American Airlines Keeps Credit Card Deals With Both Citi and Barclays

American Airlines finds a way to keep credit card deals with both Citi and Barclaycard, a first in the airline industry, after merger with US Airways.
By Ted Reed ,

Updated with new details from a Securities and Exchange Commission filing.

American Airlines (AAL) - Get Report shares rose Tuesday after the carrier announced a long-awaited credit card deal that enables it to retain two credit card partners and to boost pretax income by hundreds of millions of dollars annually.

American shares were rising 7.5% in trading Tuesday. 

The carrier said it reached new agreements to extend its credit card relationships with both of its partners, Citigroup (C) - Get Report and Barclaycard US. Before the 2013 merger with US Airways, American had a deal with Citi while Barclaycard had a deal with US Airways.

In a Securities and Exchange Commission filing, American said it expects pretax income "to increase by approximately $200 million in the second half of 2016, $550 million in 2017 and $800 million in 2018, with continued modest improvement in pretax income each year beyond.

"Under the new arrangements, American will partner with two banks to provide co-branded credit cards instead of appointing a single exclusive bank in a long-term arrangement as has been the most common structure in affinity credit card arrangements in the airline industry," the carrier said in the filing.

The agreement sets out parameters for soliciting new customers. It allows Citi to continue to offer its cards to new customers through multiple channels including digital, mobile, direct mail and Admirals Club lounge marketing. Barclaycard can offer its cards to new customers in airports and exclusively during flights, beginning in January 2017.

Also, American said it reached an exclusive partnership with MasterCard (MA) - Get Report , so that all American credit cards will be co-branded with MasterCard.

On American's first-quarter earnings call in April, President Scott Kirby mentioned negotiations for a new credit card deal in the context that American is looking for ways to restore positive revenue per available seat mile.

Kirby said the carrier likely will not post positive PRASM until 2017, but noted, "We'd also like to find ways to accelerate the positive PRASM trends into this year."

"As most of you know, we're also in the middle of negotiations for a new credit card deal," he said. "While I won't predict on this call when or even if we'll get a deal done, all of our large competitors have done new deals in the past couple of years and we expect a similar large tailwind for American Airlines when we do ultimately get a new deal done."

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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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