In my discussion last week about the ten best credit card signup bonuses, many of the reader comments centered around what’s looking likely to be a merger between American Airlines and US Airways. Several readers asked, given the probability of a merger, should they get in on the US Airways card now?
In general my answer is yes but not for the reason most people seemed to be thinking. Neither the US Airways card nor the American Airlines cards will go away right away. In fact I expect both cards to stick around for awhile. But getting them now may provide for the opportunity to get them again (including signup bonuses) before one of them disappears.
Getting a 50,000 mile bonus from the Citibank American card and a 40,000 mile bonus from the US Airways card means that you’ll eventually have 90,000 miles in the same account — pretty darned close to what you can expect to pay for a business class roundtrip to Europe or Asia.
Insight from the US Airways Co-Branded Credit Card Agreement
When America West acquired US Airways, the deal was essentially financed by entering into a new co-branded credit card agreement. US Airways cards had been issued by Bank of America, and Juniper Bank was looking to enter the loyalty space in a more significant way. They provided an amount I understand to be about $130 million as an upfront payment, the bulk of which was then used in funding the merger. In addition, I believe Barclays pre-purchased about $325 million worth of miles (which US Airways would have been obliged to repay plus interest if the miles weren’t drawn down within a specified amount of time).
I’ve been provided with what purports to be th actual agreement between US Airways and Barclays. But since it wasn’t provided directly by either entity I haven’t verified the provenance (though find it hard to believe there’s a ‘fake’ circulating around).
The US Airways – Barclays contract reveals interesting things about the relationship, for instance the common annual retention bonus that members get for their cards (usually 10,000 miles) results from terms that say either the bank buys miles for an annual bonus for cardholders or the bank pays an annual retention fee to US Airways. Either way US Airways gets money, the more beneficial strategy is to use the payment to buy miles that go to the cardholder to the extent there’s no incremental cost to the bank and it helps entrench loyalty and retain customers. Further the co-brand issuer was required to develop a retention plan for accounts, so providing annual bonus miles is a way to satisfy that (as are other premiums provided with each annual card year renewal).
Another interesting thing I learned is that bonus miles cost the bank less than base miles do. Perhaps that helps explain the proliferation of credit card bonus miles.
And the agreement required that the US Airways frequent flyer program remain as competitive in the marketplace as it was as of a certain date. The banks do exercise a certain amount of pressure to make sure the programs remain valuable since they’re forking over large sums of cash and want their franchise to retain its value. The bank was also worried about government regulation of interchange fees, and the contract specified that if such legislation came to pass and they couldn’t renegotiate the economics of the program then the bank could terminate.
But certain items are redacted, such as the purchase price of miles and what happens in the event of change of control of the airline. And I do not know if these terms are current as this was a 2005 agreement which was set to run through 2012. Presumably since Barclays still issues US Airways credit cards, it’s been renewed, and not about to run out.
After US Airways and America West Merged, Two Banks Issued US Airways Credit Cards
The Bank of America-issued US Airways credit cards didn’t go away after the airline was acquired by America West. US Airways still had a contract in place with Bank of America. That was great because at the time you could get both the signup bonuses for the Bank of America card and the Juniper bank card. And both cards were churnable.
It’s my understanding that the Bank of America contract was cancelled several years early, and this cancellation wound up in court.
But the point is that two banks may well issue the same airline co-branded credit card at the same time, if that’s contemplated in the terms of issuer agreements in the event of change of control of the airline. A credit card doesn’t just go away overnight without warning.
It’s certainly possible to imagine that Citibank gets to continue issuing American Airlines credit cards even if it lost out on the concession..
Who Will Issue the New American Airlines Credit Cards?
Citibank issues the American Airlines credit cards, and has a much larger customer base. It should be more valuable to them to keep the franchise than it is to Barclays which starts out with fewer cardmembers.
The answer to the question, though, really depends on
- What each card issuer’s contract says happens in the event of a merger
- How long each contract is for
- What American’s bankruptcy judge does, if asked, should a merger b contingent on a change of co-branded card issuer (e.g. if a bank is kicking in substantial cash as part of the deal, although I haven’t heard rumors of such)
- How much it’s worth to each bank (or a third, rival bank) in the event of a bidding war
In other words, there are many variables for which there isn’t a great deal of public information. So we don’t know which bank will be issuing the co-branded credit card if American and US Airways merge.
How Long Do We Have Before Either the Barclays or Citibank Cards Go Away in the Event of a Merger?
Regardless of what happens neither suite of credit cards will be going away soon. Even if a merger is announced and fully approved, it will take months to close. And even still the two airlines will operate separately, at least until they obtain approval to fly under a single operating certificate. Reaching that stage will involve several business hurdles and not just government hurdles, including the process of integrating pilots from the US Airways West (former America West) group, US Airways East (legacy US Airways) and American Airlines group.
As a result it’s hard to imagine that in the event of a merger the US Airways brand would go away in 2013, meaning that the opportunity to sign up for US Airways credit cards probably won’t go away in 2013 either. In fact, it’s an aggressive schedule to believe that the US Airways and American Airlines frequent flyer programs will be merged one year from now. If a deal happens it wouldn’t surprise me for them to put things on an aggressive schedule, which means it’s possible the programs could merge in a year, but I would think that two years is at least reasonably likely.
In the meantime we would see baby steps towards integration, the ability to combine miles from the two programs by transferring miles back and forth (making signing up for both sets of cards more lucrative) — this is something that America West-US Airways offered, then Delta-Northwest offered, and more recently United-Continental offered.
Similarly I’d expect to see the beginnings of reciprocal honoring of elite benefits, and gradual harmonization of the programs. But all of these before outright combination.
Even Though They’ll Remain Around for a While You Should Still Consider Getting Both Cards Now
Since it could well be over a year – -and possibly as long as two years — my advice to folks who haven’t gotten the American Airlines and US Airways credit cards is to get them now — not because this is the last moment possible to do so, but because there may be an opportunity to get both cards again later before one or the other disappears.
The two browser trick no longer seems to be reliably working in such a way that you can get approved for two different personal American Airlines co-branded cards from Citibank at the same time. But you can certainly apply to get one American Airlines card now and one US Airways card with the expectation that the miles will be combined into the same account later.
And you can get an American Airlines card now, plus if current practice holds and the card continues to be issued, get another one 18 months from now since that’s the cycle on which Citibank seems to have been willing to award a bonus again in recent times.
Furthermore you can get the US Airways card now and Barclays tends to be willing to give out the signup bonus more than once. Some people have a hard time applying for the card while still having an open, active card. Personally I think it’s probably easier to get the card, keep it for a few months, cancel, wait a few months, and then get it again maybe 6 months or a year later.
But some folks have had success in getting a second card approved even while they already have an open US Airways credit card from Barclays.
Will Run for Miles reports on having successfully done just that.
I decided to submit an application for the US Airways Mastercard without canceling the existing card and see what happens. I had my excuse ready in case Barclay’s asked my I was applying for a card I already had. I would say, in my best innocent voice, that the promotion terms on the card now were different than when I got the card, so I imagined I could get both.
… She was approved.
The Best Offers for the American Airlines and US Airways Credit Cards
Citi American Airlines American Express, Visa, or Business Visa: 50,000 bonus points after $3000 spend within 4 months, no fee the first year and $85 thereafter.
This link has an expired landing page (it is not my referral link), but reports are that it works just fine and also provides a $150 statement credit with your first American Airlines purchase within a year, and 2 Admirals Club lounge passes. You also get a 10% rebate on miles redeemed, up to 10,000 per year.
US Airways Mastercard 40,000 points after first purchase and fee waived the first year. My 10,000 mile annual retention bonus posted a month before the annual fee on the card hit.
The offer does say it is for ‘Chairmans Preferred members’ of the Dividend Miles program, that’s who it’s targeted at and intended for (again also not my referral link but I haven’t heard of anyone being denied the card who didn’t have that status.
The application now also has a box for ‘Employee Number’ and says “Only employees of US Airways and US Airways wholly-owned subsidiaries are eligible.” Again, while this scares some off, it’s fine to leave this field blank. It’s the application link that I would use.
Still, I continually get e-mails from folks not comfortable with that best offer above, so there’s also the regular offer of 40,000 miles after first purchase (this one is my referral link) but without the first year fee waived and without the promise of additional miles in a year.