The Extra Mile

Latest Generation of Credit Cards Aims for Sweet Spot in Travel Rewards

Search for the ideal rewards card yields novel hybrids

May 22, 2006 - In Capital One's TV commercials for its No Hassle Miles credit card, comedian David Spade embodies the frequent flyer's nemesis, portraying 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 but point out that their programs offer a range of mileage-earning opportunities which puts 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 (miles-for-charges combinable with miles earned for flights and a host of other partner transactions) and bank cards (miles redeemable for tickets which are free of the airline programs' capacity constraints).

The search for the ideal rewards card has yielded several novel hybrids. Like the Capital One card, the PremierPass card from Citibank awards points which can be cashed in for flights on any airline, without the onerous capacity controls associated with airline-specific cards. 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 earn 3,000 miles, as well as one mile per dollar on the ticket's price.

But adding flight miles to miles-for-charges is only a partial fix. The advantage of airline cards which award miles for transactions with hundreds of retailers and service providers, as well as for charges, cannot be easily matched by banks' proprietary awards programs. Which suggests that adding new benefits to airline cards might be a more fruitful approach.

That was the idea behind the American Express/Delta SkyPoints card, which lets cardholders have it either way. SkyPoints can be exchanged for miles in Delta's SkyMiles program and then redeemed for capacity-controlled awards. Or they can be redeemed 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). That is at least partly a result of the SkyPoints card's being marketed alongside the traditional SkyMiles card, also issued by American Express. Two cards affiliated with the same airline, but which earn different reward currencies which are similar but asymmetrically convertible... it's a recipe for consumer confusion.

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 which, the airline boasts, will "reinvent" airline mileage programs. Hyperbole aside, the Choices card is a significant milestone in the development of rewards cards.

Like the Delta SkyPoints card, United's Choices card rewards cardholders with a currency which 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, Choices can be redeemed 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 20,000 Choices could be redeemed for a $200 ticket. When redeemed for hotel nights or car rentals, Choices have a somewhat lesser value of .8 cents apiece.

Secondly, 40,000 Choices may be used as payment for a one-year membership in Economy Plus Access, a program entitling 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 which 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 demonstrably more robust than their predecessors, the extra value has been achieved at the expense of considerable additional 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.