American In the Middle of Negotiating a New Credit Card Deal, Which Bank Will Win?

Scott Kirby reported that they’re already “in the middle of” negotiations for a new credit card deal. Their current deal runs through 2018. Since they signed that 5 year deal, Delta, United, and Southwest have all re-upped theirs.

Every quarter (for instance here and here) Scott Kirby laments that competitors are seeing year-over-year increased revenue from the renewals of credit card deals, while there’s no material year-over-year “lift” from a more recent renewal for American.

Delta did a $2 billion a year deal with American Express. Chase renewed Southwest last year as well as United in an agreement that gives over $400 million a year in increased revenue. Here’s the secret sauce behind putting together co-brand credit card deals.

Kirby expects to see a similarly strong financial deal for American. In my view, with each mile worth less and banks buying each mile for money money, there’s a limit to how much higher these deals will go. Ultimately new technologies will drive down interchange rates, and banks won’t spend as much to incentivize transactions through their networks.

I had expected American’s new 2018 co-brand deal to perhaps be the last monster deal. But with Marriott’s acquisition of Starwood, and Starwood Preferred Guest not being sunset for at least 18 months, there’s a reasonable chance that the next re-up of Marriott’s co-brand deal could become the last monster deal as American Express, which a big installed cardmember base, competes aggressively with Chase to issue cards in the future.

That installed cardmember base is crucial, a bank that has cardmembers already (versus starting from zero) can afford to compete for the business. That’s the number one thing that works in American’s favor. There are two banks with significant American co-brand credit card holders now. Citibank issues American cards, and has partnered with American since the beginning. Barclaycard was the issuer of US Airways co-brand cards, and continues to service those cards. Barclaycard even purchased the “back book” of legacy Bank of America US Airways cards from before the airline’s acquisition by America West.

Kirby came back multiple times, emphasizing that their frequent flyer program was both the ‘biggest’ and ‘the best’ in the world and mentioned both Citibank and Barclays and that you should look to what other airlines have done in the renewal of their deals to predict what will happen to American’s revenue.

I haven’t been willing to make a prediction about which bank would win the American Airlines deal.

  • Citi has partnered with American since June 1987 and has proven a willingness to overpay for co-brand credit cards might lead to me bet on Citi.

  • But Barclaycard didn’t sell its back book to Citi, instead it acquired more cardmembers from Bank of America, suggesting it believed it was in a position to win the business.

  • Citi is of course bigger, and if a deal is concluded in the next year one might expect that to be a Citi renewal rather than a change in issuers.

So who will win out? If they’re already in the middle of negotiations, perhaps we’ll know early next year when the Citi deal still has two years left to run.

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. I’d have to think Citi will win. I think Citi losing AA would be equal to AMEX losing Costco. It will have real consequences in their CC division. With the recent struggles the wall street banks have had, I can’t imagine Citi wants to lose that business. I could see this re-up being nuts if Barclays makes a strong run at it.

  2. why does it have to be exclusive, could it not be split?
    In sports you see a move away from a single sponser/partner to a portfolio of partners. Plus there is precedent with Hilton – Citi/Amex

  3. I would like to see a Barclaycard/AMEX partnership. Barclaycard would be the issuer, AMEX being the processor and AMEX Platinum Card getting Admiral club access. Without something like this it is hard for me to see Barclaycard being able to dislodge Citi.

  4. Why does it have to be exclusive? I came over in the merger and have the old US Air Barclaycard, now the AA Silver with 3x miles for flight purchases and the annual bonus so I hope I can keep it. Let hem keep competing – better for all of us!

  5. They’re all nutz !

    As miles rapidly get devalued airline cards are becoming junk. It’s unbelievable that the banks don’t have the guts to stand up to the airlines making the miles they pay dearly for such junk.

    The bank travel reward cards that give 1.5 or 2 % back in easy-to-use travel credits are already better than most airline programs (certainly better than Sky Pesos).

    I churn cards for bonuses but otherwise my spend goes on my annual-fee-free Bank of America Travels Rewards card where I get 2.5% travel credit. Certainly better than the $99/yr airline cards that return 1.6% or so and are hard to use.

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