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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

Boston, MA - 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 Visa 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 Prospect Volume Mileage Plus Online Application Starts Total New Bank One Card Accounts Opened
2002: Q4 -20.5 28 -9
2003: Q1 22.2* -19 -23
* Rise due to temporary January uptick during 'More Miles' launch

Source: Compete study and Bank One earnings releases

"Despite UAL's Chapter 11 filing last December, there appears to have been no major shift in Bank One's customer defection rates," according to Merickel. Compete data shows that all Bank One cardholders evaluated competitive offerings from Chase, MBNA, Capital One, Discover Card and American Express at about the same pace during the past six months, signaling no major shift in attrition.