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The 'plastic' carpet ride
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June 26, 1998: 10:40 a.m. ET
Savvy business travelers use co-branded credit cards to earn frequent flyer miles
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NEW YORK (biztravel.com) - The person in line ahead of you at the computer superstore may be doing more than buying a laser printer. If she's paying with an airline affinity credit card, she may be inching a few miles closer to a free ticket to Paris, too.
Since American Airlines narrowly won a race with United to introduce the first co-branded credit card in the mid-1980's, all major U.S. carriers and most large international carriers have followed suit.
Business travelers commonly earn extra frequent flyer miles by charging not just travel, but everyday expenses. Frequent flyer expert Randy Petersen called such airline cards "one of the best deals in frequent flyer programs today."
The development of mileage credits that are applicable to many different airlines, led by American Express and Diners Club cards, means travelers can hedge their bets and spread their "loyalty" around.
The Cards Banks Love (and Hate)
For credit card issuers, travelers who use co-branded cards may evoke a form of that old joke, "Where does a 500-pound gorilla sit?"--in any window or aisle seat he likes, apparently.
"The demographics of these credit card users are outstanding - people with high amounts of disposable income," said Jim Shanahan, a partner with Business Dynamics, a Newark-based credit industry consulting firm. "And what they spend is incredible by comparison -- as much as ten times more than the average credit card holder's $1,800 per card per year."
Furthermore, these users are good credit risks. In fact, therein lies the downside: since 80 to 85 percent of card issuers' revenue comes from interest on unpaid balances, airline credit card users, who more often than not pay their entire balances each month, provide little interest income.
"It's a relatively mature market," said Shanahan. "Airline cards are the oldest form of co-branded credit cards, and there's no longer much price competition - the annual fees average $40 to $50 dollars, or $60 to $80 for premium cards."
Airline Affinity Basics
Most airline-specific credit cards share several basic rules. One mile is credited to the cardholder's frequent flyer account for each dollar of purchases - though some, including the American Aadvantage Visa or MasterCard, allow credits to your account for purchases made by additional cardholders on the account.
Issuers almost always limit the miles that may be earned to 60,000. Miles earned may be subject to any expiration policies that exist, but there are exceptions: USAirways' Dividend Miles and some other programs have no current expiration date.
American Express and Diners Club offer travelers the greatest flexibility among all affinity programs. Each maintains partnerships with many airline, hotel and rental car providers. Purchases generate credits which may be transferred by phone or mail to any affiliated program.
You might, for example, send 15,000 miles from your American Express Membership Miles account to your Continental account, and another 5,000 to your Westin program. Diners Club awards two miles per dollar spent, twice the American Express award, but carries a higher annual fee ($80) and a different mix of airline partners and merchants.
Southwest, not surprisingly, takes a different approach with its First USA Visa cards, awarding one "flight credit" for every $1,000 spent, or one round-trip coach ticket for $16,000 (or regular flight credits combined with Visa credits totaling 16). Southwest awards two flight credits to new applicants.
Delta upped the ante when it began awarding 1.5 miles for purchases of Delta tickets made with its Optima card (issued by American Express). Others have followed.
Such nuances offer the savvy traveler the tantalizing possibility of a "triple dip"-mileage credit for a ticket's purchase price, credit for miles actually flown on that ticket, and a bonus of 1,000 miles if the purchase is conducted via the Internet.
ATM or other cash withdrawals, balance transfers and finance charges are not eligible for mileage credit. Many airline affinity cards do, however, provide additional benefits for business travelers, particularly when you opt for the higher-priced "gold" or "platinum" cards. These perks may include automatic flight or baggage insurance, rental car insurance and access to medical and legal services.
Although rules vary, many cards reward new applicants with bonuses of from 1,500 to 5,000 miles upon payment of the annual fee, or after the first paid purchase on the card.
Future trends to look for
Shanahan doubts there will be much growth in the affinity card market, but said "things could get interesting if some of the airlines switch banks," sparking rate competition. He advises business travelers to watch for further development of links between affinity cards and electronic ticketing.
Ultimately, he projects a card that will combine credit purchasing and incentives, frequent flyer club membership and photo identification for check-in purposes.
A few things to keep in mind when choosing an airline affinity card:
- Consider which airlines offer service from your nearest airport(s). For example, if you live on the east coast, an America West card may have limited value. However, regional carriers may provide the best terms on their cards, often issued by regional or state banks in your area.
- Keep your eye squarely on the real cost of miles, factoring in annual fees and interest on unpaid balances.
- Be cautious when evaluating "hybrid" affinity cards, whose mileage credits may not be combined with regular frequent flyer miles - you must earn an entire ticket through purchases.
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Visa
American Express
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