When Delta re-upped its co-brand card agreement it set a bar that other airlines have tried to chase with their own bank issuer arrangements. American Express was willing to back the truck up to Virginia Avenue since it was set to lose its Costco cobrand and desperately needed to lock in its next-largest co-brand deal. (Shortly thereafter they re-upped their next largest, Starwood, as well.)
Revenue from American Express has continued to grow as spend on their products has grown. As Delta shared this week at is Investor Day 2017 revenue from American Express will total $3 billion. And they’re projecting out continued straight-line growth.
That leaves sophisticated observers scratching their heads. SkyMiles isn’t a very good program, why does it accrue so much consumer spend?
Along certain margins value certainly matters, but in a perfectly rational world consumers might sign up for the card for its benefits like early boarding and free checked bags but wouldn’t put any spend on the card (unless trying to waive minimum spend requirements for Delta elite status) after earning its signup bonus.
That’s because even if you want SkyMiles Delta’s co-brand cards aren’t the best way to earn those miles. Other American Express Membership Rewards cards earn points faster than the Delta cards do. Whether it’s double points on the first $50,000 in spend, 5 points per dollar on airfare, a 50% bonus on all spend when using the card 30 times in a month, or other category bonuses the suite of Membership Rewards cards reward spend better and still let you transfer to Delta plus offer the flexibility to move points elsewhere as well.
Yet Delta’s brand is ascendant because of its airline operation, and in many markets it faces little competition. Delta owns the Southeast via its Atlanta hub. It owns the Upper Midwest as well, Northwest executives used to say “it’s cold, it’s dark, no one wants to go there but it’s all ours.” It’s won New York, at least lower Manhattan, Midtown East, and anywhere where New Jersey is a pain to get to.
And most consumers don’t get beyond their airline co-brand. That said, I’d be skeptical about the projection of straight-line growth in the near-term given increased competition from banks themselves — and over time remember of course that the amount payment networks charge to process purchases (which is what supports paying consumers to incentivize use of a particular card) could fall in the face of new technology.