American Airlines in Discussions to Choose Citigroup Over Barclays for Key Credit Card Partnership, Sources Say

American Airlines is reportedly in talks to make Citigroup its sole credit card partner, replacing Barclays in a move that would end a long-standing partnership dating back to the 2013 merger with US Airways, according to sources familiar with the matter.

The airline has been negotiating with banks and card networks for months, aiming to consolidate its business under one issuer to maximize revenue from its loyalty program, the sources said. Talks are still ongoing, and the timeline for a potential agreement, which would need regulatory approval, remains uncertain.

Co-brand credit card deals with airlines, retailers, and hotel chains are highly competitive, as they offer banks access to millions of loyal customers who spend billions annually. However, the financial terms of these deals are crucial to profitability for both the bank and the brand involved.

In recent years, major brands have been pushing for better terms, demanding a larger share of the revenue generated from interest and fees. At the same time, banks have been pushing back, citing tighter margins due to rising card losses, increased regulatory scrutiny, and higher capital costs.

For airlines, credit card partnerships are essential, bringing in billions annually from banks in exchange for miles that customers earn through card spending. These deals were particularly important during the pandemic, when travel demand plummeted but cardholders continued to earn miles through purchases. In recent years, growth in credit card spending has outpaced passenger revenue for many airlines.

Although American Airlines claims to have the largest loyalty program, it was out-earned by Delta last year, which made nearly $7 billion through its American Express partnership, compared to American’s $5.2 billion from its card agreements.

In a statement, American Airlines said, “We continue to work with all of our partners, including our co-branded credit card partners, to explore opportunities to improve the products and services we provide our mutual customers and bring even more value to the AAdvantage program.”

However, regulatory hurdles could potentially delay or block a deal between American Airlines and Citigroup. If a deal is reached, it would end the unusual dual-issuer arrangement that American maintained following its 2013 merger, which involved both Citigroup and Barclays. While Citi marketed its cards through online, direct mail, and airport lounge channels, Barclays was limited to in-flight solicitations.

In the current renewal negotiations, Citigroup appears to have an advantage over Barclays. Since Citigroup customers typically spend more and default less frequently, the bank has had a more profitable relationship with American. A new contract, likely to span seven to ten years, would allow Citigroup to recover the costs associated with transferring Barclays’ customers and other investments.

Citigroup, under CEO Jane Fraser since 2021, has been pushing to enhance its credit card business, seeking larger deals to boost profitability. “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,” a Citigroup spokesperson told CNBC.

Meanwhile, Barclays has indicated to investors that it is looking to diversify its co-branded card portfolio, moving away from airline partnerships and toward deals with retailers and tech companies.