Skift reported yesterday on the renewal of the Delta-American Express co-brand arrangement that’s worth $2 billion a year to Delta.
- The renewal is for 6 years.
- The last renewal was in 2008.
- American Express has also renewed their Starwood relationship.
While Skift suggests the renewal “amounts to a 15 percent improvement in terms for Delta” that’s actually 15% better in the first year of the deal, and a 20% imrpovement for Delta thereafter.
Despite paying more, Amex Platinum and Centurion cards still receive hobbled access to Delta clubs and Black card members have seen a hobbling of their Delta status.
The Skift piece argues that the Delta renewal will set a standard that could be followed by other co-brand deals.
As American Express seeks to renew agreements with other travel industry partners, including JetBlue, you can bet that these new market economics that played out in the Delta-American Express deal will benefit these other partners, as well.
However, the expectation has been that JetBlue goes to Barclays.
Certainly the market has shifted substantially since Delta last renewed in 2008. Airlines were in a bad place as Bear Stearns failed in March of that year, followed by Lehman Brothers in September, and the Great Recession began. Airlines were able to use their loyalty programs to secure large revenue streams from their financial partners, but in pre-selling $500 million to $2 billion worth of miles at a time they were, looked at it another way, securing loans on which they were paying interest or redeeming miles against at a discount.
It was the purchase of large chunks of discounted miles that helped make possible some of the really large credit card signup bonuses we began to see at that time. American’s deal with Citi led Citi to become aggressive with 75,000 and 100,000 mile signup bonuses in 2010. 50,000 mile bonuses became ‘standard’ where they hadn’t been previously (I had never seen a 20,000 mile offer for the United Visa until April 2003).
One of the key changes in the hobby is how credit card companies have been printing more miles in tandem with the airlines.
The reliance on banks injecting liquidity, secured by frequent flyer programs, actually dates back further, to 2004. The pendulum had swung in the banks favor for a decade, but with planes full, airlines earning profits, and no longer in desperate need of assistance the bargaining power has changed.
American and Citi recently renewed their deal, and if Citi were in the stronger position we’d have seen ThankYou points transfer to AAdvantage already. That could still be negotiated in a side deal, but if it is it will be expensive. No doubt United will be eyeing jealously Delta’s move with Amex, and will want more money from Chase. It will be interesting to see whether, as much as they’ve irritated Chase over the past three years, whether that will succeed.
And with miles more expensive for the banks, whether they’ll pull back on their generosity in rewarding new cardmember acquisition and spend… the same budgeted expenditure will mean fewer miles for members, after all.
Learn more:
- Here’s How Rewards Credit Card Deals Between Banks and Loyalty Programs Work Behind the Scenes
- The Economics of Airlines’ Mileage Addiction
- The Secret Sauce: How Your Airline/Hotel Credit Card Actually Works
- Are Airlines Becoming Less Dependent On — and Even Giving the Finger to – Their Bank Partners?
- You can join the 40,000+ people who see these deals and analysis every day — sign up to receive posts by email (just one e-mail per day) or subscribe to the RSS feed. It’s free. You can also follow me on Twitter for the latest deals. Don’t miss out!
Hopefully they cut the referrals instead.
I love your blog for the business analysis and food tips. I am going to share with you my two top tips for Tokyo….and a worried these places will get inundated. The first is Tsushimi in Shibuya comparable to other three star Michelin. Four of us with one bottle of champagne and wine was 45000 yen. Need to reserve.
The second is more casual but also very good. It’s Dil Fait Beau in Shimokitazawa. ( I normally punch in the address on Google maps and walk from the station). Try both for lunch and let me know if you are not blown away!
Incidentally Bear Pond Espresso, routinely ranked as the worlds best espresso coffee shop is within ten meters of Dil Fait Beau so you can try the worlds best espresso too ( only before 2 pm)
Thx
I think we will see less miles with higher required spend and less waived annual fees long term. Just a guess of course. It will add a ton of hype though to the occasional offer that breaks the mold which will be good for credit card affiliate marketing I would think.
I hope so.
I’m curious as to what lower sign-up bonuses would mean for 1) the minimum spending requirements and 2) any potential change in award prices.
@Marcus: No one cares about your random Tokyo tips.
@Gary: I highly doubt we’ll start seeing lesser offers. The devaluation occurs from the airline’s point of view (i.e more miles for same itinerary) not from the issuers side.
@Gary,
I wouldn’t mind accumulating some Jet Blue miles for use someday, and if they’re going to switch banks might it be time for a quick hit on the Amex Jet Blue card before it disappears? Sounds like the current contract runs through the end of 2015?
I can’t believe, let alone understand, why banks would pay more for miles now than they did several years ago. The value of every loyalty currency to members has declined.
@nsx
I can completely believe and understand. In the relationship between airlines and banks, think about what’s happened since 2008 (according to the post, when Amex’s last deal with Delta was struck). In 2008, there were 5 US-based legacy airlines (Delta and NW merged in 2008, taking that number from 6 to 5); now there are 3 for all intents and purposes. In 2008, the credit card travel world was dominated by Amex, while Chase and Citi played minor roles with their specific partners. Now, all 3 have transferable points programs, and Chase has become a serious rival of Amex on the partner front. Further, we’ve seen new entrants on the banking side in Barclays and Comenity and to a lesser extent, Wells Fargo*. More demand from the banking side for miles, less supply on the airline side. No wonder the prices issuers pay airlines are going up.
*Wells Fargo doesn’t have any travel partners, but they have released travel-oriented cards like Propel. And they’re considered the issuer with the most untapped opportunity, so it wouldn’t surprise me if they’ve been in or been willing to be in bidding wars for the major tie-ins with airlines and hotels.
@Glenn if you don’t have better immediate opportunities with Amex I’d be inclined to agree. I don’t accumulate much there myself but there would be little downside
@Brian L – probably not much for signup bonuses, if banks were spending the same amount to acquire the customers (and just getting fewer points for the money) they’d still want to ensure those customers got into the habit of using their card so that they’d be more likely to earn the money back. As for award pricing changes, it might have a very modest effect reducing future increases.