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Cobranded credit cards may help airlines recover from coronavirus

April 11, 2020
5 min read
Cobranded credit cards may help airlines recover from coronavirus
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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 image by Bloomberg via Getty Images

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Best Marriott card for Business Owners
TPG Editor‘s Rating
Card Rating is based on the opinion of TPG‘s editors and is not influenced by the card issuer.
3 / 5
Go to review

Rewards Rate

6X6x points at hotels participating in the Marriott Bonvoy® program.
4X4x points for purchases made at restaurants worldwide, at U.S. gas stations, on wireless telephone services purchased directly from U.S. service providers and on U.S. purchases for shipping.
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  • Intro Offer
    Limited Time Offer: Earn 100,000 Bonus Marriott Bonvoy Points after spending $4,000 in purchases on your new Card in your first 3 months of Card Membership. Offer expires 11/2/22.

    Earn 100,000 points
    75,000 points
  • Annual Fee

    $125
  • Recommended Credit
    Credit ranges are a variation of FICO© Score 8, one of many types of credit scores lenders may use when considering your credit card application.

    670-850
    Excellent/Good

Why We Chose It

The Marriott Bonvoy Business Amex is a stacked card with a rewards rate that will help you earn bonus points on everyday and business-related purchases. You'll earn 15 elite night credits each calendar year, and receive automatic Gold elite status. Finally, the free night award certificate with a redemption level of 35,000 points or less can get you hundreds of dollars in potential value each year.

Pros

  • 6x points on eligible purchases at hotels participating in the Marriott Bonvoy program
  • 4x points at restaurants worldwide, U.S. gas stations, wireless telephone services purchased directly from U.S. service providers and U.S. shipping
  • 2x points on all other eligible purchases
  • Earn a free-night award each card renewal month (up to 35,000 points)
  • Receive 15 elite night credits to jump-start status
  • Transfer Marriott points to 40+ airlines

Cons

  • Airline points transfer ratios are poor
  • Must spend $60,000 in a year for second free-night award
  • Limited Time Offer: Earn 100,000 Bonus Marriott Bonvoy Points after spending $4,000 in purchases on your new Card in your first 3 months of Card Membership. Offer expires 11/2/22.
  • 6x points at hotels participating in the Marriott Bonvoy® program.
  • 4x points for purchases made at restaurants worldwide, at U.S. gas stations, on wireless telephone services purchased directly from U.S. service providers and on U.S. purchases for shipping.
  • 2x points on all other eligible purchases.
  • Receive a 7% discount off standard rates for reservations of standard guest rooms at hotels that participate in the Marriott Bonvoy program when you book directly. Terms and Conditions Apply.
  • Receive 1 Free Night Award every year after your Card renewal month. Plus, earn an additional Free Night Award after you spend $60K in purchases on your Card in a calendar year. Awards can be used for one night (redemption level at or under 35,000 Marriott Bonvoy® points) at hotels participating in Marriott Bonvoy®. Certain hotels have resort fees.
  • Enjoy Complimentary Marriott Bonvoy Gold Elite Status with your Card.
  • Terms apply.
  • See Rates & Fees