A veritable cottage industry has formed in recent years around travel hacking, mostly focusing on how to accumulate as many miles as possible for airline reward redemption. The whales of these strategies are the giant mileage bonuses offered by bank and co-branded airline credit cards.
But, given the depth of card choice, which card is the most rewarding?
After combing through the deep, dark depths of the reward cards’ terms of service, IdeaWorks, in Switchfly-sponsored research, has come to the following conclusion based on some serious calculator jockeying:
American Express, Barclays, Chase, Citibank and Southwest are the most rewarding. American, Delta, US Airways and United cards offer travel perks but higher reward thresholds.
Here’s the breakdown of the average value of these rewards credit cards:
As you can see, there are some very clear differences in mileage rewards delivered by the various cards – especially after considering any sign-up bonuses offered.
These differences show very clearly that the co-branded cards are better for frequent flyers looking to redeem international premium travel, while the bank rewards cards are ideal for mostly domestic travel.
When considering the average domestic flight round-trip cost of $367 (third quarter 2012), the redemption value of the bank rewards cards allows faster purchase for those seeking domestic travel. Chase Sapphire offers over 2 domestic ticket rewards, and even the lowest value card, the AMEX Blue Sky, provides the equivalent of 1.5 domestic flights.
When considering international premium travel, the picture changes drastically as the airline co-branded cards really show their value:
The price of a business class ticket on American Airlines between New York and London is $3,521 (fees and taxes included) for a query made on 01 February 2013 for a March 1st departure and a March 7th return. The very same flights can be booked using 200,000 AAdvantage miles (Business AAnytime reward) and paying taxes and fees of $342. This places a value of $3,228 ($3,521 less $342) on the 200,000 miles. An airline co-branded cardholder would spend about $200,000 to accrue that many miles (not including any sign up bonus). That same $200,000 charged by a Citi ThankYou Premier cardholder could generate travel reward value of about $2,800. This example relies upon approximate mileage and point accrual for both cards. But it does significantly favor the reward value provided by the airline co-branded card.
The value equation dramatically improves if American’s 100,000 roundtrip Business MileSAAver reward is available for the same itinerary, as it places the $3,228 value on 100,000 miles. This would require about $100,000 of charge activity by an airline co-branded cardholder (again, without considering a sign up bonus). This level of spending would provide a reward travel benefit of $1,500 from the Citi ThankYou Premier card. Under this scenario, the airline co-branded card delivers more than twice the value of the bank travel reward card. Banks are limited by the simple economics of the credit card business. They can only spend a finite amount of portfolio revenue to buy rewards. Airlines can always win at this game because air travel can be provided at low incremental expense.
So for those looking primarily for domestic tickets, a bank rewards card – cash back or travel rewards – will generally provide quicker rewards.
Internationally-bound travelers seeking a premium seat would be better served by dropping all of their spending on a co-branded airline card and then converting that reward for that international premium reward.
As always, it comes down to spending behavior – and what the cardmember intends to use the accrued miles/points for.
Download the full report here.
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About Nick Vivion
For airlines, the most rewarding loyalty program is always the one affiliated your hometown airline, simply because it will allow you the greatest opportunity to actually redeem your points. Even if another program is theoretically rated higher, if you live in Atlanta then there’s no point in being affiliated with a United program, and if you live Denver then there’s no point in being affiliated with a Delta program. More flights = more options, it’s as simple as that. Living in San Francisco, I have both the United MileagePlus Explorer card from Chase as well as the Virgin America Visa Signature card from Barclays. Each has its own advantages. United is obviously better for international flights and a more robust route network, but Virgin is a better airline that also flies to the cities I visit most frequently, and has expanded its eleVAte partner list with the likes of Virgin Atlantic, Hawaiian Airlines, etc. My family is in Boston, and when it comes to earning free flights (the primary goal of most loyalty program members) then the Virgin card wins hand down. That’s not an opinion, that’s a mathematical fact that can easily be backed up with numbers. Say I earn points by doing nothing other than spending as opposed to actual flying. Both cards give me 1 point per $1 spent. On United you need at least 25,000 points for a domestic Saver round-trip, and 50,000 for a standard award. That means I’d need to spend $25K on my card to get a free ticket, and it’s often hard to find Saver Award seats. On Virgin you can currently get round-trip flights from SFO-BOS for as little as 15,070 points, or just $15K spent on my card. Short-haul flights are an even better value. United requires 20K points (and thus $20K dollars spent) for short-haul flights such as SFO-LAX, but on Virgin they’re only 5396 points, or $5396 spent. Simply put, it only takes 27% the amount of normal everyday spending to earn a free ticket to LA on my Virgin card as it does on my United card.
It’s also important to note here that these two mileage programs deal with points differently. On Virgin, points needed for redemption are calculated according to the cost of the ticket, rather than by a set amount. So that provides much more real-time flexibility and rewards travelers for not only miles traveled but amount spent.
So that’s a valuable distinction alongside the good point on choosing an airline that is best for your hometown. I live in New Orleans, and it’s a wash between United and Delta – I go with United for the international reach, but still have to transfer too often in Houston.
N