United Keen On Renegotiating Co-Brand Card Agreement With JPMorgan

JPMorgan Chase and United Continental Holdings are holding discussions with a view to renegotiating terms of their partnership regarding co-branded cards. According to some analysts this could reduce revenues of JPMorgan Chase. In an earnings call last week, executives of United Continental Holdings indicated that one of the ways of increasing profitability that they have identified focuses on the company’s partnership with the banking giant.

According to the chief executive officer of United Continental Holdings, Oscar Munoz, the airline had put itself at a disadvantage in terms of competitiveness especially in light of the fact that it continues to face threats from low-cost carriers. Munoz also added that the airline was taking measures to turn around the situation.

Earnings call

During the same earnings call, the president of United Continental Holdings, J. Scott Kirby, disclosed that it was renegotiating with JPMorgan Chase and he was of the view the talks would lead to an improved deal.

“It is a great partnership, but it is a disadvantage for us as we sit here today compared with our competitors,” added Kirby.

Two years ago United and JPMorgan announced that they had extended their partnership though at the time details concerning how long the extension would last were not provided. Typically JPMorgan’s co-brand agreements run for a period of between three and yen years. JPMorgan has been the issuing partner of United’s credit cards for three decades now.

Falling rewards costs

With United being one of the largest co-brand relationships that JPMorgan has, a reworking of the agreement terms is likely to have an impact on the card business of the bank as well as growth prospects in the space.

In a recent earnings call, executives of JPMorgan disclosed that rewards costs are likely to decline in this year’s second half as well next year’s. Due to falling rewards costs results are likely to be boosted. According to Compass Point Research & Trading LLC managing director, Charles Peabody, renegotiating terms with United which is one of its biggest partners could however reverse the improvements made by the bank.

Among the big banks, competition for co-brand cards in the travel industry has heated up. Part of the reason why banks compete so hard in this space is because more often than not frequent travelers are usually affluent and have the added bonus of good credit scores. Another reason for the heated competition is the reduced number of airlines after a wave of consolidations.

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