Along with announcing a deal with Citibank that will make them the exclusive issuer of U.S. American Airlines AAdvantage credit cards, the carrier filed an SEC 8-K that offers some limited detail on the financial affects of the 10-year pact.

American presently expects cash remuneration from its co-branded credit card and other partners to grow by approximately 10% annually. For the twelve months ended September 30, 2024, American’s cash remuneration from its co-branded credit card and other partners was approximately $5.6 billion. As remuneration from American’s co-branded credit card and other partners approaches $10 billion per year, annual pre-tax income is projected to benefit by approximately $1.5 billion, compared to 2024.

The incremental $4.4 billion, then, generates an additional $1.5 billion in profit – for a 33% margin. That’s impressive, but also significantly below the 52% net margin for the AAdvantage program overall that American reported in 2021 as they raised $10 billion in debt against the future income stream of the program.

American shared in their 8-K filing updated financial projections for the fourth quarter, which project improved revenue. They don’t break out why but I note that they talk about projections for total revenue per available seat mile and not passenger revenue, which allows them to capture credit card revenue and also that a payment on signing co-brand renewals is common. So even though this 10-year extension may not ‘start’ until 2026, it may be contributing to American’s financial performance now.

American Airlines Admirals Club Access Is Most Efficiently Obtained Via Premium Citi Credit Card

Financial projects for this deal, by the way, suggest that I was right to say the American Airlines board of directors was sandbagging earlier this year when awarding CEO Robert Isom his compensation.

• At the airline’s Media and Investor Day in 2017, then-CEO Doug Parker famously declared that the airline would ‘never lose money again.’ His presentation described the airline as being like an annuity. They were, effectively, on autopilot to earn $3 billion to $7 billion per year and would average $5 billion annually into the future. There’s been 20% inflation since then – just staying even should mean $6 billion!

• Yet Isom’s compensation package describes $2.5 billion as the airline’s target, with $4 billion net profit as a home run – earning him the greatest possible bonus. As George W. Bush once said the soft bigotry of low expectations.

• This deal alone is generating $2 – $3 billion per year in profit and that’s expected to grow 10% annually, with the exact amount depending on whether the 52% margin for AAdvantage is a useful figure or whether the anticipated 34% margin on incremental revenue is a more useful guide to the overall program at this point.

Bear in mind that discussion of specific net profit out of gross card or total AAdvantage revenue is extremely sensitive to assumptions that the airline chooses to make, including internal pricing for the services that it buys for cardmembers (whether benefits like bags or flight awards). In some sense, the loyalty program margin is what the airline decides that it is.

Most of the $5.6 billion revenue for AAdvantage over the past 12 months comes from Citi and Barclays. The cumulative roughly 80% growth projected to get to $10 billion represents even larger growth for Citi. It isn’t just an incremental $4.4 billion for them, it’s $4.4 billion more than Citi and Barclays together are paying today.

Delta is still projecting hitting $10 billion revenue from its American Express co-brand by 2029. That deal is broader. They pay denied boarding compensation in American Express gift cards. They buy jet fuel with an American Express card has the highest-known credit limit in the world of $1.1 billion. Of course, Delta is still behind where they thought they’d be when they signed their deal extension in 2019. They’re roughly hitting benchmarks in nominal dollars, but are off 20% when accounting for inflation.

That’s why we see Delta pushing SkyMiles signups through free wifi and partnering with Starbucks: new consumers to convert to co-brand Amex customers. United is moving to free wifi starting next year with its Starlink installations. Their vision is to merchandise targeted advertising at customers and mileage accounts track customers. (Chase, United’s co-brand partner, is a major launch advertiser for this effort.) It’ll be interesting to see whether there are new, creating elements to the Citibank partnership or if it just copies successful elements from other carriers. So far we just know Citi’s ThankYou points will become transferable to AAdvantage.