American Reveals How Much More Money They’ll Make With a New Credit Card Deal

Yesterday American Airlines announced a new credit card deal where both Citibank and Barclaycard would continue offering AAdvantage credit cards — and signing up new accounts.

That’s great from a customer standpoint (card acquisition bonuses at least) since we’ll have two card issuers competing for our business. It’s unique, though, for a rich co-brand deal not to have exclusivity.

Instead, they will be dividing up territory. Citibank cards will be on the American Airlines website and in American Airlines lounges. Barclaycard cards will be on American Airlines flights. That’s a strange coexistence.

In April American Airlines President Scott Kirby said he expected a big credit card renewal along the lines of deals by Delta and United over the last year and a half. He got it. But he may not have gotten everything he’d hoped.

According to the airline’s 8-K filing yesterday,

As a result of the new arrangements announced today, American Airlines Group Inc. and American presently expect consolidated pre-tax income for financial reporting purposes to increase by approximately $200 million in the second half of 2016, $550 million in 2017 and $800 million in 2018, with continued modest improvement in pre-tax income each year beyond, in each case as compared to results expected under the prior credit card arrangements.

Even as American’s miles are worth less and the airline is making clear it wants customers to buy exactly the product they want instead of buying on loyalty, they’ve managed to get the banks to pay them more — a lot more.

Delta got its mega deal done in late 2014, as Amex was losing a deal for Costco. Delta was their next-biggest cobrand product so Delta had them backed into a corner. That set a brand new bar. Delta’s big number set things in motion for United and Southwest to get bigger deals out of Chase.

Back when American’s last Citi deal was done, Citibank still had pretty strong leverage over American. They had pre-purchased $1 billion in miles as part of a complicated loan arrangement backed by American’s route authorities and slots at London Heathrow and Tokyo Narita. $800 million or so outstanding on that arrangement at the time that American and Citi extended three and a half years ago.

The banks had much more leverage over the programs coming out of the Great Recession. When times turned better for the airlines that changed. And of course with fewer players in the airline industry, the banks have been in much the same position as consumers. There are fewer airlines to issue cards with.

Against that backdrop, American gets a ‘me too’ deal. They don’t set a new bar, they get a price point their competitors got. They aren’t too late to the party for that.

American will see an annualized $400 million benefit this year, $550 million incremental benefit in 2017, and expects to see $800 million more than they would have received under the existing credit card deal in 2018.

It’s interesting though that there isn’t a single bank exclusivity here. They got a higher price, but presumably they wanted more and the banks wouldn’t bite, based only on there being an unsold feature in issuer exclusivity at the end of the day here. No doubt American wanted a higher price still.

American AAdvantage was one of two ‘last giant deals’ I’ve expected to see. American Express issues the Starwood card and Chase issues Marriott. With Marriott acquiring Starwood there’s a good chance that we see future bidding along the lines of Citibank and Barclaycard for American’s business.

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. Gary, do you have any sources on how much American makes in a year from selling miles, e.g. under the current deal? I’ve been trying to find sources for a paper I’m writing, but haven’t found anything specific yet.

  2. Time to buy AA stock? Hah.

    In other news, will this hurt the chances of AA miles becoming a Citibank transfer option?

  3. nice insights Gary, and i agree that “presumably they wanted more and the banks wouldn’t bite, based only on there being an unsold feature in issuer exclusivity”. I have a 100% batting average as far as getting Citi and Barclays to waive my AF on all of my AA/US cards for years, and I don’t spend a ton of money on them. Is there any reason that these banks are more willing to forgo annual fee revenue than other banks/card programs? My experience with other banks (Chase, US Bank, Amex, BOA) is the exact opposite – almost never get fee waived, and put much more spend on their cards.

  4. How is exclusivity an ‘unsold feature’? You could make the same argument in the case of an exclusive deal, that signing up a second bank was an ‘unsold feature.’ In the AA case, it just means they earned a bigger premium from the second bank than they would have earned from exclusivity.

  5. can you help – i signed up fpr the CitiGold 50k miles American Airline promo about 1 year ago. I fulfilled the requirements but havent gotten the miles. I have called every month this year and I am told that they are/will investigate. Who can I contact to get this resolved since its been almost a year?

  6. One day in the near future Americans will look into their wallets and find the stack of plastic credit cards have turned to a pile of sh**. The Great Recession 2 will have commenced. Who would have imagined?

  7. The banks should be fighting the devaluations. They’re getting shafted big time as their cards become jokes.. They should be pushing their own travel rewards cards which usually give much better value than airline mile cards’ average 1.4 cents.

    Worse than the devaluation, Doug Parker has recently turned AA into AmericanPesos by slashing availability to match Delta’s

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