The reason Delta can devalue SkyMiles with impunity is because American Express lost its Costco deal.

As costly as it was for American Express to lose Costco, it would have been more costly to retain Costco. As big a win as Costco is for Citibank and Visa, it’s a deal afflicted by the winner’s curse because Citi/Visa had to overpay to secure it.

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But American Express lost 10% of its credit card portfolio overnight. And it signaled a huge change for the company’s business to Wall Street. It set in motion a huge set of changes at the company, at competitors, and in deals other banks made with other airlines.

Delta was American Express’ second biggest co-brand deal, and their biggest remaining portfolio. They acted quickly to renew Delta when it became clear they would lose Costco. They set record pricing levels with that deal because it was so important to secure it. They had lost all leverage with Delta.

Credit card companies often protect us from devaluation. Airline programs can make modest changes on their own, but they generally can’t upend the value proposition of their program without sign off from their co-brand credit card issuing partners without consulting with those partners first. The banks are paying billions of dollars for miles, and consistently insert language into their agreements which include penalties for devaluation or the right to terminate the agreement with financial penalties as well.

Here’s example language from one airline’s co-brand contract, with bolding mine and with the name of the airline and bank [REDACTED].

(a) If one or more of the following (each a “ Suspension Event ”) occurs:

(i) The sum of cash, cash equivalents and short term investments (in each case unrestricted) maintained by [REDACTED] is less than [REDACTED] on average of the unrestricted cash on hand on the last day of each month during a quarter as calculated at the end of each quarter during the Term of this Agreement; or

(ii) [REDACTED] fails to maintain a frequent flyer program that is as competitive in the marketplace as the FF Program was as of [REDACTED]; provided that [REDACTED] provides written notice of such failure to maintain the competitiveness of the FF Program which will commence a forty-five (45) day period during which [REDACTED] may cure such deficiency; then [REDACTED] may, in its sole discretion, elect to either

(1) compensate [REDACTED] with Pre-Purchased Miles as set forth in Sections 14.4 and 14.5 below, or

(2) terminate this Agreement, or

(3) commence the repurchase of Pre-Purchased Miles as set forth in the next paragraph.

Neither clause (1), clause (2) nor clause (3) is exclusive and an election by [REDACTED] to compensate [REDACTED] with Pre-Purchased Miles or commence the repurchase of Pre-Purchased Miles shall not prevent a later election to terminate this Agreement so long as a breach is continuing or to exercise and other right or remedy hereunder.

For purposes of clarity, if [REDACTED] compensates [REDACTED] with Pre-Purchased Miles due to a breach of (i) or (ii) above and the breach is subsequently cured, such compensation with Pre-Purchased Miles shall cease and [REDACTED] shall resume paying [REDACTED] in cash as set forth in Section 4.2.

If [REDACTED] commences the repurchase of Pre-Purchased Miles as set forth in the next paragraph due to a breach of (i) or (ii) above and the breach is subsequently cured, then such repurchase shall cease and the number of quarterly payments in Section 14.2.1 shall be reduced by the number of quarterly payments made as a result of the breach.

In the event [REDACTED] terminates this Agreement pursuant to this Section 4.6 , [REDACTED] will promptly (i) repurchase any unused Pre-Purchased Miles as of the date of termination; and (ii) repay an amount equal to (x) the sum of the Merger Bonus Payment and Bonus Payment divided by the (y) number of months of the Term times (z) the number of whole calendar months remaining from the effective date of termination until the Expiration Date, together with interest at the Adjustable Rate (including interest on the Pre-Purchase Miles to the extent not previously paid under Section 14.2.2 and interest on the Merger Bonus Payment and the Bonus Payment from the date each was paid by [REDACTED]; provided that until such time as [REDACTED] is the sole issuer y and z shall each equal 60.

American Express presumably has similar language in their deal with Delta, although it’s possible that Delta had so much leverage that it’s watered down. However even if the language exists they can’t risk their partnership, they can’t terminate almost no matter what Delta does, because the blow on Wall Street from losing Delta after losing Costco would be huge. Costco constrains American Express, which gives Delta a free hand.