United’s Explanation Of Their New Chase Credit Card Deal Makes No Sense

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.

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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Comments

  1. Ownership of the United Explorer card has value for extra award availability, baggage services, and the like. I can’t see any reason actually to spend money on it, though, except for United tickets, and then only if I want to check a bag, which is seldom. The CSP is the far better card. Their market for new Explorer signups seems to be non-churners who are United flyers and value the card’s perks, but who haven’t already signed up, despite abundant opportunities to do so. I don’t see how this deal in itself changes anything. There has to be more to it.

  2. Does the VP of Credit Cards/Loyalty at United realize how god awful their product is in comparison to the competition?

    No Annual Companion Certificate
    Have to pay with card to get free bags, screws business travelers who have to use company amex
    Only 2 Bags, so families are screwed

  3. Everyone who wants one of the current United cards already has one. There must be a new, ultra premium ($$$) card coming down the pike with some very special features (comp status, easy status, upgrade priority etc.)

  4. Yeah, JetAway is right. The new deal must let United offer new products (e.g. a card with PlusPoints), and the growth is going to come from that.

    Chase is definitely too smart to simply pay more for the miles. In fact, I wouldn’t be surprised if Chase is paying the same or slightly less for the miles, but they’ve developed a strategy they think is going to bring net-new cardmembers to the UA/Chase ecosystem.

  5. I believe Visa changed some interchange terms recently to adjust fees by merchant category. My guess is the UA agreement with Chase meant they got some % of the total fee collected on each swipe. My guess is there was a clause that they would in good faith renegotiate if Visa changed their terms.

  6. I gave up on the card many years ago
    United became stingy with award seats and overpriced redemptions even if you could find a premium cabin at all
    It’s typically ties for last in program desirability imho
    Only Virgin Atlantic is worse

  7. Ignoring the “in 2020″….extend the term by 4 years, 2025 to 2029. $100 million times 4 is your $400 million. I really cannot see another new United card bringing in $400 million a year.

  8. Gary.. Careful with the accounting terms. Cash contribution and revenue isn’t the same thing. What this sounds like is Chase buying 400 million of united points and paying cash for it today. Essentially a loan and a source of financing. The exclusive agreement is extended because chase expects it would take a few more years for all those miles to be transferred.

  9. A few ideas

    1) Chase will much more aggressively push its United cards to more existing account holders (regardless of 5/24 status) through Just For You offers. This may have been a stipulation of the deal
    2) Chase will revamp the regular personal cards, just like Delta did. With CSR fee going up and new cards, some United oriented Chase customers may switch. Imagine a revamped United Club card that earns 4x or 5x on United, 3x on dining/grocery/hotels, offers United Club and Priority Pass Access, etc for $450. Some subset of CSR customers will bite and switch
    3) Visa probably reduced the interchange fees on United purchases
    4) Chase will likely pay United more for mileage transfers

  10. I agree with you and the above posts. The numbers don’t add up. There is more to the story than what they have shared so far.

    Methinks Scott Kirby got the $400M he was looking for….eventually we will find out how.

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