An American Airlines Embraer E175LR (front), an American Airlines Boeing 737 (C) and an American Airlines Boeing 737 are seen parked at LaGuardia Airport in Queens, New York, on May 24, 2024.
Charly Triballeau | AFP | Getty Images
American Airlines is in talks to do Citigroup Your exclusive credit card partner, ditching the rival issuer Barclays a partnership that dates back to the acquisition of US Airways in 2013, people with knowledge of the negotiations said.
American has been working with banks and card networks on a new long-term deal for months with the goal of consolidating its business with a single issuer to boost revenue from its loyalty program, according to the people.
Talks are ongoing and the timing of a deal, which would be subject to regulatory approval, is unknown, said the people, who asked not to be identified discussing a confidential process.
Banks’ co-branding agreements with airlines, retailers and hotel chains are some of the most hotly contested deals 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 deals can make a huge difference in profitability for either party.
In recent years, big brands have been pushing for tougher covenants, demanding a larger share of revenue from interest and fees, for example. Meanwhile, banks have been resisting or exiting the sector altogether, arguing that rising card losses, scrutiny from the Consumer Financial Protection Bureau and higher capital costs are making margins tight.
Airlines rely on card programs to stay afloat, raking in billions of dollars a year from banks in exchange for the miles customers earn when they use their cards. Those partnerships were crucial during the pandemic, when travel demand dried up but consumers kept spending and earning miles on their cards. Airlines have said growth in card spending has far outpaced growth in passenger revenue in recent years.
While it claims to have the largest loyalty program, American was outperformed in profits by Delta There, which made payments of almost 7 billion dollars since its American Express card association last year, compared with American's $5.2 billion.
“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 mutual customers and bring even more value to the AAdvantage program,” American said in a statement.
Delays, regulatory risk
It is still possible that objections from U.S. regulators, including the Transportation Department, could further delay or even scupper a contract between American Airlines and Citigroup, leaving intact the current deal that includes Barclays, according to one of the people familiar with the process.
If the deal between American and Citigroup goes through, it would end an unusual partnership in the credit card world.
Most brands opt for a single issuer, but when American merged with US Airways in 2013, it kept longtime issuer Citigroup on board and added US Airways card partner Barclays.
American renewed both relationships in 2016, giving each bank specific channels to market its cards. Citi was allowed to promote its cards online, through direct mail and in airport lounges, while Barclays was allowed to promote them through in-flight ads.
'Working actively'
When the relationship was renewed again last year, Citigroup was well on its way to prevailing over the smaller Barclays.
Led by Chief Executive Officer Jane Fraser since 2021, Citigroup has the most profitable side of the AA business; its clients tend to spend much more and have lower default rates than Barclays' clients, one of the people said.
Any renewal contract is likely to last seven to 10 years, which would give Citigroup time to recoup the costs of transferring Barclays clients and other investments it would have to make, this source said. Banks tend to make most of the money from these deals in the second half of the agreements.
With this and other big partnerships, Fraser has been pushing Citigroup to aim higher in a bid 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 improve products for customers and drive shared value and growth,” a Citigroup spokesperson told CNBC.
Meanwhile, Barclays executives told investors earlier this year that they aimed to diversify their co-branded card portfolio beyond airlines, for example through additional partnerships with retailers and technology companies.
Barclays declined to comment for this article.
