Frequent Flyer Programs is Big Business for The Airlines But is it Worth it?
Ever noticed how flight the attendant gets unusually hawkish as if they are trying to sell you something? It’s probably because they are usually promoting their credit card for which they also get a commission. Recently American and United airlines got in full swing in promoting theirs. Airline miles have become such a big business that in the first half of 2018, the top 7 airlines together have reportedly made $4 billion on a frequent flyer program in first half of the year 2108.-
In an airline credit card, the bank or an issuer usually sign up with a particular airline and offers you a co-branded card. You earn reward points based on an agreed ratio of what you spend. With these cards, the card issuer enrolls you to the airline’s frequent-flyer program.
Apart from co-branded cards, there other cards which are not tied down to any particular airline and you can redeem the points earned with multiple airlines. However, the conversion ratio of points to miles could be less than what you may have got with a co-branded card.
How does an airline credit card work?
If you have an airline co-brand card whenever you spend purchasing a fair or on a hotel; you earn miles. Now the bank needs to buy those miles to give it as a reward to their customers and then they pay more per miles to the airline than what it costs the airline when the points are redeemed. So the airline makes money by simply selling those air miles to the bank or to the other partners and at the same time also make substantial money when these miles never get redeemed.
Types of airline credit cards:
Generally travel credit cards are of three types: Airline cards, Hotel cards, and General Travelcards. Co-branded airline or hotel credit rewards all types of spending; however, the points you earn can only be redeemed toward that single brand and its partners. General travel cards also reward all types of spending, but usually at a lower flat rate, however, the points can be redeemed with a variety of airline and hotels.
Benefits of an airline credit card to customers:
These cards render miles and discounts on tickets, offer complimentary access to airport lounges. Members can earn free travel, attain an elite member status with a particular airline or a hotel beside enjoying other travel-related perks. However, there are several non-airline cards that offer some of the above benefits without attaching to an airline.
Benefits of airline credit card to an airline:
Airlines earn big by selling miles as this it becomes the top scorer in their revenue. Miles are now the most profitable part of an airline’s business in the current scenario. The deal is not about the money spent on procuring extra amenities and perks that add to the cost of a seat but the real cash cow is the miles sold by an airline. Delta made $805 million selling miles to the banks in the first half of 2018 whereas American Airlines made more than a $1 billion.
American Airlines has got the largest loyalty program at the moment with around 100 million members enrolled in their loyalty program. American airline has the similar richest card agreement signed with Citi bank and Barclays bank that has led a high margin revenue for the airlines.
What’s the perfect way to use a travel credit cards:
Although travel credit cards can be used for cash back too, consumers receive better value when they use it just for buying a ticket and not for upgrades or any other purchases. It’s better to redeem these points; for example; for a Business Class directly rather than paying for an upgrade through these points.
What the airlines don’t want you to know about airline credit cards:
Travel credit cards are like airlines printing their own money, promising more miles that they gleefully sell but then jacking up the miles requirements. That happens in a real life scenario quite often.
Loyalty programs have turned into massive profit centers in the last 35 years. All the points you get staying in the hotel, sending flowers, those companies are buying those miles and its not a measly sum, its billions of dollars annually. But airlines now aren’t as generous nowadays but they don’t want their customers to think that these cards are worthless either, because it will mean billions of dollars going to rest.
Secondly, the concentration of the airline business is such that 80% of the seats are controlled by 4 prominent airlines and they call the shots, as the older system is no longer sustainable; these prominent players have shifted to a newer and a more beneficial model widely adopted by other airlines too. Nowadays you get more miles on money spent rather than on distance flown and almost all the airlines have transitioned to that model.
Some of the offers may look great from the face of it, but they may not be as great after all. Therefore its advisable to choose a card with prudence.
The big question – what travel credit cards are the perfect out there in the market?
There are lots of factors that go into deciding which travel credit card is most beneficial and these include Car Rental Coverage, hotel perks, and elite status, travel assistance, baggage loss, delay or damage, trip delays or cancellation coverage, price and purchase protection, extended warranty etc.
However, just in case you don’t fly with one airline exclusively, then general travel reward cards like Chase Sapphire Preferred or the American Express Everyday Preferred cards will be the most suited. These cards give you the maximum flexibility as the points earned can be transferred to a whole bunch of airlines and even hotels.
Other most popular travel credit card that top the charts are:
- The Platinum Card® from American Express
- Hilton Honors Aspire Card from American Express
- Citi / AAdvantage Executive World Elite Mastercard
- Delta Reserve® Credit Card from American Express
- United MileagePlus Club Card
It may seem steep to pay $450 on a travel card but a host of benefits that come with it is going to cover the fee easily. Each one of these airline travel credit cards offers a different combination of perks, and it depends on what suits and is most beneficial to someone. Check out our more detailed analysis and ranking of airline credit cards based on criteria that matter the most from a travelers perspective.