Customer Service Won't Save Community Banks

by Mercator Advisory Group 0

Citibank’s contract to operate the AAdvantage cobranded credit card program is proving to be a bone of contention as American Airlines seeks to merge with US Airways, and emerge from bankruptcy.

From PaymentsSource:

Since American Airlines parent company AMR Corp. filed for bankruptcy in November 2011, the contract with Citibank to operate the Citibank AAdvantage Program has remained in effect on an interim basis. In a motion filed with a federal bankruptcy court in New York, Citibank requested that the judge overseeing the case require American to make a final decision to continue to honor the contract.

The program itself has significant value as a business and as an asset to the airline, with potential to increase in value:

The AAdvantage program is the oldest and largest frequent flier program in the U.S. It has 69 million members and issued 167 billion miles in 2011, according to regulatory filings. In 2009, Citibank paid AMR $1 billion to prepurchase AAdvantage miles that are awarded to its card holders.

After the American/US Airways merger, the AAdvantage program stands to grow larger with the addition of US Airways’ approximately 30 million Dividend Miles members, though consumers who have accounts with both programs will create some overlap.

The program’s size and value makes it of strategic importance to both Citi and the airline:

As part of the bankruptcy process, a company must decide to assume or reject its outstanding contracts. Citi claims its 2008 agreement with AMR requires it to assume the contract in the event of a bankruptcy filing.

Representatives of both companies emphasize that the situation will not negatively impact program members, and that this is just a procedural step in the bankruptcy process.

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