Credit Cards Aim for Sweet Spot in Travel Rewards

In Capital One’s TV commercials for its No Hassle Miles credit card, comedian David Spade embodies the frequent flyer’s nemesis. He portrays the airlines as ruthless naysayers, intent on denying every request from customers trying to redeem their frequent flyer miles for awards.

In their own marketing campaigns, the airlines sidestep the limited-awards charge. Instead, they point out that their programs offer a range of mileage-earning opportunities that put the Capital One card and other bank cards to shame.

Implicitly confirming the validity of both sides’ arguments, the business world’s keenest minds have been working long and hard to combine the best features of airline-affiliated credit cards and bank cards. From the airlines, they want miles-for-charges combinable with miles earned for flights and other partner transactions. From bank cards, they want miles redeemable for tickets free of capacity constraints. And this search for the ideal rewards card has yielded several novel hybrids.

The first hybrid cards

Like the Capital One card, the PremierPass card from Citibank awards points that can be cashed in for flights on any airline without onerous capacity controls. But unlike other cards in its category, the Citibank card also awards miles for flights. Charge an air ticket for a 3,000-mile flight to the card and you’ll earn 3,000 miles, as well as one mile per dollar spent on the ticket’s price.

But adding flight miles to miles-for-charges is only a partial fix. The advantage of airline cards that award miles for transactions with hundreds of retailers, as well as for charges, cannot be easily matched by banks’ proprietary awards programs. Therefore, adding new benefits to airline cards might be a more fruitful approach than creating hybrid bank cards.

This idea led to the American Express/Delta SkyPoints card. Cardholders can exchange SkyPoints for miles in Delta’s SkyMiles program and then redeem them for capacity-controlled awards. Or, they can redeem SkyPoints for discounts on paid Delta flights.

While the SkyPoints card looks good on paper, an informal survey suggests that consumer response has been tepid (American Express won’t divulge cardholder numbers). The limited interest is partly a result of the SkyPoints card being marketed alongside American Express’ traditional SkyMiles card. The two cards are affiliated with the same airline, but earn different reward currencies that are similar but asymmetrically convertible. It’s a recipe for consumer confusion.

United’s answer

United unveiled its solution to the problem on May 1—significantly, the 25th anniversary of frequent flyer programs—with the launch of its new Mileage Plus Choices Visa card. This card, the airline boasts, will “reinvent” airline mileage programs. Hyperbole aside, the Choices card is a significant milestone in the development of rewards cards.

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Like the Delta SkyPoints card, United’s Choices card rewards cardholders with a currency that is related, but not identical, to miles. On the accumulation side, Mileage Plus members earn one Choice for every dollar charged to the card. On the award side, a Choice is like a mile insofar as it can be combined with miles earned through the extensive network of Mileage Plus partners and redeemed for free flights on United and its airline partners. But Choices surpass miles in value by offering additional award options.

First and most importantly, cardholders can redeem Choices to fully or partially pay for a flight, hotel stay, or car rental booked on United’s website. When used to cover the cost of a ticket, Choices are worth one cent each. So flyers can redeem 20,000 Choices for a $200 ticket. When redeemed for hotel nights or car rentals, Choices have a somewhat lesser value of 0.8 cents apiece.

Secondly, Mileage Plus members can use 40,000 Choices as payment for a one-year membership in Economy Plus Access. This program entitles users to fly in United’s super-coach section, which features extra legroom.

And finally, cardholders can exchange up to 50,000 Choices for 5,000 elite-qualifying miles that count toward earning elite status and perks in Mileage Plus.

Where Delta’s SkyPoints card was hobbled by its coexistence with the incumbent SkyMiles card, the Choices card will be the only card uniquely affiliated with United’s Mileage Plus program. So it’s likely to gain considerable traction with consumers and become the benchmark against which other such cards are measured.

Travel rewards credit cards have always been confusing, challenging consumers to compare annual fees, percentage rates on outstanding balances, annual earning caps, and the like. While the latest incarnations are clearly more robust than their predecessors, the extra value has been achieved at the expense of added complexity.

Which raises the question: Can a travel rewards card be both valuable and simple? That may be the next step in the cards’ evolution.