Credit Cards: Chase and TWA Cancel Their Joint Program

By Kleege, Stephen | American Banker, February 25, 1993 | Go to article overview

Credit Cards: Chase and TWA Cancel Their Joint Program


Kleege, Stephen, American Banker


Chase Manhattan Corp. and Trans World Airlines have quietly pulled the plug on their five-year-old frequent-flier card.

The move, coming amid a proliferation of rebate and discount programs in the card industry, surprised observers.

Airline cards, which award mileage credits to consumers when they buy goods and services, have been viewed by many banks as an effective way to boost charge volume. The Chase-TWA card has been the seventh most widely held airline card.

A Chase spokesman declined to explain the termination, saying only that it was done by "mutual desire" of the banking company and the airline.

No Broad Retreat Expected

Industry experts said they doubted that Chase's move presaged a broad retreat by banks from airline cards. But it does suggest that banks are looking closely at the profitability of these cards, which were pioneered six years ago by Marine Midland Bank and Texas Airlines.

Moshe A. Orenbuch, a bank analyst at Sanford C. Bernstein, said he seriously questions the profitability of airline cards.

Banks earn about 1.3% per transaction in fees charged to merchants when customers use their cards, Mr. Orenbuch said. With the frequent-flier cards, he estimated that revenue is offset by the 0.9% per transaction it costs to buy mileage from the airlines, meaning the banks have to rely on interest income for profits.

In an apparent attempt to limit the costs of its program with United Airlines, First Chicago Corp. capped credits some time ago at 50,000 miles a year, Mr. Orenbuch pointed out.

Greater Profits Elsewhere?

The latest wave of bonus programs - offering rebates on cars and other merchandise - may deliver greater profits to banks, analysts say. Unlike the airlines, automobile makers and other partners in the new plans shoulder some of the rebates' costs. Still, some observers say there's plenty of life left in the cards.

David Robertson, president of The Nilson Report, said for example that Citicorp, which offers a card with American Airlines, and First Chicago both enjoy good volume and profits.

He said financial troubles at TWA may have curbed the desire of Chase cardholders to fly on the airline. Likewise, card programs offering miles on regional carriers may not generate enough volume to be as profitable, he said.

Chase tried to soften the blow to TWA cardholders by offering them standard Chase cards with reduced fees. …

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