Four Ways to Earn Travel Rewards With Credit Cards

When airline mileage programs debuted 25 years ago, no one could have foreseen that there would come a time when almost half of all frequent flyer miles would be earned for activities that have nothing to do with travel. Nor would anyone have guessed that most of those non-travel miles would derive from charges on program-affiliated credit cards. But that is exactly where things stand today.

Whether you spend half your life at 30,000 feet or are an earthbound shop-’til-you-drop type, there’s a card out there with your name on it. There are cards linked to a single airline or hotel program, multi-program cards that award points redeemable for credits in a range of participating airline and hotel programs, and bank cards with their proprietary travel rewards programs.

Options abound. The trick is finding the right card among the ever-growing mountain of cards that have a travel rewards component. To help narrow the search for that elusive perfect card, I’ll outline the available types of rewards cards and profile one representative card from each category.

Airline cards

Credit cards linked to individual airline programs are the original travel rewards cards. And although today’s consumers have many alternatives, these cards remain the most popular.

Best for:

Airline cards are the right choice for those who focus their mileage earning in a single airline program. In the past, those people were business travelers first and foremost. Today, airline programs have been embraced by hardcore frequent buyers and most other segments of the consumer universe as well.

The key drawback to airline cards is the drawback of the airline programs themselves: limited award availability.

Example: AAdvantage World MasterCard

While airlines and card issuers are generally mum on specifics, it is widely understood that the credit card issued by Citibank in conjunction with American’s program, the AAdvantage World MasterCard, is the king of the rewards cards hill, with more cardholders than any other card in its category. American’s program is the world’s largest, as measured by its membership, so it makes perfect sense that the affiliated card would also dominate its rivals.

Cardholders earn one mile for every dollar in charges, which is typical of airline cards. The Platinum version of the card carries a hefty $85 annual fee, which is waived for the first year. The annual percentage rate is variable—the prime rate plus 9.99 percent, currently 17.49 percent.

The various airline cards tend to be cut from the same cloth, differing more in the sign-up bonuses offered to new customers than in any substantive respects. The single distinguishing feature of the AAdvantage card is that cardholders receive discounted awards on select flights.

Other cards in this category

Continental Airlines MasterCard from Chase; Delta SkyMiles Credit Card from American Express; JetBlue Card from American Express; Southwest Airlines Rapid Rewards Visa from Chase; United Airlines Mileage Plus Visa from Chase; etc.

Hotel cards

In the past five or so years, as hotel rates have steadily increased and airfares have declined or remained flat, the value of participating in a hotel program has been on the rise. So it makes more sense than ever to augment one’s mile earning via an airline card with a card that earns points in the traveler’s primary hotel program.

Best for:

While the Starwood card profiled below might actually be a candidate to replace an airline affinity card or even a multi-program card, in most cases hotel cards play a backup role to airline cards, just as hotel programs supplement rather than replace airline programs.

Example: Starwood Preferred Guest card

Among hotel cards, the Starwood Preferred Guest credit card issued by American Express is a standout.

Cardholders earn one Starpoint for every dollar charged to the card and three Starpoints for every dollar charged at Starwood hotels. The card has a $30 annual fee, which is waived for the first year. The annual percentage rate is variable—the prime rate plus 9.99 percent, currently 17.49 percent.

The Starwood card distinguishes itself in two key areas. First, when 20,000 Starpoints are exchanged for airline miles, there’s a 5,000-mile bonus. That makes charges to the Starwood card 25 percent more valuable than charges made with most airline-specific cards. And when it comes time to redeem Starpoints for miles, program members have their choice of 32 airline programs, most of which accept Starpoints exchanges on a 1:1 basis.

Other cards in this category

Best Western MasterCard from Juniper Bank; Hilton HHonors Platinum Card from American Express; Marriott Rewards Visa from Chase; Priority Club Rewards Visa from First USA; etc.

Multi-program cards

Multi-program cards award generic points for charges; cardholders can exchange these points as needed for airline miles or hotel points in participating programs.

The American Express cards linked to the Membership Rewards program and the Diners Club cards linked to the Club Rewards program are the dominant cards in this space, but hotel-affiliated cards can also function as multi-program cards because most hotel programs allow members to exchange points for miles in various airline programs.

Best for:

Multi-program cards tend to be more expensive than other types of travel rewards cards. The Diners Club card, for example, carries a $95 annual fee. But to the extent that these cards can do double or triple duty, replacing one or more program-specific cards, one can justify the extra expense.

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For example, a frequent traveler whose primary airline program is Delta SkyMiles and whose primary hotel program is Hilton HHonors could kill two birds with a single stone by using an American Express card for charges, since American Express Membership Rewards points can be exchanged for Delta miles (1,000 Membership Rewards points equal 1,000 Delta miles) or Hilton points (1,000 Membership Rewards points equal 1,300 HHonors points), among other options.

For those who need the flexibility of redeeming credit card points in a range of programs, multi-program cards may be just the ticket.

Example: Diners Club card

The Diners Club card, launched in 1985, was the first of its kind. And for most of the years since, it set a high standard for competing cards.

Until recently, cardholders could redeem their Diners Club Rewards points for miles and points in most major airline and hotel programs, making the card a favorite among savvy business travelers. But late last year, Continental, Northwest, and US Airways severed their ties with Club Rewards. And in April 2006, United will do the same, leaving only American and Delta among major U.S. carriers that accept Diners Club points in exchange for miles.

While cardholders can still cash in Diners points for miles in 20 airline programs and points in seven hotel programs, the loss of four of the largest U.S. airlines significantly reduces the card’s utility.

In order to regain some of its old luster, Diners is currently promoting an alternative awards option, Tailored Travel, which allows cardholders to redeem 10,000 Club Rewards points for $125 worth of air tickets on any airline, hotel stays, or car rentals booked with any travel provider or with a Club Rewards Personal Travel Consultant.

In its current incarnation, the Diners Club card retains some of its multi-program redemption options, and adds the “any airline, no restrictions” awards feature of the bank cards.

Other cards in this category

American Express; Diners Club; various hotel-affiliated cards as discussed above

Bank cards

The proliferation of travel-rewards cards issued independently of airline programs is, paradoxically, a reflection both of the airline programs’ successes and of their failures.

Airline loyalty schemes have proved that the lure of a free ticket is a powerful motivator, providing card issuers with a proven model for their own cards. At the same time, the widespread frustration of airline program members unable to cash in their miles for those free tickets has given non-airline cards a weakness to capitalize on.

Best for:

Bank cards have three notable advantages over airline cards. First, they are cheaper, featuring lower fees and annual percentage rates. Second, they allow cardholders to redeem their miles for award travel on almost any airline, not just within the limited partnership networks of typical airline programs. And third, again in sharp contrast to airline programs, there are no capacity controls on awards.

Since miles from bank card programs cannot be mixed with miles from airline programs, they work best for frequent buyers who don’t earn a significant number of flight miles anyway.

Caveats: Bank cards often impose a cap on the price of an award ticket, and limit award tickets to advance-purchase coach class. Read the fine print.

Example: Blue Sky card

As do many of the cards in this category, the newest—the Blue Sky card from American Express, introduced In July 2005—makes a promise that speaks directly to the prevailing discontent regarding scarce free seats: “Say good-bye to travel reward restrictions.” (The TV commercials for Capital One’s mileage card, featuring comedian David Spade, make the same point with sly humor.)

Blue Sky cardholders earn one point for every dollar charged to the card. There’s no annual points cap, and points do not expire.

Like most other cards in its class, Blue Sky has no annual fee. The annual percentage rate is competitive as well, ranging between 4.99 percent and 9.99 percent over the prime rate, depending on the consumer’s credit history.

When it comes time to redeem, for every 7,500 points they cash in, cardholders receive $100 in savings on air tickets, hotel stays, and other travel services purchased directly from the supplier or from a discounter. There are none of the blackout dates or capacity restrictions that make obtaining airline awards such a hassle.

Other cards in this category

MilesEdge Card from Bank of America; Value Miles Platinum Visa from Chase; No Hassle Miles from Capital One; PremierPass MasterCard from Citibank; The Miles Card from Discover; etc.