Business Services Industry
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
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