American Express Travel Related Services Co. has made its long-awaited entry into credit card cobranding, through a marketing partnership it announced Tuesday with Delta Airlines.
The companies had long been rumored to be nearing a cobranding arrangement. Delta, which will call the joint card Delta SkyMiles Optima, was the last major airline without a credit card partner, and its link with American Express will set it apart from those that market MasterCard and Visa brands.
At least 13 other financial institutions were interested in operating the program for Delta, which had issued its request for proposals in March, said a spokeswoman for the Atlanta-based company.
Delta, the No. 1 U.S. airline by number of passengers, is the leading carrier in American Express' nonexclusive frequent flier program, Membership Miles, and the two companies have had a close business relationship for decades.
Neither would disclose the pricing or reward structures of the SkyMiles credit card, which is still about six months away from formal launch.
Kenneth I. Chenault, vice chairman of American Express Co., said it was inevitable that news of the alliance would leak out, so the companies decided to take it public right after the agreement Monday was sealed night. "How do you keep something like that under wraps?" he remarked in an interview Tuesday.
Some industry observers were suspicious about the timing of the announcement - just two days after an article in The New York Times Magazine questioned American Express' ability to offer distinct products in markets dominated by bank cards.
The announcement seemed to "specifically respond to that article," said Michele Turkel a marketing consultant for Spectrum International Consulting Corp., Scarsdale, N.Y. She said American Express should have wanted to counter the impression in the article that the company had only a vague commitment to introduce a series of new credit cards.
Thomas P. Facciola, an analyst with Salomon Brothers who was quoted in the magazine article, said the timing probably had more to do with a twice- a-year investors meeting American Express had scheduled for today.
"This agreement underscores our joint commitment to building customer loyalty through products and services which offer superior value and rewards," said Harvey Golub, chairman and chief executive of American Express, in a prepared statement.
Mr. Golub said he expects the Delta card to help American Express, which historically has concentrated on charge-card activity that did not generate credit balances, achieve its goal of $30 billion in managed receivables by the year 2000. The total currently stands at $8.7 billion.
Though the partners would not reveal marketing or advertising plans, the cobranding partner, in this case Delta, typically drives those initiatives.
Also common in such partnerships is the sharing of space on the front of the card by the two brand names. American Express was reportedly leery of diluting its corporate image, the strength of which has been confirmed in numerous consumer surveys.
"Historically, we have raised concerns about sharing our real estate with another brand," Mr. Chenault said. "But we feel (we can) strengthen our brand and theirs. There are a lot of loyal Delta customers."
Delta enters into the credit arena with a data base of 18 million frequent flier customers in its SkyMiles program.
American Express' Membership Miles offers participants one point for every dollar spent on the card, and the points are redeemable with a number of airline companies. But at least one expert believes the partners have to provide more of an incentive to lure cardholders.
"I would be surprised if the (Delta-Optima) card offers only a dollar per mile," said Ms. Turkel. "They will have to offer an improvement" to cut through the clutter of the many "me-too cards" on the market.
When asked whether the SkyMiles Optima card will be different from other airline cards, Mr. Chenault, said simply, "To win in the market place, you have to stand out."
While frequent flier enrollees are not necessarily heavy credit revolvers, they are profitable, said Anne M. Moore, president of Synergistics Research Corp., Atlanta, which recently completed research on such air-miles programs.
The research indicated people drawn to airline credit cards tend to be affluent and under age 50.