To Earn Airline Miles, Plastic Is Fantastic

What do Lasik surgery, home mortgages, and Internet access have in common? Frequent flyer miles can be earned for them all. And the list of mileage-earning opportunities grows longer every day.

Even as the universe of travel rewards programs expands, credit cards continue consolidating their position at the programs’ center. In most airline programs, the number of miles earned for credit card use is second only to miles earned for flying, supporting the theory that frequent flyer schemes truly have evolved into frequent buyer programs.

The larger part played by credit cards in loyalty programs has increased the pressure on the cards to distinguish themselves from their competitive counterparts. And that competition is resulting in better deals for consumers.

United’s new card offers “Choices”

The most recent addition to the world of travel rewards cards is the United Airlines’ Mileage Plus Choices Visa card, launched on May 1.

In designing the new card, United took a page from the playbook of Capital One’s No Hassle Miles and other independent cards whose principal claims are that cardholders can redeem miles for any flight, on any airline, with no blackout dates or seat limitations. With so much attention focused on the difficulties associated with obtaining award seats, that promise resonates with many travelers.

When redeeming points earned with the new United card, consumers have two options. First, they can use the points together with their miles earned for activities other than traditional capacity-controlled award tickets. Or—and this is new—they can use the points as partial or full payment for United tickets purchased on the airline’s website, as well as for hotel rooms and car rentals.

Credit card points are worth one cent each when redeemed for tickets, so 25,000 points could be used to purchase a $250 ticket outright, or for a $250 discount when buying a more expensive ticket.

When redeemed for hotel stays or car rentals booked at united.com, the value of points declines to 0.8 cents each.

Cardholders can also choose to exchange 40,000 points for an annual subscription to Economy Plus Access (United’s premium coach section) or up to 50,000 points for as many as 5,000 elite-qualifying miles and five elite-qualifying flight segments per year.

A path paved by Delta

For all United’s crowing about reinventing loyalty programs, its latest card actually follows squarely in the footsteps of a strikingly similar card already on offer from Delta. Like the Choices card, the Delta SkyPoints card, issued by American Express, awards cardholders with points that can be redeemed for discounts on paid Delta tickets.

Points can be used for discounts of 10, 25, 50, or 75 percent off the first $500 of the price of a ticket. So in a best-case scenario, exchanging 20,000 points for a 75-percent discount on a ticket costing $500 or more, the points would be worth $375 or just under two cents per point. That’s a solid value proposition, especially considering that the tickets are purchased and therefore free of the capacity controls that undermine the availability of traditional frequent flyer awards. But consumers must bear in mind that the points’ value diminishes as the price of the ticket decreases. Using 20,000 points for a ticket with a $250 purchase price, for example, would yield a discount of $187.50, and the per-point value would fall to less than one cent.

Comparing the Delta and United cards, United has the edge in allowing points to be redeemed not just for discounts, but for the full price of the ticket as well. And assigning the points a set value of one cent each simplifies the calculation. But for more expensive tickets, the value of Delta points can be as much as double the value of United’s.

Competition ups the ante

In response to competitive pressure generally, and in particular to the more lucrative Delta and United cards, issuers of other airline-affiliated cards have been ratcheting up the benefits.

The Citi Platinum Select AAdvantage World MasterCard and CitiBusiness AAdvantage MasterCard, for instance, normally entice prospects with a 15,000-mile sign-up bonus. But through July 5, Citibank is offering new cardholders 25,000 bonus miles after using the card to charge $250 in purchases.

A recent Northwest promotion is clearly an on-the-fly attempt to neutralize the move by Delta and United to allow credit card points to be used for paid tickets. The airline is temporarily allowing WorldPerks members to redeem 10,000 miles earned with the WorldPerks Visa Signature card for a $100 E-Cert good toward the purchase of tickets direct from Northwest or from a travel agent. E-Certs are delivered within 36 hours after registration and redemption of miles, and cardholders can redeem a maximum of 60,000 miles for six E-Certs through the end of this year.

With new cards or aggressive promotional offers available from American, Delta, Northwest, and United, it’s a safe bet that other airlines have new credit card offers in the pipeline as well.

The short-term effect of heated battles among competing credit cards can be information overload and confusion. But, consumers ultimately stand to benefit from the enhanced cards, both in the form of more miles earned and more options when it comes time to redeem those miles.