Cobranded credit cards may help airlines recover from coronavirus
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.
"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.”
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
Top offers from our partners
How we chose these cards
TPG featured card
Rewards
10X | Earn unlimited 10X miles on hotels and rental cars booked through Capital One Travel |
5X | 5X miles on flights booked through Capital One Travel. |
2X | 2 Miles per dollar on every purchase, every day |
Intro offer
Annual Fee
Recommended Credit
Why We Chose It
The Capital One Venture X card is one of the best all-round travel credit cards ever launched. Not only is it offering a tremendous welcome bonus, but cardholders can earn tons of miles on everyday spending and receive a 10,000-mile anniversary bonus to boot. Its annual fee is $395, but cardholders can count on up to $300 in statement credits toward travel booked through Capital One Travel each year and other valuable benefits like access to Priority Pass lounges and Capital One’s own growing family of airport lounges.Pros
- Excellent welcome offer worth 75,000 miles after you spend $4,000 on purchases in the first three months.
- Up to $300 in annual travel statement credits toward bookings make through Capital One Travel.
- 10,000 bonus miles (worth $100 toward travel) each account anniversary.
Cons
- The $395 annual fee might be expensive for some, but this card’s benefits provide much more value than that.
- If you don’t travel frequently, this might not be the best card for you.
- Earn 75,000 bonus miles when you spend $4,000 on purchases in the first 3 months from account opening, equal to $750 in travel
- Receive up to $300 back annually as statement credits for bookings through Capital One Travel, where you'll get Capital One's best prices on thousands of options
- Get 10,000 bonus miles (equal to $100 towards travel) every year, starting on your first anniversary
- Earn unlimited 10X miles on hotels and rental cars booked through Capital One Travel and 5X miles on flights booked through Capital One Travel
- Earn unlimited 2X miles on all other purchases
- Unlimited complimentary access for you and two guests to 1,300+ lounges, including Capital One Lounges and the Partner Lounge Network
- Receive up to a $100 credit for Global Entry or TSA PreCheck®
- Use your Venture X miles to easily cover travel expenses, including flights, hotels, rental cars and more—you can even transfer your miles to your choice of 15+ travel loyalty programs
- Named editors' choice for "Best New Credit Card of 2021" by The Points Guy
- Earn 10 miles per dollar when you book on Turo, the world's largest car sharing marketplace, through May 16, 2023
Rewards Rate
10X | Earn unlimited 10X miles on hotels and rental cars booked through Capital One Travel |
5X | 5X miles on flights booked through Capital One Travel. |
2X | 2 Miles per dollar on every purchase, every day |
Intro Offer
Earn 75,000 bonus miles when you spend $4,000 on purchases in the first 3 months from account opening, equal to $750 in travel75,000 bonus milesAnnual Fee
$395Recommended 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.740-850Excellent
Why We Chose It
The Capital One Venture X card is one of the best all-round travel credit cards ever launched. Not only is it offering a tremendous welcome bonus, but cardholders can earn tons of miles on everyday spending and receive a 10,000-mile anniversary bonus to boot. Its annual fee is $395, but cardholders can count on up to $300 in statement credits toward travel booked through Capital One Travel each year and other valuable benefits like access to Priority Pass lounges and Capital One’s own growing family of airport lounges.Pros
- Excellent welcome offer worth 75,000 miles after you spend $4,000 on purchases in the first three months.
- Up to $300 in annual travel statement credits toward bookings make through Capital One Travel.
- 10,000 bonus miles (worth $100 toward travel) each account anniversary.
Cons
- The $395 annual fee might be expensive for some, but this card’s benefits provide much more value than that.
- If you don’t travel frequently, this might not be the best card for you.
- Earn 75,000 bonus miles when you spend $4,000 on purchases in the first 3 months from account opening, equal to $750 in travel
- Receive up to $300 back annually as statement credits for bookings through Capital One Travel, where you'll get Capital One's best prices on thousands of options
- Get 10,000 bonus miles (equal to $100 towards travel) every year, starting on your first anniversary
- Earn unlimited 10X miles on hotels and rental cars booked through Capital One Travel and 5X miles on flights booked through Capital One Travel
- Earn unlimited 2X miles on all other purchases
- Unlimited complimentary access for you and two guests to 1,300+ lounges, including Capital One Lounges and the Partner Lounge Network
- Receive up to a $100 credit for Global Entry or TSA PreCheck®
- Use your Venture X miles to easily cover travel expenses, including flights, hotels, rental cars and more—you can even transfer your miles to your choice of 15+ travel loyalty programs
- Named editors' choice for "Best New Credit Card of 2021" by The Points Guy
- Earn 10 miles per dollar when you book on Turo, the world's largest car sharing marketplace, through May 16, 2023