United Could Have Problems Squeezing More Money Out of a New Deal With Chase

Brian Sumers of Skift covers preparations for United to re-up its credit card deal with Chase.

United and Chase renewed their credit card agreement two years ago and there’s already talk of the next extension, which suggests that they made a 5 year deal which historically was standard although we’re seeing more 7 and even 10 year deals in the co-brand space.

The financial analyst most bullish on credit card revenue for airlines, Joe DeNardi from Stifel, now believes that United’s bargaining position may have slipped as a result of Chase’s success with its own products and American Express’ investments in its Platinum card in the broader competitive space. That’s a turnaround from DeNardi’s earlier position on United.

While DeNardi in earlier notes mentioned that the Chase Sapphire Reserve and competing products like the American Express Platinum card had been taking “taking wallet share and spend” from airline-branded cards, he was not always so pessimistic at United’s chances for a lucrative deal.

In a September note, he suggested United might renegotiate its deal with Chase in time to boost next year’s profits.

DeNardi heard me speak to a group of airline and credit card executives in May making this case. It undermines his argument that frequent flyer programs should be spun off from airlines, that they’re more valuable than the airlines themselves, because that rests on a proposition of continued revenue growth while I argue revenue for frequent flyer programs will shrink in the future as interchange falls.

Meanwhile the era of better than 50% margins for frequent flyer programs is coming to an end. To attract and retain customers they must spend more on redemptions. Customers can’t continue to accumulate miles without being able to redeem those miles in the manner they expect (saver awards) and especially in light of creative destruction from banks.

Frequent flyer progrmas face more competition than ever before. The same banks they partner with on co-brand credit cards issue their own products, including cards whose points transfer to miles (and to more than one program) and they’re spending more than ever before to market these products and on redemptions and benefits.

These programs don’t exist in a vaccuum, they compete for the attention and wallet share of consmers. While frequent flyer programs have been devaluing — increasing the mileage cost of awards, reducing availability — banks have been doubling down to attract consumers.

And that’s having an impact, as we first saw when American filed an 8-K with the SEC in April indicating they were behind expectations in credit card signups and United announced they were behind in signups as well (which is why they started pitching credit cards onboard).

The airline co-brand business is still valuable. It’s worth billions of dollars a year to American, Delta, and United. But we’re now asking the question about whether it’s peaked, and indeed in the future revenue and frequent flyer program margins face challenges. Both are more likely to fall than to grow in the future.

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 InsideFlyer.com, 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. Legacy FF miles have become almost worthless. The Brokers are offering 3/4 of a cent for AA and about .9 of a cent for UA miles. Banks are better off flipping the airlines over and charging them to put their crappy names on their bank’s cards. Using these valuations, the $400 to $500 in account credit earned on a travel card is worth closer to 75,000 FF miles per sign-up IF YOU CAN EVEN USE THE FF MILES. I’m taking the cash and keeping only SWA miles as those really are just cash and have retained their value.

  2. This will come to a head if public perception turns on the airlines and miles. Currently people who actively are involved in the points game know that the bank points are much more valuable, however, casual observers still value airline miles. I’d argue that is mostly a function of legacy of airline miles being a familiar concept for decades, whereas bank points are relatively new. If the airlines don’t open up availability they will see sentiment turn, as the folks who fall for the credit card pitch given on-board of “40k points is good for one round trip flight” find they can never actually get that value.

  3. Will the US airlines, at some point, realize that their loyalty programs were worth more than they thought? If they ever come around then they’ll realize that they need to ease the benefits to the customer rather than trying to squeeze for all they can get. Clearly this won’t happen soon, if ever.

  4. I find my Chase Ultimate Rewards points are much more valuable than my United miles. Plus, if I buy a ticket with Ultimate rewards, it counts towards FF Status.

    It also sucks now how poorly you earn miles actually flying. Low earning rates on flights and constant devaluing of the miles has left a bad taste in my mouth. If I buy a $500.00 ticket from SAT-IAH-BTR I can get sometimes about 1,000 total united miles. If I purchase that ticket with a United card, I would get about 2,000 miles total for the flight (1,000) and the purchasing of the ticket(1,000). If I used my SR card, I would get the 1,000 united miles for the flight and 1,500 Ultimate Rewards points… no brainer! I do miss the days of the 500 min miles per segment… giving me 2,000 united miles for that round trip.

    On the other hand… I do like that I can use miles for food in airports and for WiFi on flights…

  5. So what have United and American done? 20 plus years of loyalty into near 0
    They pushed me into International based programs and Alaska and jet Blue
    They now get close to 0 of my business and prob don’t care as they have a monopoly
    They are essentially shooting at fish in a barrel
    This fish escaped

  6. I put exactly 0 dollars every month on my United co-branded credit card since I got my Chase reserve card. When the annual renewal comes up next February I think I will dump it entirely. I am a 1K; former Global Services, have flown 2.5 million lifetime United miles.

  7. In the current environment it only makes sense to use airmile points on international business and first class. Is there any indication that the legacy airlines understand that the landscape is changing? AA is only talking about increased award availability. But all the award space on AB has just been lost.

  8. Is having a branded credit card lucrative enough to justify exclusivity versus selling transferable miles to other programs (CITI, AMEX, etc.) ?

    I think when people complain about availability, they are actually complaining about premium availability. I suspect this won’t be an issue once redemptions go fixed, which i strongly suspect is the direction we’re moving in.

  9. Yup, if not for international Biz class and first class I wouldn’t collect AA points, United points, or Delta points. I would do cash back all day 24/7. All those points used for domestic redemption are worth about .7 cent (1 cent. minus .3 cent for difficulty to use) to me. Southwest airline points are the only exception.

  10. As an AA platinum for life, I feel like American Airlines has stabbed me in the back, so I have rewarded them by dumping all of their credit cards. Furthermore, I’ve shifted all of my flights to Alaska and Jet Blue.
    United, Delta & American are Dead as far as I’m concerned.

  11. United has one of the worst frequent flier programs in the industry, they are constantly devaluing their miles and the flights you can book with miles are at the worst times with long layovers ,etc. they used to be good,but I would sign up for almost any other frequent flyer credit card bonus before United now ,they screw their customers every living chance they get.

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