The rise of the credit card airport lounge

0:00NPR

0:11Darian Woods Waylon Wong. Adrian Ma. That's you. The gang's all here today. And we've got a special episode because it is Listener Questions. This is The Indicator from Planet Money, and we are here with Listener Questions, where we answer your queries about all things economic and financial in your lives. So today on the show, why oil prices are down, but gas prices are up, why airline lounges have gotten so popular, and whether Canadian carbon taxes actually work. All that's after the break. Support for this podcast and the following message come from Ameriprise Financial. Chief Market Strategist Anthony Saglin-Bennie shares the importance of a goal-based investment strategy.

1:01You have to know where you're going, right? What's the goal? What's the destination? By identifying those goals, you can construct a well-diversified portfolio that hopefully helps meet those goals. For more information and important disclosures, visit Ameriprise.com slash advice. Ameriprise Financial cannot guarantee future financial results. Securities offered by Ameriprise Financial Services, LLC, member FINRA, and SIPC. This message comes from LPL Financial. What if you could have more control over your future? LPL Financial removes the things holding you back and provides the services to push you forward.

1:37Because when it comes to your finances, your business, your future, LPL Financial believes the only question should be, what if you could? LPL Financial, member FINRA SIPC. No strategy assures success or protects against loss. Investing involves risk, including possible loss of principle. All right, listener questions. Our first one is for Waylon. It comes from Michael Locklear. My name is Michael from Salt Lake City. what's behind the rapid expansion of lounges under reward credit cards? And how do they even make sense for the credit card companies? Okay, so full disclosure, I am a priority pass holder.

2:13I get it through a Chase credit card. Damn, okay. Fancy jet setter, Waylon. Maybe, although I feel like the lounge is never in the same part of the airport that I end up in, so I never get to use it. So in theory, you're a high roller. In practice, I am just a schlub. Yeah. So Michael had this multi-part question. Let's look at his first point. What is behind the rapid expansion of airport lounges? So since like 2018, travelers have complained that these lounges have gone downhill because of the explosion of these credit card reward programs and with them, all of these lounges. The lounges used to be backed by specific airlines to create loyalty, and now credit cards are doing the same thing.

2:56Some people say they've gotten overcrowded and chaotic and they're a lot less fancy. I mean, at least 10 new lounges are set to open this year. Several are backed by credit cards. We reached out to Eric Rosen of The Points Guy. It's a sponsored credit card and travel website. And we asked him, what's going on here? If an issuer is going to introduce a premium card or keep it competitive against the others that are out there, it's got to offer a similar suite of perks. I mean, a lot of the time what you're selling is exclusivity. exclusivity, and that's kind of hard to scale among a lot of people.

3:28It is, but these new lounges are definitely driven by competition. It's also just air traffic. So in 2024, people traveled 10 % more on average than in 2023. The next part of the listener's question was how much do they cost to run and how do they make sense for the credit card companies? And so did you find an answer? Yeah, Eric says these lounges definitely cost a lot, but people aren't really milking these lounges for all they're worth. And even if they were, don't worry too much about credit card companies making enough money. They're just fine. Every time someone carries a balance on that card, they're making a tremendous amount of money.

4:05They are definitely not hurting in terms of earning money based on regular, you know, use. Right. Very high interest rates on credit card debt, basically. Yeah. You'll never eat enough bruschetta or whatever to make up for what they're spending. Okay, Waylon, one day I hope you achieve your lounge dreams. Next up, we have a question for Darian. My name is Clay Perrin, and I'm from Peterborough, Ontario, Canada. Could you do a show on how effective or ineffective the carbon tax has been? Yeah, so it's carbon taxes on both the consumers and industrial emitters. And it went into effect in Canada in 2019, where every ton of carbon dioxide emitted would cost the emitter$20.

4:48And that would increase by$10 every year. All revenue collected went back to citizens. A study by the Canadian Climate Institute forecast a pretty dramatic reduction in carbon pollution. Yeah, you know, I guess the idea was that raising the cost of carbon would push people to lower their carbon emissions rather than paying that extra cost. Right. So it's been six years since a carbon tax went into effect. Let's go through what actually happened. Let's start with the federal government, which says the carbon taxes will play a big part in Canada's overall emissions reduction effort, as much as one third by 2030.

5:29From economists we spoke to, though, the effectiveness of these taxes aren't so easy to pin down. Dave Sawyer is the principal economist with the Canadian Climate Institute. It's really hard to disentangle the impact of a single policy on our emissions. So we have biofuel mandates. We've got EV mandates and subsidies, electric vehicles. What Dave has seen is the carbon taxes have changed behaviour, that a lot of consumers are racing to replace furnaces with heat pumps. Another economist we spoke to also crunched the numbers. He's at NERA, which is a prominent economic consulting firm. From his analysis, the carbon taxes haven't really moved the needle much.

6:12Since 2019, the US has actually reduced carbon emissions more. But that doesn't mean it hasn't contributed something in Canada. Sure, it's just that a lot is going against both the consumer and industrial taxes. On the industrial side, there is a minimal tax. Provinces and territories are allowed to make up some of their own rules. That's been leaving room for random exemptions or leakage opportunities. And didn't the newly elected Canadian Prime Minister, Mark Carney, didn't he axe this consumer carbon tax? Yeah, he said it will help hard-press Canadians. Dave Sawyer thinks this change will reveal just how effective the tax really was.

6:55We do know that emissions will be higher without it. How much, we're not quite sure. So that's what we're really waiting to see. All right. Thank you, Darian, for looking into that. Lastly, we have a somewhat related question, and that goes to you, Adrian Ma. Hi, this is Rick Weiland from Evanston, Illinois, and I'm perplexed. The price of crude is plummeting. The price of gasoline is soaring. Isn't this counterintuitive? What's going on with oil? Rick, I hope we can unplex your perplexity. You've come to the right place. Thanks for the question. So if you look at national data on retail gas prices going from, say, January to now, they've gone from about$3.19 a gallon to around$3.30 a gallon.

7:42So not a huge increase. However, during that time, the price of crude oil has dropped a lot from$80 a barrel to around$60 a barrel. We ended up reaching out to Javier Blas for some insight here. Javier is a Bloomberg columnist who covers energy and commodities. And he says there's a few reasons why oil, like crude oil, and the gasoline you buy at the pump don't always move in the same directions. And the first reason is, well, I found this pretty fascinating. But did you guys know that the gas that you buy at the pump is actually different depending on the season? they actually have summer grade gas and winter grade gas.

8:24Yeah, one of them is like more polluting, right? Oh, I thought it was like you can't wear white after Labor Day. You can't put summer grade gas in your car after Labor Day. I'm pretty sure that is a part of it, yes. It's like it's a faux pas. Yeah, the pollution is a factor here. So during the summer when the temperatures get really hot, gas can actually evaporate while it's still sitting in your car's tank. Really? Yeah, I didn't know this, but the summer grade gas is designed to evaporate more slowly. And Javier says that this makes a difference in the price. The summer one that we use to reduce pollution in major American cities is a bit more expensive to make.

9:05And that explains why the price at the pump station has gone up in the last few weeks. The other big reason that crude oil and gas prices don't always move together is that, well, they're not the same thing. Crude oil has to be refined into gasoline. And that's costing more right now because of something called the refining margin. That's the profit that a refinery takes when they turn a barrel of crude oil into, say, gasoline. We have had a number of refinery glitches, particularly in Mexico, in West Africa, in parts of Europe. That means that we are using the global refining capacity a bit harder than it has been in previous months.

9:51That means that the margin has gone up. Now, Javier says if lower crude oil prices continue longer term, then that will probably translate into lower gas prices. Well, thank you so much to all of our question askers. And if you've got a burning economics question you would like for us to tackle, please email us. We are at indicator at npr.org. That's indicator at npr.org. This episode was produced by Cooper Katzma Kim. It was engineered by Robert Rodriguez. It was fact-checked by Sierra Juarez and edited by Cake and Cannon. The Indicator is a production of NPR. This message comes from BetterHelp.

10:32As a dad, BetterHelp president Fernando Madera relates to needing flexibility when it comes to scheduling therapy. I have kids under 18, so time is very limited. That's why at BetterHelp, our therapists try to have sessions sometimes at night, depending on the therapist or during the weekend. So I think that's what we need to tell the parents. You're not alone. We can help you out. If a flexible schedule would help you, visit BetterHelp.com slash NPR for 10 % off your first month of online therapy.