Here’s The Only Way The New Chase-United Credit Card Deal Makes Sense

Chase and United have extended their co-brand credit card deal to 2029. The previous deal was set to expire in 2025. United says the new deal will deliver $400 million more revenue this year.

Much of United’s explanation why made no sense. This new deal isn’t likely to lead to a lot of “portfolio growth” (more cardmembers). They already were introducing new cards, new benefits, and have been running aggressive acquisition bonuses. However 5 words in United’s SEC filing seem to give away the plot: “Participating in Chase Ultimate Rewards.”

The Company currently estimates that the new commercial terms, anticipated portfolio growth and participation in Chase Ultimate Rewards will increase the annual cash contribution to the Company by approximately $400 million in 2020 from the combined impact of the Agreement and the amendment to the agreement with Visa.

I questioned why ‘new commercial terms’ would cause Chase and Visa to spend $400 million a year more for something they are already getting today. They had United locked in to 2025, and would have been the frontrunner to retain the business anyway.

I was skeptical that the $400 million figure made any sense. On the other hand United put it in an 8-K and is going to be held to it. So how to square the circle? There’s one thing I wrote that may be wrong, and realizing that would seem to tie everything together.

  • United’s filing attributed some of the revenue growth to “participation in Chase Ultimate Rewards”

  • I said that growth in Ultimate Rewards transfers couldn’t drive this much more revenue to United. And that much is correct.

    if we’re looking for where United’s claimed $400 million revenue growth is coming from we have to ask “what’s different” in this deal compared to the previous one, where United was a transfer partner already.

    There’s almost no way that this new deal could be increasing points transfers from Ultimate Rewards and therefore netting additional revenue.

  • However I didn’t consider the possibility of United pulling out of Ultimate Rewards without a new, more expensive deal.

United Airlines President Scott Kirby has expressed his unhappiness with Ultimate Rewards. Customers could earn more miles faster using Chase’s own cards like Sapphire Reserve, and transfer those miles to United. That draws customers away from the United co-brand credit cards which are more lucrative for United.

If we assume that Ultimate Rewards transfers weren’t in the earlier contract, and that transfers were in effect voluntary, then we can also assume that United would have (at least threatened to) pull out of Ultimate Rewards. That would explain what Chase had to gain by agreeing to a new, more expensive contract now even though the existing agreement extended to 2025.

I concluded, “There’s either more going on here than has been disclosed in the United Airlines 8-K or the $400 million United is claiming is fuzzy math.” The ‘more going on here’ would be Chase Ultimate Rewards, which was specifically called out as as revenue growth driver in the release. It would make sense for Chase and Visa to kick in more money to keep United as an Ultimate Rewards transfer partner.

  • Losing United transfers would have been a big blow to Chase’s Sapphire Reserve, Preferred, and Ink Business Preferred portfolios.
  • United is the primary airline transfer partner they have.
  • While I believe United needs these transfers – it’s been a primary source of revenue growth for the MileagePlus program – Kirby may have been able to hold these transfers hostage to get a deal.

Kirby has been very public that United’s card deal wasn’t as lucrative as American’s or Delta’s. Chase could afford to pay more, and it makes sense they would have done so to protect their premium branded cards portfolio (and get Visa to kick in).

One of the things I do here is work through ideas. I even change my mind. United’s $400 million claim does make sense if we assume Ultimate Rewards was a leverage point that United had in their negotiations with Chase.

Is there still fuzzy math here? Perhaps. Chase pays more for Ultimate Rewards transfers, Visa agrees to pay more. Then United makes some aggressive assumptions about cardmember acquisitions based on a new relationship with additional marketing spend commitment to round up to $400 million. But the order of magnitude certainly can make sense to have paid once you factor in retaining Chase to United mileage transfers.

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. Interesting analysis/take. With Chase, United, and Visa all involved, sounds like a travel rewards version of a Mexican standoff… where everyone agrees to pay each other more money to put the pistols away.

    Ain’t it grand?

  2. Check out the brain on Brent, I mean Gary. Nice deduction, although I’d correct it just confirms what a weasel Scott Kirby is.

  3. Maybe Chase pays them now to allow transfers for UR points then markets their Sapphire card that you can transfer points to any carrier OR redeem as cash on ANY carrier. Oops that puts United in the position that they must offer frequent 100k bonuses to compensate for their less valuable card. No worries for UA as they will just double the redemption costs of award travel.
    It’s time for the big banks to snuff out these slimy airline partners using CASH incentives for their customers.

  4. You said that Chase ‘is’ the primary transfer partner for UR points, and I’d venture to say that with the devaluation, that might flip to ‘was’. With the United awards pricing out for more than cash prices on most routes (at least for me lately), I’m glad that I dumped the MP program and moved over to SWA. I think that United has destroyed program value, and only the spreadsheet jockeys will truly know how that affects UR transfers. For me recently, I couldn’t find United availability for award travel, so I just used my UR points at 1.5x for discounted DeltaOne to Europe. Chase gives you ALOT more options with their points, and while I used to transfer most points to United….I don’t see that being the case going forward … not by a long shot.

  5. @ FF78 – agreed. UA miles used to be my only task with Chase. Now it’s Virgin Atlantic and (if I ever need points) Hyatt. When the ANA deal goes away, then VA will be gone, too.

  6. Sounds to me like a combo of a premium card similar to what AA and Delta have, and Chase agreeing to pay earlier for anticipated transfers to United miles based on an expected formula or percentage to make it comparable to United getting the money for miles up front rather than when transferred.

  7. I literally just transferred 100k points from Chase to United this afternoon. It’s the sole reason why I keep my Chase Ink cards.

    There is still some value to be had, despite the devaluations in the United program. I booked two return flights in Business Class from Vienna to Newark in August for 120k miles. Which at 60k a pop isn’t bad value. Availability, especially on United’s own planes has always been shit – But if you pay attention, you can generally get what you need.

  8. I had expected Hyatt to be a more important transfer partner by now. I am surprised Chase has not added more transfer partners.

  9. Agree with FF78. Chase transfers to UA will fall dramatically as soon as people see that they can’t redeem at the old saver levels. The only reason they are still in the game is that They haven’t yet upgraded their systems to devalue *A-rewards. But that’s coming. .

  10. Gary said: “I was skeptical that the $400 million figure made any sense. On the other hand United put it in an 8-K and is going to be held to it.” I agree United would not put forecasted advantages in an 8K, unless United had a basis. The stock market punishes companies that do not make their forecasts brutally.

    I know I said that historical numbers in SEC reports are more or less accurate. However, management can make all sorts of speculations about future sales/costs without legal repercussions.

    Why? Some time ago, there was an legal industry of suing company management when they did not meet their forecasts. As an unintended consequence, company officials refused to make any comment about the prospects of their industry or future sales at all. Talking to management was useless. To fix this problem, exemptions were passed that allowed executives to speculate on future performance without getting sued.

    So United’s claim of gaining $400MM from the renegotiated contract from Chase might be [hmmm, what word should I say] optimistic. I wonder what Chase will say about the same contract.

  11. It’s going to be interesting to see if United has trouble making this money considering that all indications is that their miles are worth less with dynamic devaluation. Chase has a ton of transfer partners. KLM/AF points for example are combinable with points from other cards such as Citi, Amex, etc and they have some incredible points breaks offers that are far less than what United charges to fly business.

    I’m a 1K that has flown 0 miles with UA so far and every flight I’m booking especially in business or first is going to other airlines. So at this point UA miles are worth significantly less than before to me. Am voting with my feet and money this year on how much I like United’s latest changes.

  12. I’m wondering if the cost of keeping UA as a transfer partner, combined with the upcoming devaluation of KE miles might change incentives towards rekindling that relationship.

  13. @Gary – Interesting that Kirby came from AA, which famously does not have a points transfer partner program. I guess Scott brought over his perspective from that. I wonder what other changes that might portend.

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