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.
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.
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 points from credit cards? – June 2021 update
If you are looking to apply for a new credit or charge card, here are our June 2021 recommendations based on the current sign-up bonus.
You can see our full directory of all UK cards which earn airline or hotel points here. Here are the other top current deals:
British Airways American Express
5,000 Avios for signing up, no annual fee and a companion voucher for spending £20,000 Read our full review
British Airways American Express Premium Plus
25,000 Avios and the UK’s most valuable credit card perk – the 2-4-1 companion voucher Read our full review
American Express Preferred Rewards Gold
Your best beginner’s card – 20,000 points, FREE for a year & two airport lounge passes Read our full review
The Platinum Card from American Express
30,000 points and an unbeatable set of travel benefits – for a fee Read our full review
Virgin Atlantic Reward+ Mastercard
15,000 points bonus and the most generous non-Amex for day to day spending Read our full review
Earning miles and points from small business cards
If you are a sole trader or run a small company, you may also want to check out these offers.
American Express Business Gold
20,000 points sign-up bonus and free for a year Read our full review
American Express Business Platinum
40,000 points sign-up bonus and a long list of travel benefits Read our full review
British Airways Accelerating Business American Express
Earn both Avios and BA On Business points with your business spending Read our full review
Capital On Tap Business Rewards Visa
The most generous Avios Visa or Mastercard for a limited company Read our full review