American Airlines is considering partnering with Citigroup instead of Barclays for a significant credit card agreement.

• According to sources, American Airlines is currently in discussions with Citigroup to become its exclusive credit card partner, ending its longstanding partnership with Barclays, which began in 2013 after the airline's acquisition of US Airways.
• For months, American has been negotiating with banks and card networks to consolidate its business and increase its revenue from cards, according to sources.
• Airlines make billions from their loyalty programs and co-brand credit card deals.

The airline is in discussions to choose a new exclusive credit card partner, ending its partnership with the rival issuer that has been in place since the airline's 2013 acquisition of US Airways, according to sources.

For months, American has been collaborating with banks and card networks to establish a long-term agreement, with the objective of merging its business with a single issuer in order to increase the revenue generated from its loyalty program, according to sources.

The timing of an agreement, subject to regulatory approval, is uncertain, according to unnamed sources who discussed a confidential process.

Co-branding deals between banks and airlines, retailers, and hotel chains are highly competitive negotiations in the industry. These partnerships provide banks with a captive audience of millions of loyal customers who spend billions of dollars annually. However, the specifics of these arrangements can significantly impact their profitability for both parties.

In recent years, big brands have been pushing for larger revenue shares from interest and fees, while banks have been pushing back or exiting the space due to tight profit margins resulting from rising card losses, regulatory scrutiny, and higher capital costs.

Airlines generate billions of dollars annually from banks through card programs, with customers earning miles for using their cards. These partnerships were vital during the pandemic, as travel demand decreased but consumers continued to spend and accumulate miles. Airlines have reported that the growth in card spending has surpassed that of passenger revenue in recent years.

American may have the largest loyalty program, but it was out-earned by there, which made nearly $7 billion in payments from its card partnership last year, compared to $5.2 billion for American.

American Airlines stated that they are still collaborating with all their partners, including co-branded credit card partners, to discover ways to enhance the products and services they offer to their shared customers, thereby increasing the worth of the AAdvantage program.

Delays, regulatory risk

The possibility of objections from U.S. regulators, including the Department of Transportation, delaying or even canceling a contract between American Airlines and Citigroup remains, keeping the current arrangement with Barclays intact, according to a source.

If the partnership between American and Citigroup is terminated, it would end an unusual collaboration in the credit card industry.

American Airlines retained Citigroup as its card issuer after merging with US Airways in 2013 and also added Barclays as a card partner of US Airways.

In 2016, American renewed its relationships with both banks, granting each specific marketing channels for their cards. Citi was given permission to promote its cards through online marketing, direct mail, and airport lounges, while Barclays was limited to on-flight solicitations.

'Actively working'

In the past year, when the relationship was due for renewal, Citigroup had a stronger position to secure the contract over the smaller Barclays.

Since 2021, Citigroup has been run by CEO Jane Fraser and their customers tend to spend more and have lower default rates compared to Barclays customers, according to one source.

A renewal contract for any bank is likely to be between seven to ten years, allowing Citigroup to recover the costs of transferring Barclays customers and making other investments, according to a source. Banks typically earn the majority of their profits from these arrangements in the latter half of the deals.

Fraser has been encouraging Citigroup to increase its ambitions in the card business with the help of other large partnerships, according to sources.

Citigroup is constantly collaborating with partners, including American Airlines, to improve customer offerings and increase joint value and growth, as stated by a Citigroup spokesperson to CNBC.

Earlier this year, Barclays executives informed investors of their plan to diversify their co-branded card portfolio by reducing their partnerships with airlines and increasing collaborations with retailers and tech companies.

Barclays declined to comment for this article.