- 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.
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.
- 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?
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