American Airlines eyes exclusive credit card deal with Citigroup over rival bank Barclays

American Airlines is in advanced talks to establish Citigroup as its sole credit card issuer, potentially ending its partnership with Barclays, a relationship that began after American’s 2013 merger with US Airways, according to a CNBC report.

For months, the airline has been negotiating with banks to streamline its loyalty program, aiming to consolidate its credit card partnerships and boost revenue from its AAdvantage program, individuals familiar with the matter told CNBC.

The goal of this move is to simplify operations and increase the income generated through its loyalty program.

American Airlines, like many other airlines, heavily relies on the revenue from its credit card partnerships to stay financially stable.

These programs allow banks to offer loyal customers miles for their purchases, which in turn generates billions of dollars for the airlines.

During the pandemic, as air travel collapsed, credit card spending provided a lifeline to airlines.

Even as travel demand recovered, growth in card spending has outpaced passenger revenue in recent years.

This makes co-branded card deals essential to an airline's financial strategy, and American is pushing for a more profitable agreement through exclusive partnerships.

American Airlines in a statement said:

Airline credit card deals are a fiercely competitive space, with banks fighting for the opportunity to tap into millions of frequent flyers who generate billions of dollars annually in spending.

In recent years, large brands like American Airlines have been negotiating harder, demanding a larger share of revenue from these partnerships.

At the same time, banks have been facing rising card losses, increased scrutiny from regulators, and higher capital costs, which have made profit margins tighter.

Some banks have stepped away from this sector, while others, like Citigroup, have positioned themselves for long-term deals that can deliver significant returns over time.

American Airlines-Citigroup partnership: What does it mean for Barclays?

American Airlines’ partnership with both Citigroup and Barclays has been an anomaly in the credit card industry, where most companies prefer working with a single issuer.

Since the 2013 merger, the airline has maintained relationships with both banks, renewing their deals in 2016. Under that agreement, Citigroup could market its cards through online platforms and airport lounges, while Barclays was confined to in-flight promotions.

Now, Citigroup seems poised to secure a more lucrative exclusive deal. CEO Jane Fraser has led Citigroup since 2021, and the bank holds a profitable side of American Airlines’ credit card business.

Citigroup customers tend to spend more and default less than Barclays customers, as per the CNBC report.

If the deal goes through, Citigroup would likely sign a contract for seven to ten years, allowing it to recoup costs from acquiring Barclays customers and making the necessary investments.

Regulatory challenges and Barclays' shift

However, regulatory approval is still required for this deal, and there is a possibility that US regulators, including the Department of Transportation, could delay or even block the agreement.

Should that happen, American would likely keep its dual partnership arrangement with Citigroup and Barclays intact.

Barclays, for its part, has been diversifying its portfolio away from airline co-branded cards.

Executives revealed earlier this year that they are focusing on partnerships with retailers and tech companies instead of airlines.

Citigroup, on the other hand, is aggressively pursuing bigger partnerships, aiming to increase profitability in its card business.

"We are always actively working with our partners, including American Airlines, to look for ways to jointly enhance customer products and drive shared value and growth," CNBC quoted a Citigroup spokesperson.

As the negotiations continue, American Airlines is poised for a significant shift in its credit card business, which could reshape the competitive landscape of co-branded airline cards.