United Airlines, Amex Issue Co-Branded Corp. Card

<FONT SIZE="+3"><B>United Airlines, Amex Issue Co-Branded Corp. Card</B>

By Mary Ann McNulty

<I>Chicago </I>- United Airlines is teaming up with National Westminster Bank Plc. to offer medium and large corporations a new payment card that operates on the American Express network.

The new card fills a gap in UA's payment system portfolio, which has until now been limited to the single-purpose Air Travel Card and consumer First Chicago Mileage Plus Card, and provides Amex with its first network card in the United States.

Amex executives have been trying to entice banks around the world to issue co-branded or proprietary cards on the Amex network since May, when chairman Harvey Golub began challenging Visa and MasterCard bylaws that prohibit U.S. issuing banks from also issuing cards of Amex or Dean Witter Discover. At press time, 14 banks around the world-in countries including Brazil, Greece, Israel, Japan, Portugal, Turkey and South Africa-have signed such deals. Not finding any takers here, Amex approached NatWest because the bylaws don't apply to the London-based issuer of both brands. Amex and NatWest then approached United and other airlines.

Continental Airlines is expected to sign a similar deal with Amex by the end of January, sources told <I>BTN</I>.

For corporate customers, the new entrant should allow them to further leverage their buying power in the intensely competitive payment system market. Although it won't look like an Amex card, the card will be accepted at all merchants that accept Amex. Included are all the standard insurance and traveler benefits, as well as the management reporting that Amex offers. Customers will even have access to the Expense Manager automated travel and entertainment expense software, according to Ed Gilligan, president of American Express Corporate Payment Services.

Amex will handle all billing and cardholder issues, while NatWest will issue the cards and lines of credit.

United is still negotiating many of the value-added benefits of the card and hasn't released pricing. For example, the airline is offering partners in its frequent flyer programs an opportunity to extend amenity offers or discounts to cardholders.

United won't offer frequent flyer miles for dollars spent on the card. "However, this doesn't leave out miles entirely," said Joe Laughlin, director of business accounts for the U.S. They could, for instance, be offered as some type of value add by United or its partners.

Customers shouldn't anticipate fare discounts to be linked to the card, Laughlin said. "We've clearly set our objectives. If we were going to get into this business, we should make the card stand on its own economic merits," he said.

Nor is it likely that United will link corporate deals to use of the UA Corporate Card, because use of the United Air Travel Card is a cheaper distribution mechanism for the airline. Billing to its own ATC, United pays only for processing; billing to an Amex card, it pays a merchant discount rate of 2.35 to 2.5 percent of the charge.

"The benefit we bring to the party with this card is centered around the relationship we have with our corporate customers," said United's Jim Goodwin, senior vice president, North America. The corporate market represents more than half of United's $15 billion annual passenger revenues, he said.

Disappointed that UA couldn't respond to requests for proposals from customers seeking a multipurpose payment system, executives began looking at options last year, Laughlin said. The airline issued an RFP to card vendors earlier this year and thoroughly looked at its options.

United and Amex could very well be competing for business on future client RFPs. But Amex vice chairman Jonathan Linen didn't seem too concerned that the new entrant would cannibalize his customers.

"We have a rapidly growing corporate card business, with double-digit growth," Linen said. He also hopes that United is able to capture some of the $50 billion in T&E spend-about one-third of the total spent by U.S. corporations-that Amex estimated doesn't get put on a card. Even if it loses a corporate account to United, Amex still will profit from the volume charged on the card and the fees that United will pay.

Amex also could face increasing competition from MasterCard, which introduced a new family of premium consumer cards that includes the World MasterCard, aimed at business travelers. The card offers no pre-set spending limits, an option to revolve a designated portion of the charges and a travel rewards program. In addition, the card provides access to airline club lounges and a telephone concierge service for travel and shopping. Both Visa and MasterCard recently announced new platinum cards to further compete with Amex's offerings.