While we’ll see how this plays out, CNBC is reporting that Citi wants a closer relationship with American, and that would come at Barclays’ expense.
In this post:
Citi wants American to dump Barclays
Loyalty programs (and in particular, credit cards) are big businesses for airlines. For the “big three” US carriers, a large chunk of their profits come from their lucrative credit card deals. Delta partners with American Express, Chase partners with United, and American partners with both Citi and Barclays.
As you can see, American is the only one of those airlines to partner with two banks. That’s because back in the day, American partnered with Citi and US Airways partnered with Barclays. When the two airlines merged in 2013, those contracts were renegotiated, and in the end neither bank was willing to pay a premium for exclusivity.
That seems to be changing now. American is reportedly in talks with Citi about the two companies developing an exclusive co-branded credit card agreement. At this point these are just negotiations, and nothing has been finalized, and a timeline isn’t even known.
The reality is that American is lagging Delta when it comes to the profitability from the co-branded credit card portfolio. Last year, Delta made nearly $7 billion from its deal with American Express, while American made $5.2 billion from its deal with Barclays and Citi.
Any potential exclusivity deal also comes with potential regulatory risks, especially with the Department of Transportation (DOT) increasingly scrutinizing loyalty programs. If there were to be an exclusive agreement, it remains to be seen if Barclays could maintain its existing portfolio and just not issue new cards, or what.
Currently the two card issuers have different channels through which they can market — Citi is allowed to market cards online, via direct mail, and in airport lounges, while Barclays is allowed to market cards inflight.
These agreements were last renegotiated in 2016, but negotiations are once again starting up, and that’s why the discussions of exclusivity are happening. Citi’s American portfolio is reportedly more profitable than Barclays’. Not only is it bigger, but people spend more on the cards, and have a lower default rate.
A Citi spokesperson has stated that the bank is “always actively working with partners, including American Airlines, to look for ways to jointly enhance customer products and drive shared value and growth.”
My take on an exclusive credit card agreement
There’s simply no denying that American having an exclusive credit card agreement would be much more efficient, both for the airline and the credit card partner.
Let me start with the obvious downside for consumers — currently you can earn welcome bonuses on both Barclays and Citi cards, so that would go away with just one issuer. Those of us into miles & points aren’t going to be fans of that.
But in every other way, this seems way more efficient:
- The card portfolio could be marketed globally, rather than having such a fragmented marketing strategy
- The card products could be refreshed with a more tiered setup for cards, similar to what Delta does (where there are several tiers of cards, and personal and business versions of each), instead of the current portfolio, which has little differentiation
- More marketing dollars could be put into actually getting people to spend on the cards, rather than putting so much money into acquisition bonuses, given how cards are hawked on American flights (“you can get X number of miles by just buying a cup of coffee or pack of gum”)
- Citi could negotiate AAdvantage miles being part of the Citi ThankYou transfer program, but then again, Citi needs to decide what it wants to do with that currency, since it’s not really doing much to expand it
Personally I think an exclusive contract could be good for consumers in the long run, if executed correctly. Citi executives say they want to grow their wallet share in the travel space, so a renewed focus on the American co-brand deal plus the Citi ThankYou program could help accomplish that.
Bottom line
American and Citi are reportedly in negotiations over the possibility of an exclusive credit card deal. Currently American partners with both Citi and Barclays. Citi wants to grow in this sector, and presumably thinks there’s more money to be made (plus synergies) if Barclays is no longer in the picture.
It’s going to be very interesting to see how this plays out…
What do you make of the prospect of American having an exclusive credit card deal?
If Barclays was bigger in the US, AA would be in a stronger negotiating position.
Not only is Citi calling the terms - which is why AA execs have said they are in the 5th inning of negotiations - nowhere near a settlement - but AA itself is not in a terribly strong position regarding its operations. AA's much weaker position over the past 3 years in a number of major markets like NYC and...
If Barclays was bigger in the US, AA would be in a stronger negotiating position.
Not only is Citi calling the terms - which is why AA execs have said they are in the 5th inning of negotiations - nowhere near a settlement - but AA itself is not in a terribly strong position regarding its operations. AA's much weaker position over the past 3 years in a number of major markets like NYC and LAX doesn't
DL has done a herculean job of extracting plenty of money from Amex and UA is working furiously to catch up = and is already passing AA on several credit card related metrics.
Will be interesting to see where this all goes
throw in more focus in Washington DC on credit card and processing fees and on airline loyalty programs and the peak of revenue from airline/credit card relationships might have peaked.
If I understand correctly, Citi stopped offering travel interruption protection a while back whereas Barclays still provides it. (I've used Citi's benefit in the past when they had it, and it was a godsend.) If this is true, then Citi either needs to up their game or take a hike. (I have both cards; I've navigated away from using Citi's for this reason alone.)
Does Citi still limit the number of online payments you can make per month?
‘ Let me start with the obvious downside for consumers — currently you can earn welcome bonuses on both Barclays and Citi cards, so that would go away with just one issuer. Those of us into miles & points aren’t going to be fans of that……. given how cards are hawked on American flights (“you can get X number of miles by just buying a cup of coffee or pack of gum”)’
So, I...
‘ Let me start with the obvious downside for consumers — currently you can earn welcome bonuses on both Barclays and Citi cards, so that would go away with just one issuer. Those of us into miles & points aren’t going to be fans of that……. given how cards are hawked on American flights (“you can get X number of miles by just buying a cup of coffee or pack of gum”)’
So, I guess with your assessment, the flight attendants won’t be fans of it either. They would no longer be able to say you can earn this many amount of miles with just a purchase of a cup of coffee or a pack of gum.
@ Stanley C -- It's interesting to note how Barclays bonuses are often unlocked after a single purchase, while Citi bonuses ordinarily require thousands in spending.