Cobranded credit cards may help airlines recover from coronavirus

Apr 11, 2020

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Having a credit card, in some ways, is like having invisible extra money. You don’t need cash in your pocket right now to pay for something if you have the right piece of plastic (or metal) in your wallet.

As it turns out, in times of financial uncertainty like the one we are in now, airlines have been able to leverage their credit card partnerships for their own kind of financial boost.

This happened at least once before, in first decade of the 2000s, which was not a great time for airlines’ bottom lines. Between the post-9/11 travel downturn and the 2008 financial crisis, U.S. carriers were generally facing a cash crunch.

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Take Delta Air Lines, which was mired in Chapter 11 bankruptcy protection from September 2005 through April 2007. But while it reorganized during that process, Delta was able to get a cash infusion from American Express, which issues Delta’s cobranded credit cards.

UNITED STATES - MAY 21: Delta Air Lines jets are seen at the Salt Lake International Airport, in Salt Lake City, Utah, Sunday, May 21, 2006. Delta Air Lines Inc. wants to terminate the pension plan for its 6,000 pilots, saying it needs the savings before it can exit bankruptcy protection. (Photo by Stephen Hilger/Bloomberg via Getty Images)
Delta Air Lines jets at the Salt Lake International Airport, in Salt Lake City, Utah. (Photo by Stephen Hilger/Bloomberg via Getty Images)

“American Express pre-purchased a large block of SkyMiles from Delta, and that brought in some much-needed cash,” said Henry Harteveldt, president of Atmosphere Research, an industry analysis firm. Amex made another such SkyMiles purchase in the wake of the 2008 financial crisis, he noted. That deal was worth $1 billion, according to CNN.

Related: 2020’s best airline award credit cards.

American and United received similar lifelines from their lending partners during the earlier financial crisis.

How much of a boost were those partnerships worth?

Citibank, which issues AAdvantage Mastercards, purchased $1 billion worth of miles in 2009, according to The Dallas Morning News. Chase, which issues MileagePlus Visas, purchased $600 million worth United miles as part of a 2008 contract extension, according to IdeaWorksCompany, an aviation analysis firm.

Harteveldt said he expects another round of this kind of aid as the airlines try to find their footing after COVID-19.

“No one anticipated this pandemic occurring, but it increases the importance of the relationship between the airline and its credit card partners,” Harteveldt said.

“Consider these banks an airline’s equivalent of personal protective financial equipment,” he added. “For some airlines at least, these partnerships can provide critically important access to auxiliary cash.”

American Airlines jets parked on a runway at Pittsburgh International Airport. (Image courtesy of Pittsburgh International Airport.)
American Airlines jets parked on a runway at Pittsburgh International Airport. (Image courtesy of Pittsburgh International Airport.)

Harteveldt anticipates lending partners — Amex for Delta, Chase for United and Southwest, and Citibank and Barclays for American — could spend hundreds of millions of dollars buying frequent flyer miles from the airlines as part of a financial aid package in the near future.

Related: The types of relief credit card companies are offering during the coronavirus crisis

The exact terms of those deals, Harteveldt said, will vary based on a number of factors, including an airline’s financial health and what kinds of terms its lending partners want to place on the funds.

The lenders, too, will be careful not to pre-purchase too many miles from an airline that could to emerge much smaller after the outbreak subsides, he said.

“The last thing a credit card partner wants to do is be saddled with far too many loyalty program points for an airline that is not operating enough flights and is therefore not offering enough inventory for award travel, because it dilutes the value of that credit card,” Harteveldt said.

He added that some airlines may prefer to take government aid under the CARES Act while it’s available, and keep the option of financial assistance from a lending partner in reserve if the crisis drags on longer than anticipated and Congress chooses not to pass a second airline aid package.

Related: 5 things to know about the $50 billion U.S. airline aid package

When a cobranded credit card issuer does decide to give aid to an airline partner, though, traveler-friendly deals are likely to result.

“Potentially this could mean richer signup bonuses, more bonus points or incentives to spend,” Harteveldt said. “It could become a golden age for the cardholders because the banks are going to want to make sure these points are used.”

Read more: Airlines have to provide passengers with refunds for canceled flights

Featured photo by Andrew Harrer/Bloomberg via Getty Images.

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