U.S. Bancorp's merchant processing subsidiary, Nova Information Systems, has won a multiyear agreement to process payment cards for American Airlines Inc.
American Airlines, one of the world's largest air carriers, is now the largest single merchant in Nova's portfolio, according to Stuart C. Harvey Jr., Nova's president.
In an interview Monday, he predicted that the deal for American's domestic card transactions would generate "annual bank-card volume in excess of $11 billion."
The Minneapolis processor has built up a significant business processing for airlines; Nova said it has 40 U.S. airline customers and a total of 87 around the world. (Mr. Harvey declined to name any of them.)
"The airline vertical is one that we spend time and resources on. We feel we have some proprietary expertise in that vertical," Mr. Harvey said.
The airline industry has unique demands, and only a handful of merchant processors can compete in the market, he said.
"Because of the risk management that goes into" processing airline ticket purchases, "fewer and fewer processors are equipped to handle the large volume," Mr. Harvey said. "The universe is shrinking in terms of those that can accommodate the international needs of global carriers."
The deal includes American Airlines and its regional partner, American Eagle. (Both are owned by AMR Corp. of Fort Worth.)
American Airlines spokesman Tim Smith said American Eagle carried 21 million passengers last year and American Airlines carried 98 million.
Though Mr. Smith said most of American Airlines' business is domestic, Mr. Harvey said he hopes to expand the agreement to include its international transactions as well.
"It's currently a North American deal, but I can tell you that American is well aware of our expanding geographic footprint, and the fact that we process for other carriers on an international basis," he said. Nova has a merchant processing subsidiary in Europe, euroConex Technologies Ltd.
Mr. Smith said the airline's previous merchant acquirer was Chase Paymentech Solutions LLC of Dallas, which will continue to handle its Canadian and Western European transactions. (Chase Paymentech is a joint venture of JPMorgan Chase & Co. and First Data Corp.)
Gwenn Bezard, a research director for Aite Group LLC in Boston, said in an e-mail that airlines are among the few merchants that "card networks, such as Visa and MasterCard, authorize to do cross-border merchant acquiring."
Nova has the "ability to do cross-border acquiring by leveraging euroConex," Mr. Bezard said. "As other airlines see their payment acceptance costs rising, cross-border acquiring is one way for merchants to reduce their costs."
However, Paul A. Tomasofsky, the president of Two Sparrows Consulting LLC in Montvale, N.J., said processing for airlines involves several risks. Air tickets are often purchased well in advance, so there is plenty of time for them to be canceled and returned. And with the air industry so unstable today, processors must set aside funds in escrow, in case "the airline goes belly-up."
Also, because of the large card volume, airlines can be tough negotiators. "You can bet that the margins on this business are razor-thin" for Nova, Mr. Tomasofsky said.
