The cost to a bank for a co-brand relationship with a strong partner has been going up:

• Airlines are much stronger than they were when these deals were last renewed.
  
• Banks are stronger too, there are more in a well-capitalized position to bid up the value of these deals. There are simply more players, Citibank stealing Costco from American Express would have been unthinkable three years ago.

The American Express – Delta deal is up to $2 billion. And American Express gets less than before, they do not even get full SkyClub access for cardmembers and their Centurion members don’t earn bonus miles for flying Delta any longer. American Express managed to get Delta not to cap the number of points that could be transferred into SkyMiles from Membership Rewards… but even that wasn’t exclusive, the cap doesn’t apply to any Delta partner.

Delta has been re-upped. And so has American-Citibank. (On the hotel front, Starwood has been re-upped with American Express as well.)

Not only are the deals getting more expensive for card issuers, but the cost of acquiring and keeping a customer has gotten more expensive for them too. Signup bonuses are much higher than they were before the Great Recession. Category bonuses were unheard of back then (except for the Delta American Express, whose ‘everyday spending’ bonus categories have long since been retired).

It’s a high cost game and that’s the environment in which we’re about to see negotiations start with the other two large airlines whose co-brand agreements expire in the next couple of years: United and Southwest.

Southwest has already brought in outside advisors to help them negotiate a new deal, with Chase or another bank.

There’s always shuffling around with the smaller players — Barclays losing Virgin America to Comenity, American Express losing JetBlue to Barclays (though ironically American Express has a new agreement to provide the back end administration for Barclays’ JetBlue deal). There’s not yet been any announcement about the disposition of Chase and Amtrak.

But the big deals to watch are Southwest and United, both issued by Chase. An incumbent bank is always the favorite, certainly one with the financial resources and ability to make the most of these deals such as Chase. An incumbent bank already has the cardmember base that makes the deal worthwhile. So they should be willing and able to pay more than competitors.

But as we saw with Costco, another issuer could come in and likely overpay, to the point a rational bidder should relinquish their deal.

Ironically after overpaying to wrest control of a co-brand relationship away from an incumbent, the new issuer needs to them start spending significantly to acquire a cardmember base — usually from scratch (although they could conceivably buy the portfolio from the incumbent issuer, though that wouldn’t be cheap either).

I’d expect if any of these relationships do change hands, that there will be very generous initial offers to goose signups.

On the other hand, expensive deals have to be paid for somehow. And that means either:

• Squeezed profits for the bank
  
• Higher fees to the consumer
  
• Less valuable rewards going forward

While some observers have claims that the major relationships are now locked in, we may see some significant shifts with two major airline loyalty contracts coming up — whether or not the ultimate issuer stays the same.