Chase Will Keep Issuing the Southwest Credit Card. As Deals Get More Expensive for Banks, What’s Next?

The Southwest Airlines – Chase relationship was up for renewal. That’s a big deal for cardmembers, and also for folks with Chase Ultimate Rewards points because those points transfer to Southwest.

Back in April Southwest engaged an investment bank to evaluate options. I wrote at the time that I expected Chase to retain the card “because it’s more valuable to them than a new bank [because of their installed cardmember base], and because they have the resources.”

And indeed Chase has secured a multi-year extension of the Southwest co-brand. (Thanks to Chase and to several readers including Alan H. and Jeremy D. for sharing.)

With strong financial performance in the travel industry – planes and hotels full – loyalty programs aren’t negotiating from the position of weakness when many of these deals were made last. So Citi renewing American (and beating out Barclays, the US Airways card issuer in the process), American Express renewing Delta, American Express renewing Starwood, and Chase renewing British Airways are all deals that are getting more expensive for the banks. They aren’t buying miles as cheaply as they did in 2008 and 2009 when they were prepurchasing half a billion dollars or more worth of miles at a time to provide airlines with extra liquidity. In the case of Starwood a higher card annual fee helps pay for the deal.

Those deals brought us big signup bonuses, since they weren’t super costly to the banks. But they also brought us to a new equilibrium that’s been tough for the banks to pull back from. As a result, acquiring customers has become more expensive than before — hence recent moves by banks to become better as sifting through applicants up front before awarding bonuses. We see higher spend requirements, less willingness to grant approvals (and in the case of Amex less willingness to grant bonuses to cardmembers who have had a product in the past).

We’ve seen JetBlue and Virgin America change issuers (American Express to Barclays, and Barclays to Comenity respectively). And outside the travel space the big news of the year was Costco.

The next big relationship set to renew (or defect) within the next couple of years is, I believe, United.

In May I wrote that we should see squeezed bank profits on cobrands, higher fees, and less valuable rewards going forward. That still seems right, though card issuers will continue to innovate (within hamstrung guidelines and risk aversion imposed by the Consumer Financial Protection Bureau) but those will generally trade off with existing spend on cardmembers in an era of tight cost controls.

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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  1. […] Chase Will Keep Issuing the Southwest Credit Card. As Deals Get More Expensive for Banks, What’s N… by View From The Wing. I don’t think this was ever really in doubt, I think Chase also recently renewed their deal with Fairmont. Will be interesting to see if any changes are made to these cards in the short term, like what happened with SPG increasing it’s annual fee and benefits. […]

Comments

  1. Chase also renewed with fairmont as that was also In limbo ..started gettiing emails recently

  2. @Marty dee — I partly expected there to be changes to that card (figuring since it was in limbo, somebody wasn’t happy with something). Now that it’s back and no big changes done (that i could see), trying to figure out if I want to really pursue it.

  3. I wonder at what point it may become cost effective to initiate a system similar to what AMEX piloted for Platinum Business members as a Member Rewards replacement.

    The point of Member Rewards is to drive spending on their cards. If the program is not attractive enough they have to institute changes or people will leave for cash back cards- theirs or other banks.

    I think the best way for banks to regain some control is to offer a tickets for points system outside of airline programs so that they have control over earning, redemption and program costs.

  4. We’re seeing decreased awards already– just take a look at BA. Earnings on the Chase card went from 1.25x per dollar to just 1x per dollar on general spend, and come October, the 1:1 ratio for transfers from Membership Rewards will be devaluated by approx. 20%.

  5. Gary, will your commission increased?
    ” acquiring customers has become more expensive than before “

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