Potential End to Longstanding Partnership with Barclays as American Looks to Boost Revenue
American Airlines (AAL) is negotiating with Citigroup (C) to become its exclusive credit card partner, potentially ending a long-standing partnership with Barclays that dates back to 2013. The move, if finalized, would mark a significant shift in the airline’s loyalty and credit card strategies as it seeks to maximize revenue from its co-branded credit card program, which has become a crucial source of income for the company.
The discussions, first reported by sources familiar with the matter, suggest that American is looking to consolidate its credit card operations under a single issuer, a trend seen across industries where companies partner with financial institutions to offer co-branded credit cards. These deals generate substantial income for airlines, retailers, and hotel chains, providing the issuing banks with access to millions of loyal customers who use their cards for everyday purchases.
A Key Revenue Source for American Airlines
For airlines like American, co-branded credit card deals are more than just customer perks—they are a major revenue driver. American Airlines earns billions annually from banks in exchange for the miles customers accumulate on their credit card purchases. This income was particularly vital during the COVID-19 pandemic when passenger travel plummeted, but consumers continued to spend on their cards and earn miles.
In 2023, American Airlines reported $5.2 billion in payments from its loyalty and credit card program, which pales in comparison to Delta Air Lines’ $7 billion earnings from its partnership with American Express. The difference highlights why American is now looking for a more lucrative arrangement with Citigroup as it tries to close the gap with its rivals.
Citigroup already has an established partnership with American Airlines, dating back to before the airline’s merger with US Airways in 2013. However, in that merger, American also inherited a partnership with Barclays, leading to a unique arrangement where both banks issued co-branded cards. Under this dual arrangement, Citigroup had the advantage of marketing its cards through online channels, direct mail, and airport lounges, while Barclays was limited to in-flight promotions.
The End of an Unusual Partnership?
If American Airlines finalizes its deal with Citigroup, it will mark the end of the dual partnership with Barclays. Talks between American and Citigroup have been ongoing for months, as the airline seeks to streamline its credit card operations. The timing of any agreement remains unclear, and regulatory hurdles, including potential objections from the U.S. Department of Transportation, could delay or even prevent the deal from going through.
Citigroup, led by CEO Jane Fraser since 2021, is reportedly in a strong position to secure this deal. Citigroup’s customers are said to spend more and have lower default rates compared to those of Barclays, making the partnership more profitable for the airline. Moreover, Fraser has been focusing on boosting Citigroup’s card business by expanding into more lucrative partnerships.
If the deal is finalized, it will likely be a long-term agreement, spanning seven to ten years, giving Citigroup time to fully integrate Barclays’ customers and recoup its investment in the partnership. Such long-term deals are common in the co-branded card industry, as banks typically see higher returns in the later stages of the agreement.
Barclays’ Future Without American Airlines
While American Airlines looks to strengthen its ties with Citigroup, Barclays has been preparing for a future without the airline. Earlier this year, Barclays executives told investors that they were actively seeking to diversify their portfolio of co-branded cards, targeting partnerships with retailers and tech companies instead of airlines. This strategy shift is intended to reduce the bank’s reliance on airline partnerships, which can be subject to volatile industry trends and competitive negotiations.
The outcome of the negotiations between American Airlines and Citigroup will be closely watched by both the financial and airline industries, as it could set a precedent for future co-branded card deals. For now, American Airlines and its partners are working to secure a deal that will enhance customer loyalty, boost revenue, and ensure long-term growth for the airline’s highly valued loyalty program.
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