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Deal of the Day by Kelli B. Grant (Author Archive)
Airline Cards Offer Big Rewards at a Big Price
Now, as higher fuel costs prompt most major airlines — including Continental (CAL), United (UAUA), American (AMR) and Delta (DAL) — to cut back on flight capacity, loyal frequent fliers will encounter even more competition for seats and, as a result, higher airfares, predicts George Hobica, publisher of fare-tracking site AirfareWatchdog.com.
One apparent silver lining to this industrywide mess is that airlines now offer more generous rewards and other perks to those who sign up for their credit cards. The JetBlue Card from American Express (AXP), for example, offers a free one-way flight certificate for travel between Sept. 3 and Oct. 31 (with a blackout period of Oct. 9-14), plus 25 flight points (100 points are required for a free round-trip flight). Regularly, cardholders would have to spend $5,000 to accumulate that many points. Continental Airlines' World MasterCard (MA) offers consumers with excellent credit 21,000 bonus points for their first purchase. (Most domestic flights cost 25,000 miles.) Typically, holders receive a mile per each dollar spent using the card. Do the math and the introductory offer shaves off roughly $21,000 in spending typically required to rack up that many points.
They sound like tempting offers, but good luck trying to redeem those points. After all, fewer flights mean fewer opportunities to trade them in for free seats or upgrades. "[Capacity cuts] really point at the larger question of to what extent it's worth participating in airline-loyalty programs anymore," says Tim Winship, publisher of miles site FrequentFlier.com.
Applying for an airline credit card based on the introductory offer, he explains, can be a particularly bad mistake. Not only will cardholders have a tough time redeeming points, but they'll also face a series of fees and tight restrictions that make it more difficult to get a good deal.
Chase, the issuer of Continental's World MasterCard, concedes that "airline cards may not be the right card for everyone." But Chase counters "they are highly popular with many people because they accelerate an individual's ability to earn free flights and offer additional benefits." A spokesperson for American Express wasn't available for comment by press time.
Here's what every traveler should know before signing up for an airline credit card:
Annual fee
Nearly all airline credit cards carry an annual fee, which means you'll need to be a big spender, as well as a frequent flier on that airline to come out ahead, points out Winship. The U.S. Airways Dividend Miles Premier World MasterCard, for example, has an annual fee of $79, and earns one mile per $1 spent. With one mile valued at about a penny, you'd have to spend $7,900 just to offset the fee. (Like many other airline cards, this card carries a hefty APR — in this case, 18.24%. Carry a balance, and you'll further reduce the value of your miles.) Juniper, which issues US Airways' Dividend Miles card, did not respond to a request for comment come press time.Lengthy waits
"Whenever you take on a rewards credit card, the first thing to think about is how quickly you can turn around and use those rewards," says Scott Bilker, founder of DebtSmart.com. Keep in mind that travelers often have to book 330 days out (when airlines first release seats) to snag a free trip using frequent-flier miles. Someone who puts $500 in purchases each month on the Gold AAdvantage World MasterCard from Citibank (C) would take nearly two years to earn enough miles for a free ticket, even with 15,000 bonus miles after their first $750 in purchases. (A spokesperson for Citibank wasn't immediately available for comment by press time.) That means you'll need lots of patience when it comes to finally getting that free trip. Also keep in mind that those years that it takes to accumulate points offer plenty of time for terms — like the number of miles needed — to change, he says.Devalued tickets
Most major carriers require a minimum of 25,000 miles for a domestic reward ticket — regardless of whether you would have paid $100 or $1,000 booking independently, says Hobica. Unless you're aiming to save up for an expensive domestic route or international flight, the money you spend to rack up those miles probably won't be worth it. Instead, using a cash-back card is more likely to provide better bang for your buck. "You could take that [cash] to any airline and put it toward a ticket," says Hobica.Use a Classic Delta SkyMiles card from American Express to spend $10,000 a year ($5,000 at supermarkets, gas stations and drugstores, and $5,000 in other categories), for example, and you'd earn 17,500 miles (including a 2,500-mile bonus). That's 7,500 miles shy of a free ticket. On the other hand, someone spending the same amount in a year with a Chase (JPM) Freedom card (3% back in your top three spending categories — in this case, groceries, gas and drugstores — and 1% on everything else and a $50 bonus after first purchase) would have $250 cash in hand that they could put toward a ticket.
Of course, weighing the pros and cons of reward cards usually comes down to spending habits. "Find your interests, and then follow the points or cash-back to a card that rewards that spending," advises Bilker. See our table for some reward cards that are worth a look:
Best Airline Card Alternatives | ||
Card | APR | Details |
10.99% | Earn one point for every dollar spent, with 2,500 points redeemable for a $25 check. Receive 1,000 bonus points with first purchase. Limit 60,000 points earned ($600) per calendar year. | |
9.99% | Get 1% cash back on every purchase, plus up to 5% additional cash back when you link to and shop online at certain retailers through the Citi Bonus Cash Center. Earn a 20% bonus on all cash back earned during first 12 months. No annual limits on awards earned. | |
11.99% | Earn one point per $1 spent, and one point per three miles flown. Earn 10,000 bonus points after first $300 in purchases. Limit 200,000 points earned per calendar year. (Any Citi card that earns its reward points, called Thank You Points, can be put toward flights at Expedia.com, at the rate of one cent per point. That's about what you'd get per mile with the airlines, but you'll come out ahead for flights costing less than $250 — i.e., 25,000 points/miles.) | |
10.99% | Earn 1% back on all purchases, plus a 5% cash bonus in rotating categories. (April through June, for example, offers bonuses for home and fashion purchases, while July through September bonuses are for gas and hotels.) No annual limits on awards earned. | |
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