An American Airlines Embraer E175LR (foreground), an American Airlines Boeing 737 (center), and an American Airlines Boeing 737 are shown parked at LaGuardia Airport in Queens, New York on May 24, 2024.
Charlie Triballio | AFP | Getty Images
American Airlines In talks to make City Group Its exclusive credit card partner, divesting itself of a competing issuer. Barclays From a partnership dating back to the airline's acquisition of US Airways in 2013, people familiar with the negotiations said.
American Airlines has been working with banks and card networks on a new long-term deal for months aimed at unifying its business with a single issuer to boost revenue from its loyalty program, according to the people.
The people, who spoke on condition of anonymity, said the talks were ongoing and that the timing of the deal, which would be subject to regulatory approval, was unknown.
The deals that banks strike with airlines, retailers and hotel chains are some of the most contentious negotiations in the industry. While they give the issuing bank a loyal audience of millions of customers who spend billions of dollars a year, the details of the arrangements can make a huge difference in how profitable either party is.
In recent years, the big brands have been imposing tougher deals, demanding a bigger share of revenue from interest and fees, for example. Meanwhile, banks have been resisting or getting out of the business entirely, saying that rising card losses, scrutiny from the Consumer Financial Protection Bureau and rising capital costs are all leading to tighter margins.
Airlines rely on card programs to help them survive, earning billions of dollars a year from banks for the miles customers earn when they use their cards. Those partnerships have been crucial during the pandemic, when travel demand dried up but consumers continued to spend and earn miles on their cards. Airlines say growth in card spending has far outpaced passenger revenue growth in recent years.
While it says it has the largest loyalty program, American Express outperforms it in profits. Delta There, it has paid nearly $7 billion in its payments. American Express Card partnership last year, compared to $5.2 billion for American.
“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 offer our shared customers and deliver more value to the AAdvantage program,” American Airlines said in a statement.
Regulatory delays and risks
Objections from U.S. regulators, including the Department of Transportation, could still delay or even thwart a deal between American Airlines and Citigroup, leaving the current arrangement involving Barclays intact, according to one of the people familiar with the process.
If the deal between American and Citigroup goes through, it will end an unusual partnership in the credit card world.
Most brands settle with one issuer, but when American Airlines merged with US Airways in 2013, it kept old issuer Citigroup on board and added US Airways' own card partner Barclays.
American Business revamped both banks in 2016, giving each bank specific channels to market its cards. Citi was allowed to market its cards online, through direct mail and airport lounges, while Barclays’ role was reduced to in-flight promotions.
'working actively'
When it came time to renew the relationship again last year, Citigroup had a good foothold to beat out the smaller Barclays.
Citigroup, which has been run by Chief Executive Jane Fraser since 2021, operates the most profitable side of the AA business, as its clients tend to spend more and have lower default rates than Barclays’, one of the people said.
Any renewal deal would likely be for seven to 10 years, the person said, which would give Citigroup enough time to recoup the costs of moving Barclays clients and other investments it may need. Banks tend to make most of the money on such arrangements in the second half of deals.
Through these and other big partnerships, Fraser has been pushing Citigroup to target bigger targets in an effort to improve the profitability of its card business, the people familiar with the matter said.
“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,” a Citigroup spokesperson told CNBC.
Meanwhile, Barclays executives told investors earlier this year that they aim 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.
