Delta Flexes Muscle in Renewed American Express Agreement

Delta Air Lines and American Express last month renewed their multifaceted relationship, including for their co-branded SkyMiles credit card, and Delta president Edward Bastian bragged during the airline’s fourth quarter earnings call this week that the renewal amounts to a 15 percent improvement in terms for Delta.

Under the previous terms, which were less favorable to Delta than in the renewed agreement, the airline took in some $2 billion in revenue annually from the contract.

Further details about the renewed relationship, American Express’ largest with an airline, emerged from the American Express fourth quarter earnings call yesterday.

The agreement, last renewed in 2008, includes the co-branded card, American Express Membership Rewards, and airport lounges. The renewal will be for six years.

Funded Through Sale of Concur Stake

American Express revealed that its upfront cost in the fourth quarter for the Delta renewal was $109 million — and American Express used part of its $719 million gain in selling its stake in Concur to SAP to fund the renewal with Delta.

“… Often when long-term, co-branded partnerships are renewed, the new agreement will reflect shifts in market economics that have evolved over many years,” said Jeffey Campbell, American Express CFO. “All things being equal, our renewed co-brand agreement will often provide us with lower economics initially than the prior agreement and will be structured to inset growth and generate additional revenues for both parties over time. The magnitude of this reset could be significant depending on the size of each partnership.”

When airlines cite their revenue gains from ancillary services it isn’t all about bag fees and seats with extra legroom. In fact, payments for miles from credit card companies such as American Express are a huge part of the airline ancillary revenue picture.

Paying Delta ‘A Little More’

Along those lines, Campbell said American Express is “going to pay Delta a little bit more money when a Membership Rewards member transfers MR points to redeem a flight on Delta.”

He explained, too, that a previous cap on American Express Membership Rewards customers transferring points into Delta SkyMiles is being removed and this will have a “small” adverse impact on American Express.

“So there are a lot, lot, lot of moving economic pieces to our relationship with Delta,” Campbell said. “So that’s why it’s such an important relationship to them. It’s why it’s such an important relationship to us.”

In addition to Delta, American Express announced it has renewed its agreement with Starwood, as well.

As American Express seeks to renew agreements with other travel industry partners, including JetBlue, you can bet that these new market economics that played out in the Delta-American Express deal will benefit these other partners, as well.