With an airline credit card, your miles may vary: Travel Weekly

Robert Silk

Robert Silk

I don't have an airline credit card. I have two. I have no plans to get rid of any of them.

I earn enough reward points on my Southwest Rapid Rewards card to pay off the $69 annual fee. My United MileagePlus card pays the $95 annual fee with bonus points and free checked bags. Additionally, I almost never have a balance, which means I don’t give back the value of those reward points in the form of interest payments.

But not everyone has the same spending and travel habits as me.

Last month, the Department of Transportation and the Consumer Financial Protection Bureau (CFPB) held a joint hearing to consider whether to impose new regulations on credit card rewards programs, most prominently airline programs.

Airline co-branded credit card programs have grown rapidly since the pandemic began, generating billions of dollars in revenue for airlines while offering consumers the chance to earn perks like free flights and retail merchandise. But as panelists noted during the hearing, the carrot also comes with a stick.

Several experts say interest rates on rewards cards tend to be higher than on cards not tied to a loyalty program. Additionally, Apple Credit Union CEO Andrew Grimm said consumers who use rewards cards typically make more frequent and more expensive purchases than those who don’t.

As such, such cards play an important role in increasing consumer credit card debt. CFPB Director Rohit Chopra said at the hearing that Americans paid $130 billion in credit card interest and fees in 2022. This metric has certainly increased over the past year as the average credit card balance increased by 10%.

Department of Transportation Secretary Pete Buttigieg said one of the reasons regulators are focusing on airline rewards cards is that many consumers treat their points or mile balances like a savings account. But these are no ordinary savings accounts, as the airline that administers each award program reserves the right to lower points or increase award redemption prices at its discretion.

Notably, analysis by consulting firm IdeaWorks shows that the average daily minimum price for air tickets purchased with points or miles increased by 28% in March compared with March 2019, a figure that exceeded the inflation rate by 7%. percentage point.

At the hearing, some panelists, particularly those representing consumer groups, made disparaging comments about the major airlines' co-branded credit card programs, describing the devaluation of points as a bait for consumers and pointing out that airlines have made inroads in terms of lack of transparency.

But there are other perspectives. Tiffany Funk, co-founder of Point.me, a points and rewards travel search platform, recently told me that rewards programs are largely self-regulatory.

“Ultimately, the ultimate goal of a loyalty program is for customers to have a positive interaction with the airline,” she said.

If an airline gets too keen on things like currency devaluation, it won't be able to achieve this.

To prevent currency devaluation, Fink recommends credit card shoppers choose a card, such as the Chase Ultimate Rewards Card, that allows points to be transferred to various airlines.

More generally, she shares my perspective. Before accepting a generous sign-up bonus from an airline, travelers should consider whether a particular card's annual fees and interest rates will offset the positive impact of points accumulation. For consumers like me who travel frequently and don't have a monthly balance, the answer is probably yes. But for those holding balances, this analysis will likely lead to a different conclusion.

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