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American Express buys £750 million of Avios and extends its British Airways credit card contract

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IAG, the parent company of British Airways, announced this morning that it has extended its credit card deal with American Express.

In return, American Express has agreed to pay IAG £750 million.  A ‘significant part’ of the £750 million is pre-payment for Avios points which will be used for British Airways credit card rewards and via Membership Rewards redemptions.

This deal is not unexpected.  We have covered several similar deals across the industry recently – see, for example, Hilton’s $1 billion deal with American Express.

It is a win for both sides, as long as the airline or hotel group isn’t expected to implode:

the credit card partner gets to extend its existing relationship on softer terms than could be expected in normal market conditions

the airline or hotel group gets a large upfront cash payment to ease its liquidity problems

The deal appears to have been brewing for a while.  Back in March, IAG’s Chief Executive Willie Walsh said on a telephone call with analysts that Mastercard was very keen to do a global deal with the group.  This appears to have been a signal to American Express that it could have problems if it didn’t get its cheque book out.

American Express has also had its partner problems in recent years, primarily over the loss of the global Costco credit card contract.  Each loss leads to a hit to the American Express share price and it has got very nervous about losing additional partnerships.  IAG was in a very strong position to extract a good deal.

American Express has paid for a large percentage of the contract in advance.  The BA Amex cards do over £1 billion per month in billings.  Let’s assume £1.25 billion x an average of 1.25 Avios per £1 x 0.8p per Avios.

This would see Amex paying IAG £12.5 million per month, plus whatever would normally be paid for Membership Rewards transfers and BA Amex sign-up bonuses – let’s assume a total of £175 million per year.  This would mean that Amex has paid for four years of Avios upfront.

Why did IAG sign a new American Express deal?

What is more interesting is why IAG wanted to do this, apart from the fact that the £750 million will come in handy.

The bottom line is that Amex could pay and Mastercard probably could not.

Whilst Mastercard could offer a global deal, the problem is that Mastercard is not a card issuer.  British Airways would need to agree a separate deal with a separate bank for each country where it issues cards.  I doubt that Mastercard would be willing to pay £750 million upfront without any guarantee that it would get the money back from whatever banks ended up issuing the cards.

Sticking with Amex does cause strategic issues for BA, however.

The previous American Express contract was meant to cover all IAG airlines.  Since it was signed, however, Iberia, Vueling and Aer Lingus have all launched Visa / Mastercard products.  In the new world of capped interchange fees and – outside the UK – low American Express acceptance, it turned out that Amex didn’t have a lot to offer.

Let’s turn to the UK.  Avios has a strategic problem here.  Marketing people like to talk about ‘share of wallet’.  When talking about credit cards, this is a literal as well as a metaphorical issue.

You cannot survive in the UK with just an American Express card in your pocket.  This means that you are obliged to hold a Visa or Mastercard on top.  With the Lloyds Bank Avios cards closed to new applicants, this is an opportunity for Virgin Atlantic or another travel group to get themselves into your wallet or purse alongside your British Airways American Express card.

It isn’t clear if this new American Express deal includes a carve-out to allow an Avios-branded Visa or Mastercard via another issuer.  There is a workaround at present, as used by Capital On Tap, HSBC, Tesco and NatWest, where a Visa or Mastercard can offer points which are not Avios but which convert to Avios.

This isn’t as effective, however.  Capital On Tap, HSBC, Tesco and NatWest cannot put the Avios logo on their cards, and there are strict marketing rules on how they can be advertised.  Capital On Tap cannot say ‘get our card and earn Avios’ – it has to be ‘get our card and earn Capital On Tap points which can be converted to Avios’ which isn’t anywhere near as snappy.

In general, however, this agreement is good news for HFP readers.  It gives IAG a financial shot in the arm and almost certainly secures the future of the British Airways American Express 2-4-1 voucher for another 5-7 years.  It will also encourage other travel brands to continue to compete for the Visa / Mastercard slot in your wallet.

Here is the full announcement issued to the Stock Exchange this morning:

IAG and American Express extend global partnership 

International Airlines Group (IAG) announces that it has signed a multi-year renewal extending its worldwide commercial partnership with American Express.

Under the agreements American Express will make a payment to IAG Loyalty of approximately £750 million, a significant part of which is a pre-purchase of Avios points that American Express will utilise in the UK and world-wide for its British Airways co-branded cards and Membership Rewards Programme.

IAG Loyalty is a subsidiary of International Airlines Group that offers a wide range of services to IAG airlines and business-to-business clients. These include the Avios reward currency for the British Airways Executive Club, Iberia Plus, Aer Club and Vueling Club customer programmes and loyalty management tools.

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Comments (93)

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

  • FTW says:
    24 Jul24 July 11:37

    The reason why IAG accepted this is that interchange caps clearly still do not directly to this Amex co-brand. In order to make this claim, you need to point the reader to a declaration by a regulator explicitly labelling the BA co-brand card as a four-party scheme. As far as I am aware, the UK regulator does not view BA as a payment service provider, and so this is not the case for now. IAG chose Amex because for the foreseeable future, this was the only way they were getting more than the 30 bps plus issuer cross-subsidy they would receive under a V/MC co-brand.

    If a regulator were to turn around and declare BA a PSP, then all bets are off. It’s unlikely that Amex could win a co-brand from an automotive company, for example, because most of them offer payment services via their lending arms.

    But for now, the share of wallet calculation clearly was outweighed by the higher per transaction fees. Otherwise we would be hearing about continuous loss of co-brands by Amex across Europe, as most European countries have issuers with larger scale than Amex, who could cross-subsidise the co-brand partners from lending revenues to a much greater extent than Amex ever can (due to mortgage income, wealth management income, other fees etc.)

    • Rob says:
      24 Jul24 July 12:55

      Court says it does apply but Amex is still appealing.

      On some definitions HFP makes it a four party scheme as we are an introducer.

      • TGLoyalty says:
        25 Jul25 July 10:52

        With UK leaving the EU they will be free to over turn any EU ruling/not implement it into uk law.

        As the UK didn’t intend for Amex to be affected by this it could happen.

        • Spk says:
          25 Jul25 July 12:52

          Why would they intend for reducing charges for all credit cards but retain an exemption for Amex?
          From what I read the 3 party / 4 party definition was due to the way the lawmakers tried to define credit card payment services.

          • TGLoyalty says:
            25 Jul25 July 22:59

            Because the action was meant to guard against the oligopoly that’s Visa and MasterCard have on the card payments business

            Amex’s true 4 party relationships business was absolutely tiny in comparison.

          • Charlieface says:
            25 Jul25 July 23:28

            It was badly drafted. The government sided with Amex in court, but had to go to ECJ for approval.

  • Aston100 says:
    24 Jul24 July 11:49

    I’ve noticed a couple of local retailers have suddenly started accepting Amex in the last few months (since Covid). This is good news for me.
    Now if only B&Q, the RAC, KFC and a few other acronyms would accept Amex, it would be even better.

    • Cam says:
      24 Jul24 July 12:03

      Indeed – very pleased to use my Amex at a local shop yesterday that previously only accepted Visa/MC, and pick up a ShopSmall discount as well.

    • Hugh Jardon says:
      24 Jul24 July 12:23

      Good for Amex, as Costco was a big loss for members. My cricket club takes Amex, though.

    • Anna says:
      24 Jul24 July 13:05

      You can buy B & Q gift cards at supermarkets using Amex for payment. I do this regularly as OH is a keen DIYer!

      • TonyG says:
        24 Jul24 July 15:35

        Hi Anna,
        I am interested in this as I’ve heard that the quality at B&Q is not great for the price. Do you feel its true compared to other shops?

        • tony says:
          24 Jul24 July 15:59

          B&Q is owned by the same folk as Screwfix (Kingfisher)

          Screwfix accept paypal.

          So if you want B&Q type DIY stuff and use an AMEX card, I’d suggest looking at Screwfix first.

          • Lady London says:
            24 Jul24 July 21:10

            +1 Screwfix manage their stocks better in tsrms of counting in snd out. Just had a big disappointment with B&Q who showed 4 items im stock (3 is my level at or beliw which I regard as risky to believe). Did a 40- mile detour off another journey to collect. Nope. Stock on hand 0. So a wasted trip.

            Staff told me sold items did not reduce stock levels as tbey go through the till – prerty shocking these days – not even updating overnighr.

            B&Q Staff said only on a manual stock count with barcode reader updatea stock on hand that you will see available online. For my item which is a steadily selling item they said it might mot have been updated for 2 months.

            B&Q staff were not even that apologetic. Never had that problem with Screwfix. Only problem with Screwfix is they twice tried to sell me spoiled (part used by another customer sho had returned it) or out of date items. So the item showing avilable in Screwfix will be tbdre, but check its quslity and expiration date as it”s handed to you over the counter.

            Wickes has upped their game on Click & Collect too.

          • Charlie says:
            24 Jul24 July 22:18

            Toolstation accept Amex, and they have a very similar range of DIY goods as Screwfix. I always try Toolstation first.

          • memesweeper says:
            25 Jul25 July 06:43

            +1 for toolstation — the cheaper screwfix clone

          • Bagoly says:
            26 Jul26 July 21:42

            I think the family which set up Screwfix sold out to B&Q with a non-compete agreement.
            When the NCA expired they set up Toolstation, so one would expect it to be less corporate and better.
            Although they have since sold Toolstation to Travis Perkins…

        • Anna says:
          24 Jul24 July 17:28

          I’d have to ask my OH but he is quite fussy and always seems happy with his purchases. He does use Screwfix a lot as well!

      • Hugh Jardon says:
        24 Jul24 July 19:45

        I like DIY as well, tend to avoid N&Q but use my own tools mostly.

    • RTS says:
      24 Jul24 July 16:36

      complete savings… if you know, you know…

  • WillPS says:
    24 Jul24 July 11:50

    It’d be interesting to know how many Avios points £750m buys.

    Is it possible Amex will have paid 0.3p or less per mile? If not, how do they intend to make a profit, particularly on the free version (given travel cards tend to earn less in interest)?

    I get that they are nervous to lose partners, but surely when there’s no point running a card which loses money with every £ spent?

    • Rob says:
      24 Jul24 July 12:53

      0.8p is more like it.

      • WillPS says:
        24 Jul24 July 14:13

        So, unless this appeal changes anything, they’ll lose at least half a penny on every pound spent on the free card.

        Where do they make that back? Interest and late payment charges?

        • memesweeper says:
          25 Jul25 July 06:45

          yes, but I suspect they are expecting to win the appeal.

          if they loose with no further appeal possible you may find there is an early ‘get out’ clause in the renewal they’ve just agreed with BA

    • Secret Squirrel says:
      24 Jul24 July 16:32

      Doesnt Amex make lots of money on fees charged to shops?

      • memesweeper says:
        25 Jul25 July 06:46

        on ‘co-brand’ cards, not nearly as much as it used to, subject to appeal

  • Mikeact says:
    24 Jul24 July 12:00

    I assume this Amex UK we are talking about as it’s £750 million quoted…seems a lot of money, bank rolled by the US maybe ?
    And assuming it’s paid in one lump sum, what on earth would their total holding be ?
    The mind boggles at the number of Avios they now have to play around with… meanwhile, I’ve still got to wait until I satisfy the criteria for another bonus.

    • Rob says:
      24 Jul24 July 12:51

      BA Amex does over £1bn per month, so let’s assume 1.5 billion Avios issued at 0.8p = £12 million. The £750m must cover almost the full contract – Nick mentioned 7 years in the comments.

    • Secret Squirrel says:
      24 Jul24 July 16:33

      Lets hope we get some nice Avios bonus offers! 😉

  • Sina says:
    24 Jul24 July 12:51

    I was looking at the Amex US website, has anyone applied and got a U.S. Amex? Such as the platinum or the Hilton Aspire?

    Apparently they have a service that you can use to apply for the cards by your UK credit score!

    • Harry T says:
      24 Jul24 July 12:57

      Amex Global Transfer. You theoretically need a US bank account and residential address.

      • Raphael says:
        24 Jul24 July 13:31

        It’s not just theoretical. You have to pay off the US Amex by linking a bank account, you don’t pay it off with a debit card like in the UK.

        • Sina says:
          24 Jul24 July 13:41

          I do have a bank account in the U.S and can use my frien’s address?! Is it that easy?

        • Harry T says:
          24 Jul24 July 14:08

          Good point, I only said theoretically because I’ve not done it myself.

          • Joe says:
            24 Jul24 July 19:52

            You can get a US HSBC Premier card (0 fx) with zero link to the US as HSBC have a Premier one place – Premier everywhere policy.

            You can qualify by income alone through HSBC Expat if you earn more than £100k.

            I’ve done this so I know it works. I live in Switzerland so need a non-Amex.

    • Airfarer says:
      24 Jul24 July 14:00

      Perhaps a Social Security number too?

    • John says:
      25 Jul25 July 05:25

      The UK doesn’t use credit scores. But you have an internal amex credit rating. Basically if you pay on time and have a verifiable reason to get another country’s Amex they should give it to you.

      • J says:
        25 Jul25 July 08:26

        Not true as far as Germany goes. I was initially rejected for a German Amex despite having UK Amex account with 10+ years good standing. Amex told me they run and score as separate companies. After a year and with a good Schufa (credit score) I was accepted for a German card. But Amex and credit card acceptance generally in Germany is extremely low vs the UK or NL.

        • John says:
          25 Jul25 July 09:22

          Ok, thanks for info.

        • RussellH says:
          25 Jul25 July 14:24

          Germany is still very much cash or Girocard (locally issued debit card) only. The card may carry a V-Pay or Maestro logo, but that is primarily for payment outwith Germany.
          Debit card does not carry Visa or M/C number on it either, nor a CVV, so you do not pay online with it.
          Normally set up a direct debit authority which is only valid for the transaction in hand.
          I read that Amazon initially found it difficult to get their head around that one!

        • Charlieface says:
          25 Jul25 July 23:31

          But were you using Global Transfer?

        • Bagoly says:
          26 Jul26 July 21:48

          But Diners Card acceptance is much higher in Central Europe than Amex.
          There are six different Diners cards in Germany, including the delightfully named Diners Club Vintage Card.

  • Coucou says:
    24 Jul24 July 14:03

    Should we expect a BA PP Amex refresh on benefits etc similar to Platinum?

    • RWJ says:
      24 Jul24 July 21:14

      Very unlikely I think. People aren’t going to rush to cancel like with Plat as there’s a year on year bonus in the 241

  • rk says:
    24 Jul24 July 14:06

    Hi Rob, further to your article for single travelers the other day, is there any scope or traction for BA/Amex to address the incentive for single traveler market, the 2-4-1 is great but not for the many single travelers, who would prefer a 50% reduction in Avios required for a redemption for example.

    Virgin have scored an own goal (IMHO) by not allowing travel in any class, and surely would have captured further market share by offering this.

    • Blenz101 says:
      24 Jul24 July 15:46

      I doubt there will be anything ever to incentivise solo travel. The 241 encourages travel with your partner/companion so by its very nature this is leisure travel.

      Most business travel is a solo affair or perhaps travelling with colleagues (with whom you are unlikely to be spending or pooling your personal Avios with). So there is a risk of losing potential full fare flights here if those outside of large corporates saw BA incentivising redemptions in this way.

      They also get to collect two sets of surcharges for each voucher redeemed to do get a chunk of cash even for the second traveller.

      Solo travel for leisure for the demographic BA and Amex target I would imagine to be fairly niche in any event.

      • Nick_C says:
        24 Jul24 July 15:58

        And yet the partnership with Lloyds provided an upgrade voucher which could be used by two people one way or a solo traveller return.

        Avios availability means it’s unlikely to be much use to people who would otherwise be buying a business class ticket.

        And of course the redemption fees are now so high on long haul that some people prefer to buy a discounted business class ticket!

        So I don’t see why the Lloyds Upgrade Voucher idea couldn’t be resurrected. That voucher had less value that the 241.

        • Blenz101 says:
          24 Jul24 July 16:15

          I didn’t say last minute ticket, I just don’t think it would likely create a reason for SMEs on solo travel to trade shows or conferences etc. a strong reason to consider using their Amex earned Avios to use them for that flight vs. the current system of saving up and travelling with a partner on a leisure trip and allowing BA (with 2x fees collected).

          The current proposition is a very clear and BA/Amex would be crazy to mess with it.

    • memesweeper says:
      25 Jul25 July 07:05

      BA have many credit card deals in territories around the world, some some with Companion Vouchers. None, AFAIK, other than the Lloyds Avios, came with an upgrade voucher. So I think it’s unlikely.

  • Save East Coast Rewards says:
    24 Jul24 July 17:22

    “You cannot survive in the UK with just an American Express card in your pocket” I’ve had times when I lived in London that I could go months and months without needing to use an alternative to Amex. I could definitely ‘survive’ without another card.

    I’m in Italy now and it’s a different matter. I’ve never had to use a card in shops as all the places that accept cards work with contactless so I use Apple Pay (more secure as merchant doesn’t get real card number) but very few places take Amex. So London, I’d get by on Amex just fine if I had to, rest of the UK I’m sure I could ‘survive’ with just Amex, outside the UK, probably not.

    • Lady London says:
      24 Jul24 July 21:21

      Is Google Pay or Samsung Pay any better?

    • Spaghetti Town says:
      25 Jul25 July 10:28

      You wouldn’t get by with Amex in Wales. You would be buying from chain shops all the time.

      It’s not surprising that Amex is taken everywhere in London, it’s a global city.

      • Callum says:
        25 Jul25 July 13:59

        I can, and do, get by very easily just with an Amex. The vast majority of my spending is in chain stores, surely many other people are the same.

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