Is British Airways dropping Amex for Mastercard? Willie Walsh drops vague hints

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IAG, the parent company of British Airways, announced its 2019 financial results on Friday.  There were no stand-out announcements, which is why we haven’t done a full article on it, except to note that:

Iberia is planning ‘improvements’ to its Business Class product this year and

LEVEL is struggling badly in France

Due to coronavirus, there was no financial guidance given.  A hiring freeze has been put in place and employees will be offered additional time off without pay.  British Airways retains a strong cash position – new product investment will continue and all aircraft due for delivery this year will be accepted and not deferred.

IAG Loyalty forecast

What is happening with IAG Loyalty?

IAG Loyalty, ex Avios Group, gets very little coverage in these results.  This is partly because it is relatively small in the context of the group but also, I think, because the market does not understand it.

The only point flagged in the results presentation – which you can download from here – is the new tie-up with Barclays Premier.

This is a red herring, frankly.  With the best will in the world, the new Barclays Premier relationship won’t amount to much.

For a start, we are looking at a very limited market – initially UK residents earning £75,000+.

Secondly, unlike taking out a credit card, the Barclays Premier deal involves moving your current account banking.  As the well-repeated fact goes, you are more likely to get divorced than move your main bank account during your lifetime.

Thirdly, how big is the Avios-earning potential per client?  During the Barclays Premier trial last year there was a 25,000 mile bonus for signing up.  However, it would be surprising if the on-going incentives are so big once Barclays has you as a customer.  There is likely to be an element of credit card earning, but we have had this via HSBC Premier for many years and it has always been of limited interest.

A quick fag-packet calculation would see 5,000 people opening an account and Barclays pay IAG Loyalty £200-£250 per account to cover the 25,000 Avios.  This would be a £1 million income stream which, frankly, isn’t much in context.  Let’s see.

Will Mastercard get the British Airways credit card deal?

But far more interesting ….. Mastercard

It is difficult to know if Willie Walsh, IAG’s out-going CEO and Chairman, let this slip by mistake or not.  In general, Willie Walsh does not let things slip ‘by mistake’ and there could be a point to it.  Perhaps it was said so that people like me write about it and get a message out.  Who knows?

Anyway …. Willie Walsh said that the CEO of Mastercard “has been in to see me three or four times in the last 12 months, mad keen to do business with us”.

(This is not in the presentation but is in the webcast which you can find on the IAG Investor Relations website.  Registration is required.  It is about 79 minutes in, during the question on IAG Loyalty.)

Why is this interesting?

The EU cap on interchange fees means that American Express no longer has a fee advantage over Visa and Mastercard, although I believe that Amex is still hoping to get the EU to amend the rules to exempt it.  Historically, because Amex received higher fees from retailers, there was more money sloshing around to fund rewards.  This is no longer the case.

Secondly, Amex is, of course, Amex – and comes with all of the issues over acceptability.  No-one walks around with just an American Express card in their wallet or purse.  There is also a Visa or Mastercard, which means that British Airways competes with another issuer – likely to be Virgin Atlantic in the UK – and does not get a 100% ‘share of wallet’.

A deal with Mastercard would allow BA to get a 100% ‘share of wallet’ in terms of credit card spend AND strike a blow to Virgin Atlantic and other Visa / Mastercard loyalty products.

The British Airways American Express cards generate over £1bn per month of purchases.  If switched to a Visa or Mastercard, I can easily see this reaching £2bn per month.  No wonder the CEO of Mastercard is mad keen …..

It is also worth remembering that the Iberia credit card in Spain is a Visa, so Mastercard would be keen to take this bit of business too.

(To put these meetings in perspective, Mastercard has a market cap of $289 BILLION.  This compares to IAG’s £9 billion.  CEO’s don’t usually make ‘3 or 4 visits in the last 12 months’ to see the heads of companies which are just 5% of their size unless a serious deal is being contemplated.)

Accor has just created a template for how this can be done.  The Accor hotel group has just agreed a global deal with Visa as we covered here.  Accor can now approach Visa card issuers in each country in which it is active and strike a co-brand deal on the back of the sweetheart terms it has already negotiated.

A switch from American Express to Mastercard, with the subsequent increase in Avios issuance, would also explain why IAG Loyalty produced such bullish forecasts for growth when it presented during the IAG Capital Markets Day last November.

This is clearly all speculation, of course, but things may be happening ….

(Want to earn more miles and points from credit cards?  Click here to visit our dedicated airline and hotel travel credit cards page or use the ‘Credit Cards Update’ link in the menu bar at the top of the page.)

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Comments

  1. pauldb says:

    AFAIK the interchange fee cap is still only applied to BA-Amex cards because of BA branding on the card itself. I can’t believe it is above the wit of BA and Amex to create a loyalty system that doesn’t foul these rules and gains them more through extra fee income than it losses in loyalty value from the card not carrying the BA logo.
    For example, why not offer a “BA pack” for an Amex Gold card which: if the cardholder elects for auto conversion of MR>Avios they get a premium conversion rate and a 241 voucher scheme, perhaps with a buy-up card fee. Customer still associates their spending with BA and app/website can still be branded.

    • I need to be careful what I say here, but you are not the first person to have that idea …..

      The rules DO appear to allow Amex Gold to become ‘the preferred card of British Airways Executive Club members’ and if there is no logo on the card or the statement then it would be fine.

      • marcw says:

        That’s roughly how Amex markets their cards in Spain. Before de VISA deal, Iberia&Amex had a deal. IB went to Visa, cut the earning rates by 50%…

    • But companies love the fact that every time you pick up your card to pay, you’re looking at their logo. Rightly or wrongly, they believe this is highly effective marketing.

      • I think the lure of an extra 1%+ in interchange would change their mind ….

        On the BA Amex we would be talking over £100m extra per year in income ….

        • Up to a point. But remember, BA aren’t running a credit card business. Their only interest in credit cards is as effective marketing tools, so you do need to look at things through that lens.

          Of course, it *is* possible to engage with customers through a credit card deal *without* having the logo on the card. I just don’t really see it being BA’s first choice.

          • Perhaps the AMEX card that BA would prefer customers to have might be subtly designed in blue and red with a “flying theme” – perhaps branded AMEX Miles… might get round the advertising piece…

  2. “The British Airways American Express cards generate over £1bn per month of purchases. If switched to a Visa or Mastercard, I can easily see this reaching £2bn per month.”

    is that a gut feel, or is there history to suggest a doubling of spend ?

    i only had my Amex card turned down once last month !

    • Gut feeling, but based on the fact that many people have substantial one-off payments which go onto Visa / MC at places where Amex is not accepted. There is also spend from times where you go out ‘light’ (eg just put a card into your pocket and leave your wallet behind) and that card is never an Amex because you don’t want to get stuck.

      • Business travelers going abroad (particularly to the medium or below HDI countries) will always be stuck if they have only Amex. Either people not accepting it, lying about not accepting it, or trying to pass the processing fee onto the customer.

        Lagos Continental wasn’t even accepting it last time but that was because of their own issues and incompetence 😀

        • I paid for my car on MasterCard last time, then paid off the card with a loan. They didn’t accept Amex or would have used that.

  3. Shoestring says:

    Got emails confirming my Virgin Miles from shopping at Morrisons are in Pending, so that one triple stacked fine

    • Allycat says:

      +1

    • mark2 says:

      +1 several times quadruple because I got 5 and 10 from Amex.

      • Polly says:

        Great result. Have never been that lucky getting 2 discounts at the same time, for anything.

    • Heathrow Flyer says:

      I got the 8 VS miles/£ +5% AMEX cash back.

      Am I missing something here for the triple stack?

    • Lucky you, if I had 20% off I’d probably buy about 50k in Morrisons gift cards as even 10% is amazing!

      • Shoestring says:

        I’m thinking of buying another £1K of M’s giftcards – £2K bought already and we use a horrible amount of diesel, my wife & I

        the pending emails have given me a bit more confidence & of course 20% off diesel is great

        can I suggest to anybody interested that you get somebody to refer you for the Green card – it’s £60 fee/ year so your referral will largely cover that – then see what offers come in over the next 12 months, I’ve had some great ones incl M’s 10% twice

        • Lady London says:

          Does Rob do a link for the Amex Green Card?

          • Shoestring says:

            it’s the same link as his usual Amex link, because you (the referred person) get to choose whichever card you prefer

        • TonyG says:

          @Shoestring.
          May I ask why you use so much diesel?
          Is it all your long trips to the airport!?

          • Shoestring says:

            5 cars including badass 4X4 🙂

            all true but 2 of them are abroad so don’t count

            seriously, it’s my wife’s commute to work and my taxiing the kids around, esp to the station (they take train to school as we wanted grammar schools)

            though the badass 4X4 is very thirsty, not awful awful as it’s a Toyota but still something rubbish like 28-30mpg

          • Shoestring says:

            I will drive the badass 4X4 to the September HFP meet in Newquay, if you like 🙂

          • 😂 @Shoestring, just as long as the surfboard fits in the back!

        • Madhatter says:

          Well 20% off amazon and others is unheard of so if I was you I’d buy 5k minimum

        • G-bit says:

          You should go electric. I swapped Lexus rx400h for Tesla model 3. My ‘fuel’ bill dropped by 80% and the lease payments are now 0% BIC.

          • Lady London says:

            Did you have to install a new more powerful electricity supply in order to be able to charge the Tesla at home?

            One hotel I stay at near Milan has a bank of about 15 Tesla charging spaces in prime position in their car park. Never seen anything plugged into them but imagining they must have some commercial reason for being there.

    • TonyG says:

      Harry,
      Does pending mean you will receive them?

  4. PrinterElf says:

    The work card is an Amex charge card which, as most of my travel is in Europe, may as well be useless outside the hotel/airport.
    So I’d gladly take out a BA card that’s actually useable everywhere for the work expenses where Amex isn’t accepted (i.e. Most places).

  5. Gareth Jeanne says:

    Does anyone know of an up to date list of BA flight numbers that are flying with the new Club Suite to/from USA? Their are a load of articles online but they all seem quite out of date.

    Assuming there’s still no real way of telling during booking?

    • TGLoyalty says:

      There is a thread on Flyertalk. It changes throughout the year with A350 and 777 refurbs, 787-10 to Atlanta seems to be delayed too.

      • roberto says:

        And yes you can tell at the time of booking by looking at the seat map.

        • Gareth Jeanne says:

          Thanks for the help. Assuming that if I see a 1-2-1 config the CW cabin, with all seats facing forwards, on a 777 then it’s the new Club Suite?

          As an example, BA115 on the 16th June, BA176 on the 23rd June?

          Thanks!

          • Stu N says:

            Yes BUT you can’t guarantee it will stay that way; equipment swaps are common and at the moment there are more 777s with CW than CS. I’d book in hope rather than expectation.

  6. Barry cutters says:

    Off topic .
    My missus has had a work trip to perth cancelled because of corona, I had a flight booked to join her . All booked on Amex .
    Is the insurance likely to pay out For my flight due to my missus trip being cancelled ?

  7. “LEVEL is struggling badly in France”

    After TAT, air liberté, openskies… BA still believes it can have some success in France having its own french airline…

    • Lady London says:

      and AF’s version which was Joon. I think it lasted about one year.

  8. I would be very sorry to see the BA Amex tie up go. I have been a BA Amex customer for a very long time, having never done any of the cancel and reapply tricks to get bonus Avios. I have referred a fair number of people to Amex and got the referral bonuses though. The card is my go-to first and I only use Visa or Mastercard if it isn’t. More and more places accept it as well, even internationally..

    I also think Amex customer service is very good. They take my side when I have had issues with suppliers. They’ve even phoned me up to confirm that it was me that ordered something online, that is proactive card monitoring.

    I always carry the Amex and either the Visa or the Mastercard with me if I am away travelling (I always leave one card in the hotel safe with my passport, just in case) but here in the UK I always carry all 3 cards anyway as i have one of those metal wallets that prevents card cloning.

  9. Tornado says:

    That’s probably good news for Curve 😂

  10. ANDREW WAKEFIELD says:

    BA would be better with a VISA Card, then if Barclays example VISA has Plus System Surcharge Free ATM Network which is big in US.
    Also, Chase US issue British Airways VISA

    • Ricatti says:

      Coupled with Chase plans to open a UK retail bank (digital).

      Then 99% likelihood the Chase will be issuer of BA/Iberia Visa cards in the UK.

  11. Richard says:

    Well, BA doubtless receives very considerable income charged on VISA cards as well, including from less frequent flyers than many on here. So anything it can save on the processing fee that VISA charges BA is all to the good, surely? It’s not unusual for such negotiations to be handled at top level given that they are so big (and the precise percentages agreed are typically highly commercially sensitive). More generally, I always understood that BA and Amex were rock solid on their partnership: both brands have synergies with each other… and BA wouldn’t want an Amex tie-up on the rebound with a competitor eg. with VS/DL or even Emirates.

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