaurants completely.

But there’s no reason to believe that’s true in the long term: airport restaurants will always have high fixed costs and low marginal costs. American Express will have to keep competing against premium products offered by Chase and Citi. Priority Pass’s network of relationships with airport restaurants is a valuable and unique asset (those handheld devices aren’t cheap).

All of which is to say, the American Express Priority Pass relationship may not, and probably won’t, take its current form, but I’d bet American Express premium cardholders will have access to Priority Pass restaurants in one form or another by the end of 2020.

The Hilton Honors Ascend American Express Priority Pass Membership "Year"

Unlimited access to the Priority Pass network of airport lounges, which was long an afterthought compared to airline lounges and, more recently, the superb American Express Centurion lounges, has quietly become an impressive benefit of many super-premium credit cards, like American Express Platinum cards, the Chase Sapphire Reserve, and the Citi Prestige. In part that’s because Priority Pass has aggressively added airport restaurant locations where you can typically receive about $28 towards your food and drink bill (excluding gratuities). When I first started tracking that option, I recorded just 23 participating restaurants. The number is now up to 49!

Credit cards issued in the United States have typically offered either unlimited Priority Pass memberships or, like the Chase Ink Plus, “memberships” in name only where “members” pay $32 or so for lounge access. Obviously those memberships don’t offer any value at all at non-lounge locations, since the benefit is usually capped at $28-$30, although they might theoretically still be useful on long international layovers.

The Hilton Honors Ascend American Express struck an interesting compromise, offering a Priority Pass membership that includes 10 free visits per year, a benefit I enjoyed last year (although my partner’s new Hilton Honors Aspire card will give us both unlimited free visits while traveling together).

If you have an Ascend card and don’t otherwise have unlimited Priority Pass access, you should already be asking an important question: what’s a “year?”

Three ways a year could be defined

The two most common ways credit card benefits are restricted are by cardmember year and by calendar year. For example, American Express airline fee reimbursements are offered on a calendar year basis, while American Express Delta companion tickets are offered on a cardmember year basis, with the companion ticket appearing in your SkyMiles account shortly after your annual fee is charged each cardmember year.

There’s a third option, however, when benefits are provided by a third party: third-party program year benefits. For example, American Express Platinum cards offer Hilton Honors Gold status as an incidental benefit, but your Hilton Honors Gold status doesn’t depend on either the calendar year or your cardmember anniversary. Instead, it depends on the Hilton Honors program year, and your Gold status will continue for a year or longer even if you don’t renew your Platinum card.

American Express claims Priority Pass membership is based on a third-party program year

You can find American Express’s description of the Ascend Priority Pass benefit on the online application or by logging into your account. It’s more or less identical in both cases, and crystal clear (this text comes from the description in my online account, emphasis mine throughout):

Your Priority Pass Membership year begins on the date you enroll. Once enrolled, you will receive your Priority Pass Select card directly from Priority Pass within 10-14 business days. There is no membership fee with your Hilton Honors American Express Ascend Card. With your Hilton Honors American Express Ascend Card you will receive 10 complimentary lounge visits each Priority Pass Membership year. Once your 10 complimentary lounge visits are used, all subsequent lounge visits during the remainder of the Priority Pass Membership year are subject to a fee equal to the amount of the guest visit fee of the Priority Pass Standard program per person per visit, which will be automatically charged to your Card. To check on your remaining complimentary visit balance, please contact Priority Pass directly. Any unused complimentary lounge visits will be forfeited at the end of each Priority Pass Membership year.”

In other words, whenever you get around to enrolling in Priority Pass, the clock starts on your Priority Pass membership year, during which you can make 10 total visits, including guests. This would theoretically be gameable, for example by waiting until a few weeks before the first trip you expect to use Priority Pass on, thereby delaying the start of your Priority Pass membership year.

But it’s not true.

The Hilton Honors Ascend Priority Pass membership is a calendar year benefit

I know travel hackers all fancy themselves jailhouse lawyers, so before anyone starts commenting about how crystal clear the terms and conditions are, let me say: I know how crystal clear the terms and conditions are. But if you rely on the terms and conditions, you’re going to end up with a bunch of $32 credit card charges before you know it.

Fortunately, I only ended up with one, but it illustrates the issue perfectly:

  • My Hilton Honors Ascend annual fee was charged on January 19, 2018;

  • I registered for Priority Pass on February 7, 2018;

  • I made 11 visits between August 20, 2018, and December 26, 2018, and was charged $32 for the 11th visit;

  • I made another visit on January 2, 2019, and was not charged.

There’s simply no other way to explain this set of facts than the benefit being based on the calendar year, contrary to the explicit terms and conditions of the benefit.

My secondary piece of evidence is that I called Priority Pass today to ask how the benefit works, and spoke to a lovely woman with a perfect British accent who nevertheless understood no English. After both of us shouted at each other in perfect English long enough, she finally understood my question and told me I get 10 free visits per calendar year, I’ve used 1, and I have 9 remaining. At that point I politely thanked her and she politely hung up on me, to both of our relief.

Conclusion

For me, travel hacking is about staying focused on a simple question: how does it really work? The systems we take advantage of lie on the intersection of marketing, engineering, and law. Sometimes the marketers talk to the engineers, sometimes the engineers talk to the lawyers, and sometimes nobody talks to anybody at all. It isn’t enough to ask what the marketers intended, or what the lawyers wrote, if you don’t pay attention to what the engineers actually programmed.

All(?) 50 non-lounge Priority Pass locations

[updated 3/5/18: added MSP PGA Lounge]

[updated 7/24/18: added CLE Bar Symon, OOL Velocity Expresso & Bar, GSP RJ Rockers Flight Room, LIM Bleriot Bar & Lounge and La Bonbonniere, LAX Barney's Beanery, MIA Air Margaritaville and Viena, GRU La Bonbonniere and Bleriot Bar & Lounge, SYD Chicken Confidential, SYR Johnny Rockets, DCA Bracket Room]

[updated 1/18/19: added BOS Stephanie’s, BOS Jerry Remy's Sports Bar and Grill, IAH Cadillac Mexican Kitchen & Tequila Bar, IAH Landry's Seafood, IND The Fan Zone, LAX Rock & Brews, LAX P.F. Chang's, SFO San Francisco Giants Clubhouse, SFO Yankee Pier, TLV Schmoozy Bar, TUS Noble Hops, DCA American Tap Room, removed LAX Barney’s Beanery, GRU La Bonbonniere]

[updated 3/7/19: DFW Gameway]

Longtime readers know that once I start thinking about a project I'm not satisfied until I've completely exhausted it. Over the last couple days I've written about non-lounge Priority Pass locations multiple times, and it was bugging me so much I decided I needed to finish the job. So, here are all 24 non-lounge Priority Pass locations around the world. I identified them by searching this PDF of all Priority Pass locations for the string "off the bill," which they consistently use to describe the benefit, i.e., "Cardholders can use their lounge visit entitlement to receive AUD$36 off the bill."

After writing this post, but before posting it, I saw via Doctor of Credit that yet another restaurant had been added, at New York's JFK airport in Terminal 8. Bobby Van's Steakhouse is not yet showing on the Priority Pass app, but is already showing on the Priority Pass website.

In other words, these non-lounge locations are getting added pretty quickly, which is nice for folks who have either limited or unlimited free access to Priority Pass locations. Let me know in the comments if I've missed any.

United States

Portland International Airport

  • Capers Cafe Le Bar, $28

  • Capers Market, $28

  • House Spirits Distillery, $28

Denver International Airport

  • Timberline Steaks & Grille, $28

Lexington Blue Grass Airport

  • Kentucky Ale Taproom, $28

Miami International Airport

  • Corona Beach House, $30

  • Air Margaritaville, $28

  • Viena, $28

Minneapolis-Saint Paul International Airport

  • PGA MSP Lounge, $15 off either your golf experience or food bill (cannot be combined across both)

St. Louis Lambert International Airport

  • The Pasta House, $28

  • The Pasta House & Schlafly Beer, $28

John F. Kennedy International Airport

  • Bobby Van's Steakhouse, $28

Cleveland Hopkins International Airport

  • Bar Symon, $28

Greenville-Spartanburg International Airport

  • RJ Rockers Flight Room, $28

Los Angeles International Airport

  • Rock & Brews, $28

  • P.F. Chang's, $30

Syracuse Hancock International Airport

  • Johnny Rockets, $28

Ronald Reagan Washington National Airport

  • Bracket Room, $28

  • American Tap Room, $28

Boston Logan International Airport

  • Stephanie’s, $28

  • Jerry Remy's Sports Bar and Grill, $28

Houston George Bush Intercontinental Airport

  • Cadillac Mexican Kitchen & Tequila Bar, $28

  • Landry's Seafood, $28

Indianapolis International Airport

  • The Fan Zone, $28

San Francisco International Airport

  • San Francisco Giants Clubhouse, $28

  • Yankee Pier, $28

Tuscon International Airport

  • Noble Hops, $28

Washington Dulles International Airport

  • Chef Geoff's, $28

Dallas Fort Worth International Airport

  • Gameway, 2-hour stay including one bottle of soda or water and two free snacks

Australia

Brisbane International Airport

  • Bar Roma, AUD $36

  • Graze Grill & Bar, AUD $36

  • Corretto Cafe & Bar, AUD $36

Melbourne Airport

  • Bar Pulpo by MoVida, AUD $36

  • Cafe Vue, AUD $36

  • Urban Provodore, AUD $36

Sydney Kingsford Smith Airport

  • Better Burger, AUD $36

  • Mach2, AUD $36

  • Peroni Bar, AUD $36

  • Bistro 2020 & Bar, AUD $36

  • MoVida, AUD $36

  • Bar Roma, AUD $36

  • Wok on Air, AUD $36

  • Chicken Confidential, AUD $36

Gold Coast Airport

  • Velocity Expresso & Bar, AUD $36

United Kingdom

Gatwick Airport

  • Grain Store Cafe & Bar, GBP 15

Japan

Osaka Kansai International Airport

  • Botejyu, JPY3,400

Peru

Lima Jorge Chávez International Airport

  • Bleriot Bar & Lounge, USD $27

  • La Bonbonniere, USD $27

Brazil

São Paulo-Guarulhos International Airport

  • Bleriot Bar & Lounge, USD $27

Israel

Tel Aviv Ben Gurion International Airport

  • Schmoozy Bar, ILS100

Conclusion

In addition to these restaurant locations, you can also use your Priority Pass membership for yourself and up to 3 guests for an hour-long stay at "Minute Suites" locations at the Atlanta, Dallas/Fort Worth, and Philadelphia airports.

It's also interesting to note the variable value of Priority Pass redemptions in different currencies:

  • 15 GBP are worth $20.73;

  • JPY3,400 are worth $31.28;

  • and AUD $36 are worth $28.23.

And even within the United States a redemption is worth more in Miami than at the other domestic locations.

Finally, note that for now you're able to use Priority Pass at multiple locations within the same airport on the same day, so in Brisbane, Melbourne, Sydney, Portland, and St. Louis be sure to treat yourself right.