It’s Time for United and Southwest to Start Negotiating New Credit Card Deals With Banks. What Will That Mean for Frequent Flyers?

The cost to a bank for a co-brand relationship with a strong partner has been going up:

  • Airlines are much stronger than they were when these deals were last renewed.
  • Banks are stronger too, there are more in a well-capitalized position to bid up the value of these deals. There are simply more players, Citibank stealing Costco from American Express would have been unthinkable three years ago.

The American Express – Delta deal is up to $2 billion. And American Express gets less than before, they do not even get full SkyClub access for cardmembers and their Centurion members don’t earn bonus miles for flying Delta any longer. American Express managed to get Delta not to cap the number of points that could be transferred into SkyMiles from Membership Rewards… but even that wasn’t exclusive, the cap doesn’t apply to any Delta partner.

Delta has been re-upped. And so has American-Citibank. (On the hotel front, Starwood has been re-upped with American Express as well.)

Not only are the deals getting more expensive for card issuers, but the cost of acquiring and keeping a customer has gotten more expensive for them too. Signup bonuses are much higher than they were before the Great Recession. Category bonuses were unheard of back then (except for the Delta American Express, whose ‘everyday spending’ bonus categories have long since been retired).

It’s a high cost game and that’s the environment in which we’re about to see negotiations start with the other two large airlines whose co-brand agreements expire in the next couple of years: United and Southwest.

Southwest has already brought in outside advisors to help them negotiate a new deal, with Chase or another bank.

There’s always shuffling around with the smaller players — Barclays losing Virgin America to Comenity, American Express losing JetBlue to Barclays (though ironically American Express has a new agreement to provide the back end administration for Barclays’ JetBlue deal). There’s not yet been any announcement about the disposition of Chase and Amtrak.

But the big deals to watch are Southwest and United, both issued by Chase. An incumbent bank is always the favorite, certainly one with the financial resources and ability to make the most of these deals such as Chase. An incumbent bank already has the cardmember base that makes the deal worthwhile. So they should be willing and able to pay more than competitors.

But as we saw with Costco, another issuer could come in and likely overpay, to the point a rational bidder should relinquish their deal.

Ironically after overpaying to wrest control of a co-brand relationship away from an incumbent, the new issuer needs to them start spending significantly to acquire a cardmember base — usually from scratch (although they could conceivably buy the portfolio from the incumbent issuer, though that wouldn’t be cheap either).

I’d expect if any of these relationships do change hands, that there will be very generous initial offers to goose signups.

On the other hand, expensive deals have to be paid for somehow. And that means either:

  • Squeezed profits for the bank
  • Higher fees to the consumer
  • Less valuable rewards going forward

While some observers have claims that the major relationships are now locked in, we may see some significant shifts with two major airline loyalty contracts coming up — whether or not the ultimate issuer stays the same.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. Not exactly related but similar point – Did anybody notice that the Lufthansa card from Barclays disappeared from there site….
    Maybe just a temp glitch but something to watch

  2. I’d actually like to see Chase thin their lineup a bit. At 7 chase cards, I’m probably somewhat maxed out on what they’ll give me, but there are numerous cards (Hyatt, Marriott, BA, etc) that I’d still like to get. In addition, I’m not in a position now to get both SW cards for the CP, which I’d like to do. Chase has too many good card offerings.

    That said, Losing United would likely also be the death of UR to MileagePlus transfers, which would be horrible for me. Most of my united flights originate with UR points.

  3. I’m looking forward to hearing from Citi and Amex about their replacements for the soon-to-be deprecated TrueEarnings Business card. Competition (and co-brand constraints in Citi’s case) should life very interesting for the product development teams!

  4. @garyleff; don’t have a screenshot but 99% sure that the landing page for 50K said the offer was good until May 31. Either way, odd it disappeared with no notice.

  5. @gary: you are right about the landing page for 20000 points. What I was pointing to was that there is no mention of Lufthansa card on barclays site since yesterday – on their homepage or anywhere obvious
    Some direct link like your Ofcourse get you to landing pages.

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