An American Airlines Embraer E175LR, along with two American Airlines Boeing 737s, were observed parked at LaGuardia Airport in Queens, New York, on May 24, 2024. Discussions are currently taking place concerning American Airlines’ potential switch to Citigroup as its exclusive credit card partner, replacing the current issuer, Barclays. This information comes from sources familiar with the negotiations.
For months, American Airlines has been engaged in discussions with banks and card networks to secure a new long-term deal. The goal is to consolidate its business under a single issuer to maximize revenue from its loyalty program. Although negotiations are ongoing, the timing of an agreement remains uncertain and would require regulatory approval.
Co-branded deals between banks and airlines, retailers, and hotel chains are highly competitive. These agreements provide the issuing bank with a large, loyal customer base that generates significant spending. However, the profitability of these deals can vary greatly based on their specific terms. In recent years, major brands have negotiated harder, demanding larger shares of revenue from interest and fees. Concurrently, banks have either pushed back or exited the market altogether, citing rising card losses, heightened scrutiny from the Consumer Financial Protection Bureau, and increased capital costs.
Airlines depend heavily on credit card programs to generate revenue, earning billions annually from banks in exchange for the miles customers accrue through card usage. These partnerships proved crucial during the COVID-19 pandemic when travel demand plummeted but consumer spending and mile accruement continued.
Despite claiming the largest loyalty program, American Airlines was out-earned by Delta in this respect. Delta earned nearly $7 billion from its American Express card partnership last year, while American reported earnings of $5.2 billion.
American Airlines, in a statement, mentioned ongoing efforts with their co-branded credit card partners to enhance products and services for mutual customers and to add value to the AAdvantage program.
Potential delays or objections from U.S. regulators, including the Department of Transportation, could impact or terminate any contract between American Airlines and Citigroup. If a deal is reached, it would conclude an unusual partnership in the credit card sector. Historically, American kept Citigroup and US Airways’ card partner Barclays on board following their 2013 merger. Both relationships were renewed in 2016 with specific marketing channels allocated to each bank.
When the partnership came up for renewal recently, Citigroup, under CEO Jane Fraser’s leadership, was well-positioned to outcompete Barclays. Citigroup’s customers generally spend more and have lower default rates compared to Barclays’ customers. A renewal contract would likely span seven to ten years, allowing Citigroup to recoup investments necessary for transitioning Barclays customers.
Fraser has been steering Citigroup toward larger partnerships to enhance the card business’s profitability. A Citigroup spokesperson confirmed that they are actively working with American Airlines to find ways to improve customer products and drive shared value and growth.
Barclays, planning to diversify their co-branded card offerings, has been focusing on new partnerships with retailers and tech companies rather than airlines. Barclays declined to comment on this matter.
