Here’s why free airport lounge access was denied to many flyers

Around a decade ago, MakeMyTrip hit turbulence when IndiGo, now India’s largest low-cost airline, suddenly pulled out its inventory from the country’s largest travel portal. IndiGo alleged that MakeMyTrip was selling ‘masked’ cheaper tickets on behalf of Kingfisher Airlines and favouring the cash-strapped carrier.Even though IndiGo was half of what it is today, one in three air passengers were flying it. So, the Nasdaq-listed MakeMyTrip could not afford to not have IndiGo on its site for long.Last weekend, DreamFolks, a startup that listed on the stock exchange two years ago, potentially faced a similar situation.DreamFolks is an aggregator that works as a go-between for airport lounge operators, payment gateways like American Express, Visa and MasterCard, and the passengers who swipe their cards and use the airport lounges for a quick bite and some rest. Most cards offer a few free lounge accesses annually, though this has been heavily curtailed in the past year and is now linked to card spends.Last weekend, many flyers in India took to social media saying they were not getting access to lounges. DreamFolks responded by saying it is working “diligently with our partners to identify the root cause and implement solutions as quickly as possible”. On September 23, it said the situation had been resolved. @AmexIndia and @HDFCBank_Cares @DreamFolks_Srv is there some issue at the banks end at the airport lounge? The mumbai T1 lounge has been sending away passengers telling them that the bank servers are down and hence we cannot entertain or give you access to the lounge pic.twitter.com/wVQ0fwzFix

— Papps (@papps_gunner) September 21, 2024 Mumbai airport, where these scenes were most evident, blamed DreamFolks.“This is due to the unexpected suspension of services by DreamFolks Services, a lounge access provider partnered with several banks, in violation of its service agreements with the affected airports,” Adani Airport Holdings, which runs the Mumbai airport, said in reply to questions sent by ET Prime, adding that it was “actively working with the banks to facilitate the immediate resumption of services”.The airport went even further and added, “Despite our requests, services through DreamFolks have not yet been restored. As an interim alternative, lounges at Adani-operated airports are now accepting all major debit and credit cards from other access providers.”In effect, passengers could use the lounge by paying around ₹1,000 instead of swiping their card or “walk-ins” as they are referred to in the trade.Travel Food Services (TFS), which operates lounges at Chennai and Kolkata airports, said this wasn’t true and the services were still not restored.“Despite our requests, services through DreamFolks have not yet been restored,” TFS said in statement on September 23, adding that it is now looking at legal remedies. “This breach of its obligations has resulted in significant inconvenience to passengers at multiple airports, and we are exploring appropriate legal remedies against DreamfFolks,” it added.According to two people who track the industry closely and asked not to be named, Adani plans to deal directly with banks in providing lounge service to credit and debit card users, eliminating the need for having an aggregator in between or what is called “direct contracting”.The other things needed are EDC machines, a bit of technology and a user database — how to record how many free lounge visits are available on each card, etc. That know-how has already been developed by Adani and could be showcased as early as this week.“Over the next few months, Adani Airports may have direct relationships with all major banks. Talks are already on, and I think even DreamFolks is aware of it,” the first person said.Adani also launched the Adani One ICICI Bank co-branded card with a lot of fanfare a few months ago, giving airport perks to its users.Encalm Hospitality, which currently operates lounges at GMR Group-run airports in New Delhi, Hyderabad and Goa, and even TFS, which has already issued a strong statement, may do the same.“Let the Adanis do it, then GMR will follow too. So far, there is no disruption (in GMR airports) but it’s a good business to be in,” the second person aware of GMR’s thinking said.Risk factors DreamFolks was aware ofIn 2022, DreamFolks listed at ₹505, or 55% above its issue price of ₹336, largely because of its “asset-light model” and its huge share in India’s airport service-aggregator market.In its 2020 IPO prospectus, the company had indeed noted the two biggest risks it faces.First, “the average duration of our contracts with card networks and card issuers is four years and two months, and our business, results from operations and financial conditions are heavily dependent on our retaining these contracts with card networks and card issuers”.In the six-month period that ended on September 30, 2021, card networks and card issuers cumulatively accounted for 99% of its total revenue from operations or around ₹85 crore.Second, it noted, “Our success is also dependent on our relationship with airport lounge operators and other airport services providers. This exposes us to risk emanating from the inability to retain our established operators and other airport service providers for the services.”Revenues from lounge access-related airport services contributed a vast majority to its revenue from operations during the six-month period ended September 30, 2021, at ₹83 crore or 98%.“Our ability to continue our association with lounge operators is, therefore, critical to our operations. We are seeking to broad-base our revenue source by facilitating access to other services, in addition to lounge access,” the IPO prospectus read. medium nocaptionhttps://youtu.be/UHYAvU8tYrg?si=qGmrckV7CyHp_ZGPWhy airports want to have skin in the gameSidharth Kapur, former executive director of GMR Airports, said nearly 8-10% of airport users take to a lounge and this was a good revenue stream for the airports to hold directly.“DreamFolks’ advantage is it is a one-stop shop. It makes life simple. But for the airport, it is always good to go direct with the banks and credit card providers,” he said. “It is quite possible that DreamFolks may get eliminated from bigger airports.”Aggregators typically make around ₹125 for every flyer who uses the lounge. The opportunity going forward is immense, as India’s domestic air traffic alone is expected to soar to 300mn by 2030 from around 150mn in 2023. The number of credit card users has also more than doubled over the past decade, creating a huge runway for growth that the airports would want to tap.In response to questions on what happens if airports go direct, DreamFolks said it “has always stood ahead for the solution and technology, and we are deeply integrated in our client’s ecosystems”.“We have added many more different services in the past few years, and also our touch points have grown globally. Clients working with us understand the value we bring to them and are supporting us to expand in the global market. In India, we are expanding with golf, railway lounges and now highway lounges to further enhance our business,” it added.DreamFolks posted a revenue of ₹1,100 crore and a profit of around ₹70 crore in 2023-24 and its current valuation stands at ₹2,600 crore with the stock trading at ₹491 apiece at a PE (price/earnings) of 37.And to circle back to 2012, IndiGo’s decision to pull the plug sent MakeMyTrip into a tailspin and the tension between the two continued for around two weeks. Eventually, the portal stopped selling those so-called ‘masked’ cheaper Kingfisher tickets. Kingfisher Airlines shut down the same year.