Update: I’ve given this issue additional thought and while I believe what I wrote below is largely correct there’s one thing that would make the whole deal make sense. I’m largely convinced that this is the case and United is able to generate this much incremental money from their credit card deal because they found a point of leverage in their participation in the Chase Ultimate Rewards program that made Chase (and Visa) renegotiate.
Chase and United are long term partners issuing United-branded credit cards. Their existing deal ran into 2025. They’ve extended the deal into 2029. United says the new deal will increase their revenue this year by $400 million.
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.
There’s a lot going on in this statement.
- The $400 million comes from a combination of Chase and Visa
- Three things are driving the revenue growth: new deal terms, more cardmembers, and transfers from Ultimate Rewards.
Ultimate Rewards Transfers Can’t Be The Driver Here
It’s great to learn that United will continue participating as an Ultimate Rewards transfer partner. But 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. Transfers may well grow as Chase’s own-branded card portfolio grows, and these transfers have recently accounted for the majority of revenue growth in the MileagePlus program. This is something United Airlines President Scott Kirby has complained about – that customers can get a Chase card, earn points faster than with a United card, and still move the miles to United.
This Deal Can’t Be Driving Enough New Card Signups To Make The Number
There’s almost no way that this new deal could be increasing the portfolio of new cardmembers. Chase and United have just come out with a new business card before this deal. They’ve tweaked the benefits and run bigger than ever offers on the existing United cards before this deal. They started pitching cards inflight before this deal. They may expect to suddenly get more aggressive soliciting new cardmembers and building the portfolio, but it’s hard to see how this is a function of the new deal.
The Chase-United credit card portfolio may well grow significantly, but it’s hard to see how this deal is the driver of that growth (in other words, whatever growth comes should largely have happened whether they signed a new deal or not). It’s only additional investments that may make sense when there are 9 years left on a deal, rather than 5 left, that should be ‘new’ and those are hard to imagine.
Why Would Chase And Visa Put $400 Million A Year More On The Table, To Buy What They Already Had?
That leaves more money from Chase and Visa, and there’s certainly some additional money. How much can there really be? Chase is too smart to be paying an additional $400 million per year now compared to what they could have paid under the deal they already had that ran into 2025.
Sure, Chase gets an extension of the deal, but they (and Visa) would be paying $1.6 to $2 billion in total more in the current contract years for the certainty of getting four more years in the future – four more years that they’re best-positioned to have gotten for themselves later anyway. Chase and Visa couldn’t possibly have made that deal.
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. Chase itself hasn’t filed an 8-K since January 31 – and it appears to me that if Chase was putting, say, $250 million more on the table each year they’d be filing one.