By AnnaMaria Andriotis and David Benoit
For about three years, Al Sanzari carried two JPMorgan Chase
& Co. credit cards: a United Airlines card and the Sapphire
Reserve.
He canceled the United card in March. The Sapphire card doles
out more points for travel and dining, and he likes that he can
redeem them for a variety of rewards -- including United
flights.
"There wasn't anything the United card was doing for me that the
Chase Sapphire Reserve couldn't," said Mr. Sanzari, a 29-year-old
nutrition coach and personal trainer.
JPMorgan's Sapphire Reserve has been a huge hit with frequent
travelers and big spenders since its launch nearly three years ago.
That is a problem for United Continental Holdings Inc., which wants
those same customers to sign up for and spend on the airline's
credit cards.
For JPMorgan and other banks, promoting their own branded cards
while keeping airline partners happy is a tough balancing act.
Banks in recent years have tripped over each other to lure big
spenders with ever more generous rewards. At the same time, they
are trying to stay in the good graces of their airline partners,
which have come to rely on the revenue from their card deals with
banks.
United executives have told JPMorgan they believe the Sapphire
Reserve card is competing directly with the airline's cards and
siphoning off customer spending, according to people familiar with
the matter.
While the deal lasts for another six years, according to people
familiar with the matter, United President Scott Kirby has said
publicly that the airline has had tough conversations about the
JPMorgan partnership and wants to get more money out of it.
The airline has asked JPMorgan to pay it more for miles, among
other things, according to people familiar with the conversations.
JPMorgan, meanwhile, insists the cards aren't direct competitors
and believes the airline should be doing more to earn traveler
loyalty, the people said.
"This is a solid, longstanding relationship, and we're working
together to find new ways to grow our partnership for years to
come," the companies said in a joint statement to The Wall Street
Journal.
At least half of airlines' cash earnings in the next five years
will come from the sale of miles to card issuers and frequent
fliers, according to estimates from Stifel airline analyst Joseph
DeNardi.
"When you talk to the card issuers, the general sense is the
balance of economics is generally skewed in [favor] of the
airlines, and if you talk to the airlines they say 'we have more
room to go,'" said Mr. DeNardi.
JPMorgan and United have been partners since 1987. Today, it
issues five cards for the airline with different rewards
structures.
When the bank launched Sapphire Reserve in 2016, applications
for the United cards slowed, according to people familiar with the
matter. United executives were unhappy, the people said. Among
their complaints: JPMorgan was offering a more generous sign-up
bonus for Sapphire Reserve than the United cards, the people
said.
JPMorgan pays United for the miles cardholders accrue. The
airline gets paid before customers book flights, and a portion of
the miles is never redeemed. United also gets a cut of the swipe
fees merchants pay when customers use the cards.
It works differently with Sapphire Reserve. Customers collect
points they can use to buy tickets on a number of airlines,
including United, through the bank's Ultimate Rewards website.
JPMorgan then buys the tickets from the airline when cardholders
redeem their points for a flight. It doesn't share the swipe
fees.
Sapphire Reserve points are worth 50% more when used to book
travel, making the card particularly attractive to frequent
travelers who aren't loyal to a particular airline.
The perks on airline cards have been enhanced in recent years to
better compete with banks' premium offerings. Some United and
American Airlines cards, for example, added 2 miles per dollar
spent at restaurants last year.
Airline cards "have felt the heat from bank cards," said Brian
Kelly, founder and chief executive of rewards website The Points
Guy.
Airlines still have plenty of leverage with the banks. A series
of mergers that created a few mega-airlines in the U.S. has
strengthened their hand.
When Delta Air Lines Inc. renewed its card partnership with
American Express Co. earlier this year, the airline said it
expected its financial benefit from the deal to double to nearly $7
billion annually by 2023. Delta is AmEx's largest card partner,
accounting for some 21% of its world-wide credit-card balances at
the end of 2018.
Citigroup Inc. and American Airlines Group Inc. also are
discussing possible changes to their card benefits, according to
people familiar with the matter. One of the issues that has come up
over the course of the partnership: Citigroup wants its customers
to be able to transfer American miles to its Prestige credit card,
according to people familiar with the matter. American hasn't
historically allowed for that.
Banks say there is room for both airline and premium cards in
consumers' wallets.
Kristi Fergason charged nearly all her expenses on her United
Airlines credit card for about 16 years. That changed when she
signed up for Sapphire Reserve shortly after it rolled out.
Ms. Fergason, 49, moved most of her travel and dining expenses
-- about a third of her card purchases -- to Sapphire Reserve for
the extra points. She uses the United card for almost everything
else.
She also uses Sapphire Reserve points to book airfare on United
and Southwest Airlines Co., to rent cars and for hotel stays, a
strategy she employed for a recent family trip to Wyoming, South
Dakota, Arizona and Nevada.
"Hotels, rental cars, cruises and all restaurants used to go on
the United card, but now go on the Sapphire Reserve," she said.
Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com and
David Benoit at david.benoit@wsj.com
(END) Dow Jones Newswires
June 27, 2019 05:44 ET (09:44 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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