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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.

Avios wing 5

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 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 ….

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Category

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Comments (146)

This article is closed to new comments. Feel free to ask your question in the HfP forums.

  • Ricatti says:
    2 Mar2 March 09:44

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

    • marcw says:
      2 Mar2 March 10:11

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

    • David says:
      2 Mar2 March 12:30

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

  • signol says:
    2 Mar2 March 10:04

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

  • Nick_C says:
    2 Mar2 March 10:22

    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.

  • Doog1000 says:
    2 Mar2 March 10:40

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

    • BlueHorizonuk says:
      2 Mar2 March 10:53

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

      • Lady London says:
        2 Mar2 March 11:06

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

    • Andrew says:
      2 Mar2 March 11:07

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

    • Heathrow Flyer says:
      2 Mar2 March 11:20

      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:
      2 Mar2 March 13:04

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

  • Lady London says:
    2 Mar2 March 11:08

    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:
      2 Mar2 March 13:44

      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:
        2 Mar2 March 15:03

        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.

  • pauldb says:
    2 Mar2 March 11:19

    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.

    • Rob says:
      2 Mar2 March 12:38

      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:
        2 Mar2 March 13:23

        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%…

    • Roy says:
      2 Mar2 March 18:01

      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.

      • Rob says:
        2 Mar2 March 18:16

        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 ….

        • Roy says:
          2 Mar2 March 19:08

          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.

          • Nick says:
            3 Mar3 March 07:55

            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…

  • ADS says:
    2 Mar2 March 12:31

    “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 !

    • Rob says:
      2 Mar2 March 12:35

      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.

      • Anon says:
        2 Mar2 March 14:00

        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 😀

        • P says:
          2 Mar2 March 19:48

          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.

  • Shoestring says:
    2 Mar2 March 12:47

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

    • Allycat says:
      2 Mar2 March 13:07

      +1

    • mark2 says:
      2 Mar2 March 13:15

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

      • Polly says:
        2 Mar2 March 20:10

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

    • Heathrow Flyer says:
      2 Mar2 March 14:05

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

      Am I missing something here for the triple stack?

      • Heathrow Flyer says:
        2 Mar2 March 14:25

        Sad to see The Book People go. They’ve been a regular in various offices I’ve worked at over the years.

      • Sussex Bantam says:
        2 Mar2 March 16:11

        Ah – I was wondering why the chap hadn’t been to our office for a while. That’s a shame.

    • Mac says:
      2 Mar2 March 17:10

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

      • Shoestring says:
        2 Mar2 March 17:35

        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:
          2 Mar2 March 18:35

          Does Rob do a link for the Amex Green Card?

          • Shoestring says:
            2 Mar2 March 18:37

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

        • TonyG says:
          2 Mar2 March 18:46

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

          • Shoestring says:
            2 Mar2 March 18:52

            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:
            2 Mar2 March 19:11

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

          • Cat says:
            2 Mar2 March 22:10

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

        • Madhatter says:
          2 Mar2 March 22:22

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

        • G-bit says:
          3 Mar3 March 07:55

          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:
            3 Mar3 March 20:16

            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:
      2 Mar2 March 17:26

      Harry,
      Does pending mean you will receive them?

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