American Airlines in Exclusive Credit Card Deal Talks with Citigroup

American Airlines is currently in discussions to designate Citigroup as its exclusive credit card partner, effectively ending its longstanding partnership with Barclays, which dates back to the airline’s 2013 acquisition of US Airways. This shift comes as American Airlines aims to consolidate its credit card business to enhance revenue from its loyalty program.

The airline has been exploring new long-term agreements with various banks and card networks for several months. By partnering with a single issuer, American Airlines hopes to maximize its revenue from co-branded credit card deals, which are essential for airlines’ loyalty programs. These programs generate billions of dollars annually, making them a significant revenue stream, particularly in the wake of the pandemic when travel demand plummeted but consumer spending remained robust.

Ongoing negotiations between American Airlines and Citigroup are still in flux, and any agreement will require regulatory approval. Industry insiders note that the co-brand deals between banks and airlines are highly competitive, as these partnerships grant banks access to a dedicated customer base that spends extensively. However, the terms of these arrangements can heavily influence profitability for both parties.

In recent years, major brands have been negotiating more aggressively, seeking a larger share of the revenue generated from card fees and interest. Conversely, banks have faced challenges, including rising credit card losses and increasing scrutiny from regulatory bodies like the Consumer Financial Protection Bureau, leading some to withdraw from co-branding agreements entirely.

American Airlines has emphasized the importance of its credit card programs, which have been vital for financial stability. The airline earned $5.2 billion from its co-branded credit card agreements last year, although it still lagged behind Delta Air Lines, which reported nearly $7 billion from its partnership with American Express.

In a statement, American Airlines noted, “We continue to work with all of our partners, including our co-branded credit card partners, to explore opportunities to improve the products and services we provide our mutual customers and bring even more value to the AAdvantage program.”

However, potential regulatory objections could complicate the partnership between American Airlines and Citigroup. If such challenges arise, the current relationship with Barclays may remain intact.

Historically, American Airlines has maintained dual partnerships since its merger with US Airways, allowing both Citigroup and Barclays to operate in different capacities. When the contracts were renewed in 2016, Citigroup was granted the ability to market its cards through online platforms and airport lounges, while Barclays focused on in-flight solicitations.

With this renewal process now underway, Citigroup is positioned to secure the partnership due to its more favorable customer base, which reportedly has higher spending and lower default rates compared to Barclays. Any new contract is expected to span seven to ten years, allowing Citigroup ample time to recover costs associated with integrating Barclays’ customers.

Citigroup’s CEO, Jane Fraser, has been driving efforts to enhance the bank’s credit card profitability, emphasizing the importance of partnerships like the one with American Airlines. A Citigroup spokesperson affirmed, “We are always actively working with our partners, including American Airlines, to look for ways to jointly enhance customer products and drive shared value and growth.”

Meanwhile, Barclays has indicated a shift in strategy, aiming to diversify its co-branded card portfolio beyond airline partnerships, seeking opportunities with retailers and technology firms.

Sources: AirGuide Business airguide.info, bing.com, cnbc.com