While American Airlines and US Airways struck notes of love and harmony on Thursday, their merger could set up a battle between two major banks over who can offer credit cards to customers of the world's largest airline.
In announcing the deal, the airlines affirmed that consumers should see no changes for months: Customers can continue to book travel on the airlines, and frequent flyers can continue to earn and spend miles as usual. The airlines would not be integrated until after the deal closes, which is expected in the fall of 2013, subject to approval by regulators, shareholders and American's bankruptcy judge.
The merger between American, the fourth-largest U.S. carrier, and US Airways, the fifth-largest, would create the world's largest airline, with more than 100,000 employees, 1,500 planes and 6,700 daily flights to 336 destinations in 56 countries.
US Airways' frequent fliers would be moved from the Dividend Miles program into American's AAdvantage scheme. A presentation to investors promised the program would provide "improved opportunities to earn and redeem miles." There are few details yet on what that means, but the combined program -- the largest in the world -- would continue in the oneworld alliance (dropping US Airways' participation in Star Alliance).
One open question, though, is what will become of the credit cards affiliated with each of the airlines: Citi offers several variations of American Airlines cards, while Barclays offers a menu of US Airways cards. Both banks have exclusivity agreements with their respective airlines that expire in 2017, according to regulatory documents. At stake is the right to market lucrative credit cards to tens of millions of desirable customers: American alone has roughly 69 million members in its frequent-flier program, according to securities documents.
"It is a delicious tidbit for a bank to grab," says Jay Sorensen, president of IdeaWorks Co., a Wisconsin-based airline consulting firm. "The ability to have a relationship with the world's largest airline is a once-in-a-lifetime opportunity."
In past airline mergers, banks have tussled over the right to offer cards:
- When Delta Air Lines and Northwest Airlines merged in 2009, American Express (which offered the Delta card) and US Bank (which offered the Northwest card) traded barbs touting their superiority via billboards, full-page newspaper ads and letters -- and offering enticements for customers to sign up. Ultimately, the merged airline stayed with American Express in a five-year, $1 billion deal, and US Bank offered its customers a replacement card not linked to any particular airline. Northwest sued US Bank because the replacement card, called FlexPerks, sounded like the old Northwest-affiliated WorldPerks card, in a case eventually settled out of court.
- When US Airways and America West Airlines merged in 2005, Bank of America (which offered the US Airways card) and Barclays (which offered America West's) battled for the right to market a card to the merged airline's customers. The new airline chose Barclays -- and was promptly sued by Bank of America. The case was settled a few years later, but for a few years, both banks offered US Airways cards, increasing options for consumers.
The 2010 merger between United Airlines and Continental Airlines was smoother, since Chase offered both cards.
Asked about the future of the cards, Barclaycard US spokesman Kevin Sullivan declined to speculate, saying "it's business as usual" for the program. A Citi spokeswoman said there would be no immediate changes for cardholders, and that the company "looks forward to the enhanced possibilities the new American Airlines will bring."
It is also possible that both banks -- and maybe even others -- could offer cards if the new airline doesn't want to promise exclusivity to any one bank. In Australia, for example, 15 banks offer credit cards linked to the country's leading airline, Qantas. In the United States, the battle for airline customers is heating up, as bank cards with travel rewards unaffiliated with any one airline are gaining traction, experts say.
Frequent fliers are already looking for ways to cash in on the merger. Some travel bloggers have been recommending that consumers interested in travel rewards apply for US Airways and American cards, on the theory that miles earned from sign-up bonuses will eventually be combined -- as has been the case in previous mergers. The sign-up bonus for the US Airways Premier World MasterCard is 30,000 miles after the first purchase, plus 10,000 points if you transfer a balance within the first 90 days; for the Citi Platinum Select AAdvantage Visa Signature card, it's 30,000 after spending $1,000 in the first three months.
For holders of US Airways- or American-affiliated cards, one thing is certain: you'll be receiving many more letters and offers in the months ahead, as the battle for your credit-card allegiance heats up.
"They're going to try to grab all the business they can before they lose that very important, attention-grabbing brand name," Sorensen says. "The more cards they are able to sign up, the more leverage they have in terms of negotiating."