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The bankruptcy process of American Airlines parent AMR could create some collateral damage for Citigroup, which runs the airline's large rewards credit card program.
November 30 -
As domestic airlines suffer one of their worst periods in recent years, issuers of frequent-flier cards say they are relying on product innovation and on longstanding relationships and frequent communication with carriers to keep the programs healthy.
May 27 -
The tremendous popularity of credit card programs linked to frequent-flier miles has banks and airlines seeking ways to expand the programs and squeeze more revenue from them.
December 12
Citigroup Inc.'s lucrative partnership with American Airlines is widely expected to weather the carrier's
But industry experts warn that in the long term, the airline may be forced to dilute the attractiveness of the frequent-flier rewards points Citigroup offers to some of its most valued credit card customers.
Citigroup and its rival credit card issuers cherish their airline-rewards partnerships. Frequent-flier credit cards attract wealthy and high-spending customers who are willing to
While still popular, many of those rewards programs have become somewhat less rewarding in recent years. Airlines going through bankruptcy or mergers over the past decade have started issuing more rewards points, in an effort to entice customers. But eventually they also raise the number of points required to redeem rewards, which devalues the value of each frequent-flier mile.
"The long-run trend is to raise the price of rewards, because you effectively have private currencies with no currency board or independent bank," says Gary Leff, a co-founder of frequent-flier site
For example, across most of the major airlines, customers generally have to redeem about 100,000 frequent-flier rewards points for an airline ticket to Europe. But in the future, that same trip could cost at least 120,000 frequent-flier miles, says Brian Kelly, a blogger who tracks airline rewards programs on his blog, ThePointsGuy.com.
This process risks alienating issuers' most valuable credit card customers. If customers see the value of their frequent-flier rewards points decline noticeably, they could decide to switch to a different type of rewards card, and a different credit card issuer.
Leff and Kelly say that American Airlines has been largely able to stave off the inflation of its miles up until now, even as other major airlines have already started devaluing their programs. But now that parent company AMR Corp. has filed bankruptcy, experts predict that it will start issuing more miles and contribute to the dilution of its rewards program.
"I don't think it will be a huge change right away. I do think over time that something has to give," Kelly says.
While he is not worried about "an overall huge devaluation," he predicts that American Airlines and its competitors will ramp up their offerings of new — and less lucrative — ways for customers to redeem rewards points.
For example, "I think we are going to see more and more [offers] that say use your points for gift cards, which are a terrible value," he says, adding that right now, a mile is worth about a cent.
Last week, AMR said that it had
In 2004, when Delta Air Lines Inc. restructured its balance sheet, American Express Co. lent the airline money that was backed by future purchases of rewards miles.
"American Express pretty much bailed them out of bankruptcy," says Kelly. "In turn we have seen AmEx and Delta print SkyMiles [Delta frequent-flier rewards points] like they were going out of style."
He says he would be surprised if Citigroup did not do the same for American.
If American gets a "huge cash infusion for future mileage purchases" and the market is then flooded with miles, the airline will eventually "come up with new ways to get them off their books," says Kelly.
Citigroup said last week in a statement that the bank's "long-standing relationship with American Airlines has generated tremendous loyalty and continues uninterrupted." A spokeswoman declined to comment for this story.
Representatives for American Airlines did not respond to requests for comment.
