Compete, Inc. Finds Woes at United Airlines Give Bank One Mileage Plus Visa Cards a Bumpy Ride; Credit Card Consumers' Online Activities Illuminate Bank One's Exposure to United Airlines

Business Wire, June 9, 2003

Business Editors

BOSTON--(BUSINESS WIRE)--June 9, 2003

Bank One is weathering turbulence from waning interest in its traditional mileage rewards credit cards, which is damaging overall growth prospects for its credit card services business and reducing the number of new accounts opened, according to a new study from Compete, Inc. Compete found that interest in the United Mileage Plus(R) Visa(R) cards from Bank One - as evidenced by the online behavior of consumers researching credit cards - dropped sharply from its August 2002 peak. More importantly, credit card applications started by these interested consumers - a better indicator of Bank One's exposure to United Airlines (UAL) - declined, falling 19 percent in the first quarter alone, which was indicative of a 23 percent drop in total new credit card accounts opened across Bank One.

"Bank One's innovative credit card services strategy, which is part of an industry-wide trend to diversify revenues (e.g., the Blue Cash card from American Express), will be critical for Bank One to offset its exposure to the United Airlines card sponsorship," said Justin Merickel, Compete's senior Consumer Banking and Finance analyst. "Although our data show that interest was strong for the new Disney Visa Card from Bank One during its March launch, it is too early to tell if this card will invigorate Bank One's growth prospects by becoming a viable alternative for consumers who are moving away from the more traditional Mileage Plus cards," added Merickel.

In the study, Compete examined the activities of online credit card consumers to determine if their pre-application consideration characteristics have changed since United Airlines announced its financial woes last year and to measure the impact of these changes on Bank One's credit card services business. Compete's findings showed that:

-- Interest in the United Mileage Plus Visa cards from Bank One

has declined sharply since United Airlines reported that it

faced possible bankruptcy last August. The introduction of a

new "More Miles" program this January (offering cardholders

double miles for all purchases charged at restaurants and

home-improvement stores through February) temporarily

rejuvenated interest among credit card consumers. The volume

of interested credit card consumers was short-lived, however,

and continued to slide in February and March down to about 40

percent of its August 2002 level. By contrast, the number of

prospects for Citibank's AAdvantage card actually rose 24

percent from August 2002 through March 2003.

-- In particular, online interest in Bank One's traditional

mileage rewards program waned among young consumers since

United Airlines' financial woes became public last year.

Compete data shows that online consumers aged 25 to 34 years

old now account for 6 percent fewer of all interested

consumers since September 2002 compared to the seven months

preceding United's August announcement.

-- A more telling indication of Bank One's exposure to UAL - new

United Mileage Plus Visa applications started - declined 19

percent during the first quarter of this year. (On a monthly

basis, March's application volume was less than half its

August 2002 level.) Fewer online applications from its core

mileage rewards business was indicative of a drop in all new

Bank One card accounts opened during the quarter, which fell

from a relatively high 1.3 million in the fourth quarter of

2002 down to one million in the first quarter of 2003.

Compete's analysis of online credit card consumers demonstrates that actual online data on consumer activities is a predictive indicator of total demand and illuminates Bank One's exposure to UAL through sponsorship of its credit card. "The success of the new Disney Visa Card from Bank One will be critical to sustaining growth in Bank One's credit card business and offsetting losses in annual net income due to the decline in Mileage Plus applications," added Merickel. Compete showed that the volume of interested online credit card consumers for the new Disney Visa Card was strong during its March launch, garnering about two-thirds as many consumers as the Mileage Plus cards.

Table 1: Compete Finds Changes in Online Mileage Plus Applications
Indicative of Changes in Total New Bank One Card Accounts Opened

                           (Percent Change)
----------------------------------------------------------------------
             Mileage Plus Online Mileage Plus Online   Total New
               Prospect Volume      Application      Bank One Card
                                      Starts        Accounts Opened
----------------------------------------------------------------------
2002: Q4            -20.5              -28                 -9
----------------------------------------------------------------------
2003: Q1             22.2(a)           -19                -23
----------------------------------------------------------------------
(a) Rise due to temporary January uptick during 'More Miles' launch

Source: Compete study and Bank One earnings releases