Airlines June 9, 2009, 9:55PM EST

Frequent Fliers, Choose Your Card

The merger of Northwest and Delta has two big banks fighting over nearly a million credit-card holders prized for affluence

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With the integration of Northwest Airlines into Delta (DAL), two large banks are tussling over a rare pot of consumer gold: a pool of nearly 1 million of the most lucrative credit-card holders a banker could hope to corral.

By month's end, travelers who collect Northwest WorldPerks frequent-flier miles from US Bank will confront a decision. Should they switch to one of the Delta mileage cards from American Express (AXP) or go with a new "FlexPerks Travel Rewards" Visa card from US Bancorp (USB), whose US Bank unit has offered a Northwest-branded WorldPerks Visa card since 1995? Delta won't award elite qualifying miles, or EQM, for purchases on the current US Bank card after June 30, with all WorldPerks card mileage accrual ending July 17. That means cardholders yearning for a monthly mileage fix must choose.

For the banks, battered by the weak housing market, the recession, and rising credit-card losses, this pool of 800,000 accounts is virtual manna from heaven. Consumers who carry airline-branded cards tend to have higher incomes and credit scores, spend heavily on the cards, and pay off their loans. "Clearly they're a very valuable customer both to the airline and to the bank," says John Owens, US Bank's senior vice-president of retail payment solutions. "They're hooked on the heroin of the frequent-flier miles so they tend to spend accordingly."

Pitching Points Products

The fight over this customer base has been ferocious. Northwest sued US Bank over the FlexPerks card in April, arguing that its name was too similar to the old card and accusing the bank of cutting off its members from WorldPerks miles far before the agreed date in August. That suit was settled a month later, with the parties agreeing to alter some transition dates in the programs' integration. Northwest's frequent-flier program has about 37 million members, although some are also enrolled in Delta's SkyMiles program and likely already have a Delta-branded credit card.

Divorced from its Northwest relationship, Minneapolis-based US Bancorp, like other travel-related card purveyors, is pitching the flexibility of points that one can redeem on some 150 airlines or use for car rentals, hotel rooms, cruises, and the like. "Our goal at this stage of the game is to keep as many of the legacy WorldPerks cardholders as we can, and we have a few bullets in our gun that will help us with that," Owens says. For its part, US Bancorp's unit, US Bank, will waive the card's $49 annual fee with annual spending of at least $24,000 on the card, and will start offering free tickets with 20,000 points—5,000 fewer than where most airlines' award levels start. As further inducements, US Bank will reimburse FlexPerks cardholders up to $20 per trip for new airline fees and award miles on reward flights.