Cobranded credit cards may help airlines recover from coronavirus
This post contains references to products from one or more of our advertisers. We may receive compensation when you click on links to those products. Terms apply to the offers listed on this page. For an explanation of our Advertising Policy, visit this page.
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.
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.
“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.
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.”
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.
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.
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.”
Featured photo by Andrew Harrer/Bloomberg via Getty Images.
WELCOME OFFER: 60,000 Points
TPG'S BONUS VALUATION*: $1,200
CARD HIGHLIGHTS: 2X points on all travel and dining, points transferrable to over a dozen travel partners
*Bonus value is an estimated value calculated by TPG and not the card issuer. View our latest valuations here.
- Earn 60,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That's $750 toward travel when you redeem through Chase Ultimate Rewards®
- 2X points on travel and dining at restaurants worldwide & 1 point per dollar spent on all other purchases.
- Get 25% more value when you redeem for airfare, hotels, car rentals and cruises through Chase Ultimate Rewards. For example, 60,000 points are worth $750 toward travel
- Get unlimited deliveries with a $0 delivery fee and reduced service fees on orders over $12 for a minimum of one year on qualifying food purchases with DashPass, DoorDash's subscription service. Activate by 12/31/21.
- Earn 5X points on Lyft rides through March 2022. That’s 3X points in addition to the 2X points you already earn on travel.