Citi to Battle Barclays for American-USAir Mileage Card Business

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The American Airlines and US Airways merger will heat up the competition between the two large issuing banks behind the airlines' rewards credit card programs, Citigroup Inc. and Barclays plc.

Citi works with American Airlines on the frequent-flier rewards program, Citi AAdvantage. Barclays is the U.S. Airways Dividend Miles MasterCard program issuer. As the companies integrate, it gets increasingly likely that they will combine the card programs under just one bank.

US Airways CEO Doug Parker will run the combined airline, so the Tempe, Ariz.-based company is in a position to decide the card programs' fate.

"As a valued, long-standing partner of American Airlines, we support the airline's decision to combine with US Airways and look forward to the enhanced possibilities the new American Airlines will bring," says Emily Collins, a spokeswoman at Citi, in an email.

The fate of the program has been up in the air since American Airlines filed for bankruptcy.  The airlines are not making any immediate changes to the Citi program.

"As American continues its journey and takes the next step toward becoming a premier global carrier, we will continue to work with American," she says.

The Citi AAdvantage program with American Airlines has a rich history. Dating back to 1987, it's the oldest program in the frequent-flier sector and attracts high-spending customers that use the credit card extensively in return for frequent-flier miles. The program has been highly lucrative for the bank.

"The American card with Citi is in a more dominant position," says Ron Shevlin, senior analyst at the Aite Group. The length of the partnership plus the sheer size of Citi's cardholder base make Citi the more attractive issuer.

"But when you deal with mergers and takeovers, it's more about the organizational structure, who wins, who gets put in charge," Shevlin says.

Citi has spent several years reinventing its credit card strategy. In 2011, the bank celebrated its new Citi Executive AAdvantage World Elite MasterCard with a mini-concert and free snacks at Grand Central Terminal in Manhattan. Users spend $450 annually for this card. In July last year, Citi launched the Hilton HHonors Reserve Visa Signature card for travelers. The card carries a $95 annual fee. Citi has also been revamping its Private Pass rewards program, trying to capture more concertgoers as well as sports fanatics and foodies.

The AAdvantage program with American Airlines is a big part of Citi's credit card portfolio, and complements its approach to focus on the affluent.

If Barclays gets the issuer spot though it'll be a huge win for the bank, moving Citi's large number of cardholders over, Shevlin says. 

"If you made a rational comparison and listed all the features and functions, the nod would go to Citi," Shevlin says.

But the rational comparison might not matter if more US Airways executives hold leadership positions at the new airline, he says.  However,  it's more about who gets put in charge in the lower ranks, for example, who manages the card and loyalty programs, he adds.

Brian Kelly, a blogger who tracks airline rewards programs on his blog, ThePointsGuy.com, predicts Citi will prevail.

"Although US Airways comes to the merger in a position of power and in far better financial health than American, my guess is that as the two airlines integrate their credit card products, it will be with Citi, which already carries a much more diverse range of American Airlines credit card products than Barclays does for US Airways, and is a larger, more valuable partner than Barclays with far more cardholders," Kelly says in an email.

"I don't believe [Parker] will try and recreate the new carrier off the US Airways model," he adds. "This is a business, after all, which is all about remaining profitable, and if retaining the partnership with Citi will help, that is what he and the board will do."

The combined company will operate as two separate air carriers, each maintaining its current loyalty rewards program, until the merger is complete, which is expected in the third quarter of 2013, says Andrew J. Christie, Jr., associate manager of media relations at US Airways.

"Following the merger, customers will have continued options for travel benefits both domestically and internationally through continued membership in their loyalty program," says Christie in an emailed response.

Leaders from both companies will make up a transition-planning team to construct an integration plan so the transition is seamless and sustainable, he says.

"It's business as usual for the US Airways Dividend Miles MasterCard program," says Kevin Sullivan, a spokesman for Barclays. "Cardholders should use their card with confidence, knowing they'll continue to receive miles for every dollar of spend and all other card benefits."

In an email, an American Airlines spokesperson said no changes have been made to the information given in the Feb. 14 press release announcing the merger.

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