Key Takeaways:
– American Airlines is opportunity a deal to make Citigroup its exclusive credit card partner, possibly ending its relationship with Barclays.
– The plans are to consolidate business with a single issuer to enhance revenue from its loyalty program.
– This partnership could help boost American Airlines’ financial position, in light of the loyal customers it offers to its credit card partners.
– Regulatory approval is still required, the timing of which is currently unknown.
– Under the new arrangement, Citigroup has the possibility of gaining a more profitable side of the business, as their customers reportedly spend more and default less.
American Airlines and Citigroup’s Blooming Partnership
In a move aimed to strengthen its financial position, American Airlines is reportedly in discussions to transform Citigroup into its exclusive credit card partner, thus potentially discontinuing its longstanding association with Barclays. This information is as per knowledgeable individuals familiar with the process, who wished to keep their identities undisclosed.
Boosting Loyalty Program Revenue
The airline has been interrogating banks and credit card networks to strike a long-term deal that consolidates its operations with a single entity. The equation is simple: a lone issuer equals an amplified sales turnover from American’s loyalty scheme.
Branded card agreements between banks, retailers, airlines, and hotel chains are a hot topic in the industry. These deals comprise a vast clientele base translating into billions in annual expenditures. Furthermore, the structural aspects of these partnerships could prove to be either a bane or boon in regards to their profitability quotient.
Airlines, for instance, are heavily reliant on these card programs as a primary income source. Banks yield billions annually in exchange for miles offered to cardholders. Such partnerships played a pivotal role during the pandemic when travel was limitative but card usage was not.
Road to Exclusive Partnership
While negotiations are ongoing, the conclusion of the agreement and its timeline remain undisclosed as it remains subject to regulatory approval. However, current discourse paints Citigroup in a favorable position, possibly owing to American Airlines’ largest loyalty program. This alliance might eventually see the onboard banking giant replace Barclays, the credit card accomplice of American Airlines from the time of its merger with US Airways in 2013.
Interestingly, that merger led to an uncommon alliance, with American maintaining Citigroup as an issuer and onboarding Barclays as an additional partner. Despite dual renewals in 2016, both banks had specific channels for their card promotions.
The End of An Unusual Alliance
If the ongoing negotiation pans out, it might mark the termination of this unique collaboration. Any renewed contract would likely last seven to ten years, providing Citigroup ample time to recoup potential investment costs and absorb Barclays’ customer base.
In fact, helmed by CEO Jane Fraser since 2021, Citigroup could be viewed as the more profitable partner given its customers’ higher spending patterns and lesser default rates. Besides, American’s deal with Citigroup is viewed as the springboard to enhancing the bank’s credit card business profitability.
At the same time, Barclays seems to be moving away from airlines and is exploring co-branded card partnerships with retailers and tech companies.
In the end, crucial to remember is that nothing is set in stone. Potential objections from US regulators could defer or even veto a Citigroup-American Airlines contract, thereby preserving the current arrangement that involves Barclays. All eyes are trained on this development, and only time will reveal the eventual outcome of these negotiations.