An American Airlines Embraer E175LR (front), an American Airlines Boeing 737 (C) and an American Airlines Boeing 737 are parked at LaGuardia Airport in Queens, New York on May 24, 2024.
Charly Tribelleau | AFP | Getty Images
US airlines is in talks to make Citi Group its exclusive credit card partner, cutting out the rival issuer Barclays from a partnership dating back to the airline’s acquisition of US Airways in 2013, people with knowledge of the negotiations said.
American has been working with banks and card networks for months on a new long-term deal aimed at consolidating its operations with a single issuer to boost revenue from its loyalty program, the people said.
Talks are ongoing and the timing of an agreement, which would be subject to regulatory approval, is unknown, said the people, who declined to be identified and spoke of a confidential process.
Banks’ co-brand deals with airlines, retailers and hotel chains are among the most contentious negotiations in the industry. While they provide the issuing bank with a captive audience of millions of loyal customers who spend billions of dollars a year, the details of the arrangements can make a huge difference in how profitable it is for both parties.
Major brands have made tougher bargains in recent years and demanded a greater share of revenue from interest and fees, for example. Meanwhile, banks have pushed back or exited the industry altogether, saying rising card losses, scrutiny from the Consumer Financial Protection Bureau and higher costs of capital are making margins tight.
Airlines rely on card programs to stay afloat, earning billions of dollars a year from banks in exchange for miles customers earn when they use their cards. These partnerships were critical during the pandemic, when demand for travel dried up but consumers continued to spend and earn miles on their cards. Carriers say growth in ticket spending has far outpaced that of passenger revenue in recent years.
Although it claims to have the largest loyalty program, American was surpassed by Delta there, which made nearly $7 billion in payments American Express card partnership last year, compared to $5.2 billion for Americans.
“We continue to work with all of our partners, including our co-branded credit card partners, to explore opportunities to enhance the products and services we offer to our joint customers and add even more value to the AAdvantage program,” American said in a statement. a statement. .
Delays, regulatory risk
It is still possible that objections from US regulators, included the Department of Transportation could further delay or even cancel a contract between American Airlines and Citigroup, leaving the current arrangement that includes Barclays intact, one of the people familiar with the process said.
If the deal between American and Citigroup is completed, it would end an unusual partnership in the credit card world.
Most brands settle for a single publisher, but when American merged with US Airways in 2013, so did held longtime publisher Citigroup on board and added US Airways’ card partner Barclays.
American renewed both relationships in 2016, giving each bank specific channels to market their cards. Citi was allowed to pitch its cards online, via direct mail and airport lounges, while Barclays was relegated to in-flight solicitations.
‘Actively working’
When the relationship came up innovation Last year, Citigroup also had a good basis to gain the upper hand over the smaller Barclays.
Citigroup has been led by CEO Jane Fraser since 2021 and has the more profitable side of the AA business; their customers tend to spend much more and have lower default rates than Barclays customers, one of the people said.
Any renewal contract will likely be seven to 10 years in length, which would give Citigroup time to recoup the costs of transferring Barclays customers and other investments it would have to make, this person said. Banks typically make most of the money from these schemes in the second half of the deals.
With these and other major partnerships, Fraser has pushed Citigroup to aim bigger in an effort to improve the profitability of its card business, the people familiar said.
“We are always actively working with our partners, including American Airlines, to find ways to jointly improve our customers’ products and drive shared value and growth,” a Citigroup spokesperson told CNBC.
Meanwhile, Barclays executives told investors earlier this year that they wanted to diversify their co-branded card portfolio away from airlines, for example through additional partnerships with retailers and technology companies.
Barclays declined to comment for this article.