Delta Air Lines Inc.’s proposed acquisition of Northwest Airlines Corp. has raised the question of which card issuer would get the surviving cobranding relationship — American Express Co. or U.S. Bancorp.
Amex issues Delta SkyMiles travel reward cards for the Atlanta airline, while the Minneapolis parent of U.S. Bank issues Visa-branded WorldPerks cards for Northwest, which is based in nearby Eagan, Minn.
In a conference call with investors Tuesday, Richard K. Davis, U.S. Bancorp’s chairman and chief executive, responded to an analyst’s question about the deal by saying, “We’re looking forward, frankly, to having more business with the largest [airline] in the world.”
But he did not provide specifics to suggest that U.S. Bancorp would, or could, wrest control of a combined cobranded miles program from Amex.
Observers said Amex could have an edge, in part because, even though the parties described the deal as a merger, Delta is buying Northwest for about $3.1 billion in stock.
Tony Hayes, a partner in the financial services division of Marsh & McLennan Cos.’ Oliver Wyman Group, said that since Delta would retain its name, headquarters, and management team, “it would appear as though it would benefit Delta’s partners, and that would include American Express.”
A spokeswoman for U.S. Bancorp said it was “too early in the process” to discuss the matter further. A spokeswoman for Northwest said that “everything is still status quo,” and that questions about miles programs would have to be worked out.
A Delta spokeswoman said there were “no immediate changes” planned. She referred American Banker to a “frequently asked questions” page on a Web site created for the deal. “Shortly after the deal closes, we will announce a plan for consolidating miles into one account,” the page says.
A spokeswoman for Amex said it was “too early to speculate” on the fate of the programs.
Buying Northwest would make Delta the largest airline by traffic, surpassing AMR Corp.’s American Airlines.
Airline cobranded reward programs are one of the most popular, and profitable, tools available to issuers, because they attract cardholders who are willing to pay fairly high yearly fees. Mr. Hayes said that even though the programs are “very profitable for the airline … they also tend to be profitable for the issuers,” because, though they are expensive, they also attract “very high-spending cardholders.”
Consumer preferences may also help give Delta’s SkyMiles the edge over Northwest’s WorldPerks, he said. “The surviving brand being Delta, more people would want to have a card that would generate Delta SkyMiles. The issuer of the Northwest card may ultimately lose out.”
Adil Moussa, an analyst at Aite Group LLC, said there was a possible alternative, at least in the short term.
Airline cobranded card contracts “are usually in the five- to seven-year realm” with “huge consequences if you break them before term,” he said. At least before renewals come up, “the other solution is keep both networks, and whoever has [a U.S. Bancorp-issued] Visa can keep Visa, and whoever has American Express can keep American Express.”
Delta and Northwest announced their deal Monday. According to a time line on the site, the deal is expected to close this year.
