Mileage Pro The Insider's Guide to Frequent Flyer Programs

MILEAGE EARNING CREDIT CARDS HAVE been fixtures on the travel rewards scene since the mid 1980s, but the landscape has never been as cluttered as it is today. Cards of every imaginable type are competing for a place in consumers’ wallets. The end result is a steady increase in card benefits.

Just the sheer number of cards—all with their distinct affiliations, fees and benefits—can drive would-be mileage accumulators to distraction. The cards break down neatly into three well-defined categories: Co-branded airline and hotel cards, multi-program, cards and bank cards with their own travel rewards programs. Each category has its own benefits and drawbacks, as explained in this chapter.

Airline/Hotel Co-branded Cards
Co-branded airline and hotel cards constitute the largest category and are used by the greatest number of frequent travelers. Each card is linked to a specific airline or hotel loyalty program. Typically, the cardholder earns one airline mile or hotel point for every dollar charged, plus a bonus for charging airline tickets on the host airline, or for charging stays at hotels associated with the hotel’s loyalty program.

Familiar examples are the AAdvantage MasterCard, issued by Citibank; the Delta SkyMiles credit card, issued by American Express; and the Marriott Rewards Visa, issued by Chase.

Airline Specific Cards
These cards are generally referred to as airline affinity credit cards (because of the users’ affinity with a particular airline) or co-branded cards (because the cards feature the logos of both the bank issuer and the airline hosting the loyalty program).

Costs
Annual fees range from $39 to $140 for credit cards associated with major airline programs, with many falling in the $45 to $65 range. The majority currently charges a 15.99 percent annual percentage rate (variable, Prime + 9.99 percent) on outstanding balances.

Mileage Earning Rate
As previously mentioned, the industry standard earning rate for airline affiliated credit cards is one mile for every dollar charged to the card. Assuming miles have a value of one to two cents each that amounts to a one to two percent rebate. The rebate is higher when cards are used to charge airline tickets on the airline hosting the credit card program since those purchases normally earn double miles.

Predictably, given the competitive pressure to capture the business of frequent travelers, perks are constantly being increased, both on a long term and on a promotional basis. The Delta SkyMiles card, for example, boasts “Always Double Miles”—double miles at qualifying stand alone supermarkets, drugstores, gas stations, home improvement and hardware stores, as well as the U.S. Postal Service. Following Delta down that same road, Continental’s MasterCard from Chase also offers double miles for charges at selected merchants.

And on a limited time basis, the card issuers are ratcheting up the number of miles new cardholders receive after their first charge, such as 15,000 on the AAdvantage MasterCard.

Perhaps the most significant development in the benefits area has been the awarding of elite qualifying miles for card use. There have been a number of recent promotions awarding elite miles for non-flight activities. But the boldest move yet in decoupling elite qualification from actually flying is United’s latest Mileage Plus Platinum Visa, which allows cardholders to earn up to 15,000 elite qualifying miles annually for charges. (Mileage Plus Classic and Gold Visa cards also have awarded up to 5,000 elite qualifying miles, but only on a limited time promotional basis.)

Annual Earning Cap
Although it is a moot point for most consumers, many cards impose an annual cap on mileage earning, generally ranging between 50,000 and 100,000 miles. The limit typically is raised or waived altogether for cards with higher annual fees and for elite members.

As an example, the annual maximum is 60,000 miles for the regular United Mileage Plus Visa card ($60 annual fee) and 100,000 for the Gold card ($85 annual fee), but there is no mileage cap for Mileage Plus Premier, Premier Executive or Premier Executive 1K members. And with United’s highest priced card, the Mileage Plus Platinum Visa ($140 annual fee), no annual cap is imposed regardless of a member’s tier status.

Business Cards
It is worth noting that many of the same credit card issuers offering airline affiliated cards to individuals also offer airline affiliated mileage cards to businesses.

Designed specifically for smaller businesses, the cards are enhanced with benefits such as periodic account summaries, discounted business services and higher annual mileage earning limits.

Business cards are issued in the names of those employees authorized to charge goods and services in the course of conducting company business. Their miles are earned into the account of a designated individual—generally the business owner—who can then choose to use the miles either for his or her personal use or to offset the cost of future company business travel.

Debit Cards
Also worth mentioning under the heading of airline affinity credit cards are airline debit cards, also called check cards orATM cards. Larger programs typically offer a choice between a debit card with a lower annual fee that awards only one-half mile per dollar spent and a card with a higher annual fee that awards a full mile for every dollar spent.

As an example, for $30 a year, the Continental Airlines Banking Card from Chase can be linked to a regular Chase checking account and earn one OnePass mile for every $2 spent; or for $65 a year, OnePass members can link a Continental Banking Card to an upgraded Chase Select Checking account, which earns a more generous one mile per dollar.

Because debit cards are directly linked to a checking account, they require the cardholder to maintain a checking account with the same bank that issues the card. That can be a deal breaker for those who have a pre-existing relationship with a local bank they wish to preserve.

Hotel Specific Cards
As with hotel programs in general, hotel affiliated credit cards suffer an inferiority complex compared to cards linked to airline programs. This is unwarranted since, as airline ticket prices have fallen and hotel rates have risen, the value of hotel points and awards has increased significantly compared to airline program awards. Still, when it comes time to pay the bill, travelers are much more likely to reach for an airline card than a hotel card.

That competitive disadvantage has spurred hotel card issuers to try harder, offering more benefits and lower costs. Where airline cards charge significant annual fees, their hotel counterparts are typically available for no annual fee. And if an annual fee is imposed, that fee will likely be waived for the first year.

In another benefits category, where the airlines have just begun awarding elite qualifying miles for charges, several of the hotel cards already have a long history of granting elite status outright to new cardholders, either as limited time offers or, in the case of Marriott’s card, as a permanent card feature.

Costs
As already mentioned, there are no annual fees for most hotel cards. And while the credit cards for Marriott and Starwood programs have $30 annual fees, they are waived for the first year. As with the airline cards, the annual percentage rates for most hotel cards is currently 15.99 percent (variable, Prime + 9.99 percent).

Earning Rates
Hotel cards award one or more points for every dollar spent on purchases charged to them, and usually supplement the normal earning rate with a bonus when the card is used to charge hotel stays.
The Hilton HHonors Platinum card, for instance, awards users with five HHonors points when charging stays at Hilton Family hotels, and three points for other charges. On the other hand, Marriott Rewards Visa cardholders earn three points for charges at hotels in the Marriott network, and one point for non-hotel charges.

Because earning and redemption rates in competing hotel programs tend to be fundamentally different, it is difficult to make apples-to-apples comparisons. When comparing hotel programs, and their associated credit cards, it is not the absolute number of points earned for a given transaction that gives it the most credence. Rather, it is how far those points go toward qualifying for an award. For instance, Starwood’s Preferred Guest program awards two Starpoints for every dollar spent at Starwood hotels, and offers free weekend nights for as few as 2,000 points. Marriott’s Rewards program awards 10 points per dollar spent at most Marriott brands and charges 7,500 points for a free weekend night. Using these two examples, Marriott Rewards is the faster way to a free weekend night.

Multi-Program Cards
What we are calling multi-program (or multi-currency) cards are the American Express Preferred Rewards card linked to its Membership Rewards program and the Diners Club card linked to the Club Rewards program. For frequent travelers, the key benefit of these cards is that points earned for using the cards can be exchanged for miles and points in the programs of multiple participating airlines and hotels.

Costs
The annual fees for entry level American Express and Diners cards are $110 and $95 per year respectively. These fees are significantly higher than the fees attached to the majority of airline and hotel rewards cards. These fees are higher because both credit cards tend to provide more benefits than other cards; for instance, the Diners Club card provides primary rather than secondary car insurance coverage when renting a car, thus allowing you the ability to save money.

Since these are charge cards—not credit cards—the balance must be completely paid off each month. Consequently, there is no annual percentage rate because there are no outstanding balances.

Also in contrast to airline cards, there are fees when redeeming points for airline miles. In 2002, Diners began imposing a “handling fee” of 95 cents to redeem Club Rewards points for 1,000 frequent flyer miles. So, to redeem enough points for a 25,000-mile free domestic coach ticket, the fee would be $23.75.

In the spirit of besting the competition, when American Express instituted its own redemption fee for airline miles, it chose to undercut Diners Club, charging 40 cents per 1,000 miles redeemed, with a maximum fee of $50. Another point in favor of the American Express policy: A fee is only assessed when cardholders redeem for miles in a U.S. program and not for an international program as the fee is tied to the Federal Excise Tax for miles purchased from a U.S. airline program.

Earning Rate
Both cards award one point for every dollar charged. But, with the “Always Double Miles” feature, American Express cardholders earn two Membership Rewards points for every dollar purchased with the card at qualifying stand-alone supermarkets, drugstores, gas stations, home improvement stores, the U.S. Postal Service and for payments to your wireless phone bill. (Examples of merchants include: Safeway, Krogers, Walgreens, Amoco, The Home Depot, Lowe’s, Nextel and Verizon.)

Partnerships
In most participating airline programs, American Express and Diners Club points exchange at a one-to-one ratio.

American Express allows Membership Rewards points to be converted into the programs of 11 airlines and four hotels:

• Airlines — AeroMexico, All Nippon, Continental, Delta, El Al, GlobalPass, Hawaiian, JetBlue, Mexicana, Southwest, US Airways and Virgin
• Hotels — Best Western, Hilton, Priority Club and Starwood
• Conspicuously missing from the Membership Rewards partner roster are three of the largest U.S. airline programs: American AAdvantage, Northwest WorldPerks and United Mileage Plus.

Diners Club points are exchangeable into 25 airline and seven hotel programs as follows:

• Airlines — Air Canada, Air France, Alaska Airlines, America West, American, Asiana, British Airways, Continental, Delta, El Al, Frontier, Hawaiian,
• GlobalPass, Iceland Air, Korean, Mexicana, Midwest, Northwest, SAS, South African Air, Southwest, Thai, United, US Airways and Virgin
• Hotels — Best Western, Choice, Hilton, Hyatt, Marriott, Priority Club and Starwood

Bank Travel Rewards Cards
The latest development in the miles-for-charges arena is credit cards with a travel rewards component now offered by most major card issuers. (Note: These cards are not affiliated with a specific airline loyalty program.) Prominent among them: The MilesEdge Visa from Bank of America, the TravelPlus Visa from BankOne, the Go Miles Visa from Capital One, the Travel Rewards MasterCard from Chase and the PremierPass MasterCard from Citibank.

These are MasterCard or Visa cards that reward users with “miles” or points for charges just as the credit cards linked to airline and hotel programs do. And on the award side, the miles can be redeemed for free flights just as they can be with airline programs.

Indeed, these bank programs were designed to shamelessly mimic the airline programs in the hope of duplicating their considerable success. But because miles and points earned with a bank card cannot be put into an airline or hotel loyalty program, travelers who elect to participate in a traditional airline or hotel program and a bank card program will find themselves with two separate, non-combinable types of miles and points.

For travelers content with earning miles solely via their credit card purchases, bank cards can be decidedly superior to airline loyalty programs when redeeming miles. Where airline program awards are notoriously and sometimes maddeningly restricted, free tickets earned from bank card miles are readily available with no blackout dates. That is because when a bank card member redeems miles, the bank simply purchases a ticket in the marketplace on the member’s behalf. And that ticket can be on most any airline, not just on a short list of preferred partners. (Note: Bank card programs are not affiliated with any hotels.)

Costs
Among bank cards’ most attractive features are their low costs. Annual fees for the cards range from zero to $39. Annual percentage rates are on the low side as well; generally several percentage points below the rates charged for airline cards.

Earning
Like their airline program counterparts, bank cards typically award one mile or point for every dollar in net purchases charged to the card.

Unlike airline miles, miles in most bank card programs have limited life spans, typically expiring after three to five years. Miles in major airline programs can be extended indefinitely with a single account transaction every 36 months.
While this will not matter to most consumers, know that there is generally a limit to the number of miles that may be earned monthly and/or annually with bank cards.

Awards
In keeping with their self conscious cloning of airline programs, bank cards have priced their awards at levels similar to airline programs. For a coach ticket within the contiguous United States, 25,000 to 35,000 bank miles are the norm.

On the upside, bank card awards are not restricted. If a seat is available that meets the advance purchase time and price criteria, the member may claim it. Reminder: There are no blackout dates. Another significant plus over airline program awards: The bank card award ticket may be issued for travel on just about any major airline.

On the negative side, award tickets must be requested at least 21 days in advance and a Saturday-night stay is generally required. And the dollar value of the award ticket is capped. For a free U.S. domestic coach award, the maximum value is between $300 and $500, depending on the bank card program.

(A new wrinkle in award pricing comes from Capital One’s latest Go Miles card. Miles required for an award ticket are computed by multiplying the lowest available fare by 90. So, an award ticket that could be purchased for $300 would cost 27,000 miles.)

Summary: Choice Points
As with airline and hotel programs, there is no single credit, charge or bank card that best meets the needs of everyone who aspires to earn free travel. (It should be stressed that the decision to pursue travel rewards is ultimately an emotional one. For those with different priorities, there are other cards that generate cash rebates or discounts toward the purchase of a car, or any number of other rewards or rebates.)

At the end of the day, the best cards are those that conform to your lifestyle on two key fronts: First, are you principally a frequent flyer or frequent buyer (or somewhere in between)? And secondly, if you are frequent flyers, can you confine yourself to a single card? Because fees are associated with these cards, there is an even more compelling reason for you to stay confined to a single card, possibly with a second card playing a supporting role.

For those who earn a significant number of miles by actually traveling, the choice of a credit card should simply follow and complement the choice of an airline program. In other words, use the card affiliated with your primary airline program.
A hotel program’s credit card can be used to supplement earnings from an airline card by accruing sufficient points to obtain free hotel nights that can complement free flights earned from an airline program.

Frequent travelers who cannot consolidate their earnings in a single program—because of, say, a company travel policy—should stick to multi-program cards such as American Express Membership Rewards and Diners Club Club Rewards. These cards function as primary cards, provided their participating airlines are the ones you are flying. Multi-program cards can also be used as secondary cards in place of a hotel card.

While considerations of cost and account management argue against maintaining too many active credit cards, multiple cards judiciously chosen and used can be used to good effect.

For example, secondary cards can extend the life of miles in less active accounts and they can be used to top off accounts when an award threshold is within reach. An American Express or Diners Club card can be handy in that regard. But one of the hotel affiliated cards, several of which have no annual fee, may be a more cost effective solution. Use the hotel card to earn points, which can be transferred for no fee as needed into participating airline programs. (For information on points-to-miles conversion rates go to the Converting Miles and Points into Money chapter on page 136.)

If you do opt for a second or third card, bear in mind the benefits of brand diversification. Oftentimes, mileage or points promotions will be targeted to users of a Visa, MasterCard or American Express card. So, having multiple credit cards can translate into expanded earning opportunities.

As a side note: In this period of financial instability in the travel industry, multi-program cards offer consumers a welcome modicum of safety and stability. Unlike the airlines, both American Express and Diners (a subsidiary of mighty Citibank) are in tip-top financial shape. So, while miles earned directly in an airline program may be at risk of the airline liquidating its assets and voiding the miles in its loyalty program, points retained in the programs of American Express and Diners Club enjoy a kind of safe harbor existence.

For infrequent flyers who plan on earning the bulk of their miles through credit card use, bank cards offer a cost effective way of earning the occasional free flight, without the hassle and anxiety associated with capacity controlled awards in the airlines’ own programs.

Finally, if elite perks are a priority, the choice is limited to a card linked directly to the airline or hotel program.
Obviously, there is no chance of attaining elite status by racking up miles with bank cards since they are independent of airline and hotel programs.

When to Pass on Plastic
As with any activity that potentially earns miles, consumers should beware of overpaying for the privilege.

To use real world numbers, if a card has an annual fee of $50 and the prospective cardholder expects to incur finance charges of another $50 over the course of a year, it is only reasonable to expect to earn enough miles to at least offset that $100 expense. Assuming each mile is worth two cents (which is generous) the cardholder would need to earn 5,000 miles in 12 months to cover the costs associated with the card. Since most cards award one mile for every dollar charged, that amounts to charging $5,000 a year, or about $417 per month. If the assumed value of a mile is reduced to one cent, your spending target doubles to $10,000.

REMEMBER THIS:

• After flight miles, using a program affiliated credit card is the most popular source of frequent flyer miles.
• Frequent flyers should first choose an airline program, and then sign up for the credit card linked to that program.
• Frequent buyers can earn free trips without the high fees of airline affiliated credit cards by participating in a bank card's travel rewards program.