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. Secret Squirrel says:

    If this were to go ahead, I can see opps for avios gains but worried about that 241 Companion Voucher.

  2. Andrew (@andrewseftel) says:

    Seems unlikely to me – look at the Mastercard issuers in the UK:

    HSBC: Possible – they have more capital than they know how to use – but doesn’t fit their strategy
    Creation: They don’t have the capital to fund it and I don’t see BNP chipping in
    NewDay: Management is averse to travel partnerships and capital issues but I think they could get through it
    Virgin: Clearly not
    Marcus: Probably the most likely but would have expected them to be focused on Apple
    Capital One: Not interested in a prime book in the UK

    The issuers who I find more credible are all Visa: Barclays, Jaja and Chase

    • Lloyds (Avios) Mastercard?

    • Andrew says:

      NatWest issue Mastercard under both their main and RBS white label brands don’t they?

      TSB also issue Mastercards – before worrying about capital, not sure if their IT is quite up to it yet though.

      • Andrew (@andrewseftel) says:

        Natwest are a Mastercard issuer and did indeed have the BA partnership (on Visa) at the turn of the century. I don’t think they’ve done a cobrand partnership in the past decade though.

        • Will Squires says:

          And have some recent dealings offering Avios via their Rewards products.

          It’s a fair shout.

  3. I walk around with only an Amex in my pocket 🤣

    • Me too, but only in the UK. But again, that is probably in the last 2-3 years. Before then Amex acceptance in small shops wasn’t great.

    • TGLoyalty says:

      Much easier when you have a apple/google etc pay enabled Phone

      • An Amex on Apple Pay doesn’t seem to work in Asda for me. I’ve tried a couple of times

        • Amex doesnt work on contactless in (my) Asda, so perhaps the same issue with Apple Pay.

          • Nick_C says:

            Amex doesn’t work as contactless in Wilko either

            And contactless in Aldi seems to have been tightened up. I have previously paid £60 as Amex contactless, but had to use chip and pin last week.

  4. marcw says:

    WW also said that they are extremely happy with Amex. I think the MasterCard deal has to do with markets where they currently operate with Visa (Spain, US) – and may switch to MasterCard.

  5. Matthew says:

    When did you say the Barclays Premier deal will be back again Rob? Will prob wait and switch then for the avios.

  6. David Lawton says:

    I presume there would be a transition period if this happens where both cards run for a while, a bit like how Lloyds Avios was slowly phased out? If Virgin can currently offer the same as BA but with Mastercard then i see no reason BA cannot, the 100% acceptence would be very welcome as i currently use the Tesco Mastercard where i cannot use Amex, but i will miss Amex as it is my favorate card. Really good limits, shop small, the offers, long period between statement and payment date and balance available to spend immediately once balance is paid off and the app/website is great.

    Dreaming here but wish it would be an extra scheme like the Lloyds one that is Avios branded not BA which runs along side so we can have 2 earning avenues.

  7. Ricatti says:

    Mastercard might be interested in the US business of IAG, to take it out of Chase Visa hands.

    • marcw says:

      I agree completely. It’s unrelated to the Amex deal in the UK.

    • David says:

      Agreed. BA already has a major tie up with a Visa issuer- just not in the U.K.

  8. In South Africa, the BA card is a MasterCard, issued by Absa – ie Barclays.

  9. Nick_C says:

    Lloyds losing Amex was manageable, because they could retain customer with an Avios Mastercard. Amex would struggle to retain customers if they can no longer offer the 241 voucher. OTOH, they could offer a generic Amex Traveller card offering a choice of redemption schemes; a reworking of Amex Gold. The upside for Amex would be that a non branded card would not be capped.

    If Amex lose BA, they will have to work hard to retain customers, as a two year break would look attractive to many more people.

  10. Doog1000 says:

    OT – hotels.com seems to have disappeared from the tesco club card website – does anyone know if this is a permanent thing?

    • BlueHorizonuk says:

      Someone said earlier that Tesco was having difficulties with the codes and so had removed it for the time being

      • Lady London says:

        Could Tesco have another reason to temporarily suspend outflows of cash to hotels.com.

    • Andrew says:

      It’s still on the interstatial app screens, but dropped from the purchase areas.

    • Heathrow Flyer says:

      On Tesco Twitter it says ‘We are hoping to have this back up on the website again shortly, but i’m afraid there isn’t an ETA for this. We do understand this is an inconvenience but thank our customers for their patience.’

    • the_real_a says:

      This is what happened to Red Spotty Hanky before it was pulled permanently…

  11. Lady London says:

    I regard that prepared comment by WW as a crass, unsubtle attempt to keep Amex on their toes in the relationship. Doubtless MC deal will come but actually Visa needs it more in the UK.

    • ChrisC says:

      Bit like the letter of intent to order the 373 MAX then – more to poke Airbus into speeding up deliveries.

      WW basically admitted that was the case.

      • Lady London says:

        Quite.
        Always look at why they’re saying it.
        I keep thinking for so many public statements “Well they would say that, wouldn;t they” – Mandy Rice-Davies’s famous words.

        At analyst presentations the answers to questions are at least as scripted beforehand as the presentations themselves.

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