Are Airlines Becoming Less Dependent On — and Even Giving the Finger to – Their Bank Partners?

When economic times were tough for the airlines, really from 2001 through 2011-2012 or thereabouts, the airlines relied on the banks and the sale of miles to keep them going.

There’s long been speculation about the spinoff of frequent flyer programs like United MileagePlus (which had long ago been formed as a separate entity, UAL Loyalty Services), since the program was deemed to be worth more than the airline itself at one point.. largely because of the ability to sell miles, and no one is a bigger buyer of miles than credit card issuers providing rewards to customers.

But as the economy has gotten better for the airlines, as planes are flying full and yet they’ve managed to maintain capacity discipline so they’re enjoying higher fares, the airlines don’t seem willing to be so subservient to their former paymasters.

Delta Sticking it To Their Biggest Customer

American Express has been Delta’s single biggest customer since it first signed on as co-brand credit card issuer. That relationship appears to be fraying.

Delta is limiting the transfer of points into Skymiles. And that includes putting limits on the number of American Express Membership Rewards points that can be transferred in, even though American Express is Delta’s co-brand credit card partner. (The Delta card itself does not have caps on the number of points that can be earned.)

This is interesting because it seemingly represents such a shift. Delta was so beholden to American Express, and Amex even prepurchased half a billion dollars worth of miles at one point to provide the airline additional liquidity. Now Delta is putting limits on the number of miles that American Express will buy for any given Amex cardholders in their Membership Rewards program.

This comes after Delta limited the ability for American Express to bestow Skyclub access on its Platinum and Centurion cardholders. Primary cardholders get complimentary access when flying Delta same-day, but guests now come at a fee.

And as if the nickel and diming of Amex benefits by Delta couldn’t get worse, American Express Centurion cardholders are seeing their Delta status devalued slightly.

  • Centurion cardholders receive Platinum status.
  • But that Platinum status will be deemed complimentary, meaning that the value gets limited. (A year ago Delta cut down the value of matched Platinum status.)
  • Centurion cardholders thus no longer receive bonus miles for their flying.
  • And they won’t receive ‘Platinum choice’ benefits (like confirmed upgrades) until they’ve flown 8 Delta segments during the year.

This effects a small number of customers, though it affects some of American Express’ most valuable customers. What it points to though, taken together, is that the co-brand relationship isn’t quite as important as it once was.

United Sticking It to Their Biggest Customer

Back during United’s bankruptcy a decade ago, it was said that the airline had to continue flying in order to support the underlying credit card business.

The United co-brand card portfolio was profitable enough for Chase that it provided debtor-in-possession financing for the bankruptcy as well as exit financing, and also prepucharged 9-figures worth of miles to provide the airline with cash.

After each bankruptcy hearing, as soon as United management left the courtroom, their first call was to senior executives at Chase.

Then United and Continental merged. Continental was co-brand credit card partners with Chase as well, but not nearly as beholden.

The massive United award chart devaluation was in some ways a stick in the eye to Chase. Chase was buying more miles than any other entity, and suddenly those miles were worth less — and would be less valued by Chase’s customers, at least once it came time to redeem and they learned how expensive awards had become.

Word on the street was that Chase did play a role in softening the blow of the award chart devaluation, but also that they didn’t get the final version of the new chart until days before it went public.

Expect This to Turn Again… Because it Always Does

The old saying about how to become a millionaire quickly is to start off with a billion dollars and invest in an airline. I think it was Warren Buffet who suggested something to the effect that Orville and Wilbur Wright would have done investors a favor if they hadn’t survived their first test flight.

The airline business is cyclical, with high fixed costs and incredibly dependent on commodity (fuel) prices.

When times are tough, like Willie Sutton they turn to the banks “because that’s where the money is.”

As those big loans mileage prepurchses get paid down, and as they don’t need to seek the same advance of credit lines (the financial markets are once again more open to the airlines), the airlines become less beholden. But the current successful state of the airline industry can’t last, if only because successful streaks in this industry never have.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. It’s interesting how AA seems to be bucking this trend with Citi. For example, they cut off Amex access to the lounges so that Citi’s new premium AA card would be the exclusive credit card providing access. Is it because AA is coming out of its tough times and bankruptcy more recently than the other airlines, so it has more recently had to rely on Citi for significant financial support?

  2. As they fill more seats with cash paying customers it makes sense that they would feel less need to sell miles to CC issuers. When the next down cycle occurs (be it in 2 years or 20 year) the airlines will go back to the CC issuers and give them a sweet deal on miles and the cycle will repeat. The economics of air travel have changed as airlines try to run themselves more like profitable businesses but even with this new found discipline, they are still very vulnerable to economic shocks.

  3. Why do you only mention the UA devaluation, when every airline that did a devaluation of any kind screwed their bank? Amex was definitely screwed by DL by their deval, and AA isn’t making Citi celebrate.

  4. AA isn’t bucking the trend. United did the same thing for Chase with club access.

    The difference with AA and US is neither did a deal with a bank to allow bank points to transfer in and artificially inflate the currency.

  5. Not sure I agree on the Delta MR change; to me, it looks like an attempt to push Delta flyers onto their co-branded card rather than a MR earning card.

    SPG Takes a similar approach in Canada ($1:1 points if you use the SPG AmEx, but $2:1 on MR Gold) and AP cut all MR transfer bonuses as it meant MR cards frequently earned more than AP co-branded card.

    So they are just making clear that if you want to earn unlimited DL miles, you have to use their card and not one of the ‘general’ cards.

  6. Warren Buffet, 2008 BRK shareholder letter:

    The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.

    Buffet will concede that his investment is US Airways was one of the worst Berkshire ever made. Although to be fair, it’s not like they lost money. Dumb luck, though.

  7. @Jeff with the merger between AA and US there was an opportunity to renegotiate terms with AA’s co-brand card issuer. Citi wanted exclusivity in lounge access, and AA got stuff on its end too. Although it’s not a perfect relationship for instance it is notable that Citi Thank You Points don’t transfer to AA despite Citi being AA’s co-brand partner

  8. Gary, do you think TYP not transferring to AA has anything to do with merger related issues?

  9. I think Warren said “if a capitalist had been present at Kitty Hawk he would have shot Orville down.” Cheers!

  10. “Chase did play a role in softening the blow of the award chart devaluation”

    Softened the blow? How so?

    You’re implying it could have been worse than, in some instances, a 200% increase?

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