With all the recent changes to frequent-flier programs, it may be time to shuffle your credit cards.
The new year is a good time to reconsider credit-card loyalty rewards and take advantage of sign-up bonuses. While airlines and hotels have diluted some of the benefits of their loyalty programs, the credit card world is still very competitive. If you spend $1,000 a month on credit cards, you can get back several hundred dollars a year.
Traditionally consumers coveted frequent-flier miles from credit cards rewards because of the lure of free travel. But for many, that’s no longer the best value, because airlines have made it harder to earn miles and harder to use them for award tickets.
The latest change is the move by Delta and United in 2015 to give out miles based on the price of your ticket rather than the distance you travel. American will make a similar change in the second half of 2016. Southwest, JetBlue and Virgin America also base miles on ticket price rather than distance flown.
The upshot: Infrequent fliers traveling a few times a year on cheap coach tickets won’t get as many miles from travel. That means their credit-card miles will sit in accounts longer waiting for balances to build up.
“A lot of consumers, particularly infrequent travelers, haven’t yet realized how little value there is for them in these programs,” says Tim Winship, editor-at-large at Smarter Travel, a travel website.
Airlines say they made the change to better reward their best customers: business travelers who pay high fares and now earn far more miles. United and Delta said they would be issuing fewer miles to passengers overall, and that should make it a bit easier to find available award seats since there will be fewer miles chasing free tickets.
For people who travel only a couple of times a year, a credit-card change may be in order. “Cash-back is becoming more and more attractive as programs get watered down,” says Brian Kelly, who tracks travel loyalty programs as The Points Guy.
The Fidelity Investment Rewards American Express card pays 2% cash back into a Fidelity savings account. (Fidelity is making changes and says a new 2% cash back card will be announced Jan. 4.) Barclays Arrival Plus MasterCard pays 2% back that you can use to pay for travel on any airline, and gives you 5% of your points back when you redeem. Capital One ’s Venture card and Citigroup ’s Double Cash card also pay 2% of your purchases back to you.
There are still plenty of great deals to be had with miles, especially if you redeem for business-class or first-class tickets. For frequent fliers who enjoy luxury and don’t have superelite status with airlines, premium airline-connected credit cards loaded with travel perks offer exceptional value.
Annual fees are hefty, typically about $450, but cards such as the Citi AAdvantage Executive World Elite MasterCard, United MileagePlus Club Card from Chase and Delta SkyMiles Reserve from American Express offer sign-up bonuses, free lounge memberships that cost $450 to $550, free checked bags, early boarding and concierge service. American and Delta both offer elite-level qualification perks with those cards. United’s card also carries elite status at Hyatt and Hertz.
Perks have gotten so generous across cards that experts say no-annual-fee cards, once favored by frugal consumers, really don’t save. Sign-up bonuses of 50,000 miles that can by themselves yield a free ticket make the value even more compelling for cards with annual fees.
And those fees have been rising. Jill Gonzalez, analyst at CardHub, a credit-card comparison and personal finance site, says annual fees are about 5% higher than a year ago. “If you redeem the perks for $500 in travel, then paying a $95 annual fee is worth it,” she says.
The sign-up bonuses entice some travelers to churn through multiple cards every year to collect more miles and perks, like vouchers for free hotel nights or companion passes on airlines. You typically have to spend $2,000 to $4,000 on the card within a few months to qualify for the bonus, so it’s difficult to sign up for multiple bonuses at once.
Jay Sorensen, a consultant to loyalty programs, gave his wife a trip to New York for her birthday, at almost no cost. He applied for a Hyatt credit card and redeemed the bonus for two nights at the Park Hyatt in New York, which had a rate for their upcoming March trip for $670 a night. A 50,000-mile bonus on an American Express card got him nonstop flights on Delta Air Lines to New York LaGuardia. “We can live large courtesy of the bonuses,” he says.
Cards tied to hotel programs often offer a better deal than airline cards. Redeeming points for hotel rooms instead of airline tickets is often easier because of better availability, and you can get more value out of your points than your miles. Mr. Sorensen studied reward payback on hotel credit cards last year and found that on average, redeeming points for rooms at Starwood hotels, which include Sheraton, Westin, W and others, delivered a 3.1% return.
The Starwood Preferred Guest card from American Express has been a popular rewards card not only because of the value of using points for rooms at Starwood hotels but also because you can transfer points to several airline programs, including American and Delta, with a 25% bonus. Transfer 20,000 SPG points into an American AAdvantage account and you’ll have 25,000 miles.
“Starwood points are the most valuable currency out there,” Mr. Kelly says.
Big changes could be coming, however. Marriott has agreed to acquire Starwood. The merger is pending. If it goes through, the two loyalty programs could be combined into one, and travelers worry that Marriott’s less-generous terms will be imposed. The companies decline comment on any changes ahead.
Mr. Sorensen says hotels are able to provide better value than airlines because their costs for free nights are low—the cost of cleaning a room—and guests tend to spend on other things like food and drinks during award stays. But he thinks airline-connected cards still offer good value, especially for travelers who can avoid paying checked baggage fees by using an airline’s credit card to buy tickets.
The Wall Street Journal