Your loyalty gives you credit

1 Oct 2004 by BusinessTraveller

Airline loyalty credit cards are an excellent and easy way to earn free flights faster ? it's just choosing the right card that can be difficult. Sarah Maxwell compares the deals.

Following Business Traveller's feature on hotel loyalty credit cards (July-August), here are the offerings from the airlines. The packages vary slightly but the idea is the same. These are credit cards that will allow you to earn extra points in the loyalty programmes of the particular airline. On successful application for the card, you will receive miles, then you accrue miles every time you spend on the card. Additional, ?bonus' miles are awarded if you use the card to buy flights with the airline card-issuer ? with some awarding even more if you book online ? and of course these are on top of the normal miles earned for the flights purchased.

To take BA as an example: the airline offers a choice of three American Express credit cards to suit different travel and spending habits. Put simply, the higher the annual fee, the higher the rate of miles earned and the lower the APR (BA is also running a promotion offering double points (see Loyalty update page 76). Other cards offer differing benefits. Bmi's Classic MasterCard automatically gives cardholders entrance-level (blue-tier) membership into its Diamond Club loyalty programme, allowing them to bypass the introductory stage to earn their permanent card immediately (usually earned after the first 3,000 miles collected, under new rules launched this summer). It also presents applicants with a golden hello of 20,000 destination miles ? enough for a free return flight with Bmi from the UK to France, Italy, Portugal or Spain.

Most major airlines now offer a credit card affiliated to their loyalty programme, and not just to their domestic passengers. Many are seizing the opportunity to launch credit cards in overseas markets, with the result that UK residents can also apply for a card with Delta, United, Lufthansa and American Airlines.
The advantage for the airline is obvious.
When it goes global it can sell its miles to the local financial provider, representing a lucrative revenue source. The advantage for the frequent flyer is an extra way to reach those rewards faster. As such, credit cards have grown to become an important part of loyalty programmes, for both airline and passenger, says Ravindra Bhagwanani who runs a frequent flyer consultancy in Germany. "Today, credit card miles are by far the single most important partner activity in FFPs (after flights). On average, about 10% of all miles are earned through credit cards. In some programmes this value even reaches 50%."

With several different airline cards on offer, you might think the wisest choice would be with the airline you fly on most often, but Bhagwanani warns against assuming that this approach is best, as mileage earnings can vary so widely among frequent flyer schemes.
"For instance, if you travel a lot on Lufthansa and opt for the Lufthansa (Miles & More) credit card in the UK, you would need to spend £30,000 to get a free award flight within Europe. If you choose the United card, you
can have the same award flight as on Lufthansa after just £20,000." It is so easy to build up credit card loyalty points that many travellers are choosing an FFP based purely on the credit card offer, says Bhagwanani, and, such are the potential rewards to be reaped, this is a perfectly reasonable strategy.

Once you have settled on an airline to begin notching up credit, there is often a choice of different card types; in most cases, the more you are willing to pay, the more perks you get. Virgin Atlantic, for example, offers two cards: with one you pay no annual fee and earn one mile per £1 spent; with the other you pay an annual fee of £80 and receive two miles per £1 ? the latter would therefore be a good choice for bigger spenders.

Miles & More, which issues credit cards in nine countries including the UK, Japan, Germany and the US (and is planning a relaunch of its credit card in the UK by the end of this year), currently offers two versions of their card with different credit limits to suit different budgets. Delta also offers two cards ? the Visa and the Premium Plus ? one offering an initial bonus of 2,500 miles and the other 5,000 miles. When Business Traveller enquired with financial provider MBNA the differences between the cards, we were told there was none, aside from the differing bonuses.
"Some people just prefer to have a platinum card, some prefer standard," they told us.

Some credit cards are aimed to be more exclusive than others. BA and Virgin both make their cards available only to members of their loyalty programmes, so you have to meet their membership criteria first (for BA, a
pre-qualifying flight and for Virgin, a qualifying flight to achieve permanent membership once you have enrolled online), whereas you are automatically enrolled into the loyalty schemes of Bmi, Miles & More and United upon successful application.


The generic cards

The impulse is to apply for the card that will allow you to amass as many miles as possible, but another consideration should be the flexibility in redeeming your miles. One disadvantage of the airline cards is that the cardholder is stuck in that particular loyalty programme and must collect and redeem miles according to its rules ? they are also limited to redeeming on the airline's own flights or those of its partners.

One alternative is to join the bonus programme of credit card companies like Amex or Diners Club, which are linked with frequent flyer programmes. Under these programmes cardholders don't have decide which loyalty programme to redeem their miles with until they actually come to do it and know what their travel plans are. Says Bhagwanani: "If you collect 20,000 miles with United and later you decide you want to use them for an award flight to Portugal, you would need to travel with Lufthansa through Frankfurt since no partner of the United programme offers direct flights. But by collecting points with Amex, you would have the flexibility to transfer the points to the TAP Air Portugal programme and get a non-stop award flight for the same spending."

Other credit cards that allow redemption of points for flights and other travel arrangements are the generic consumer credit cards, and these give you an almost limitless number of airlines and hotels to redeem points with. Points collected with one of the AirMiles credit cards, for example, can be redeemed on 112 airlines as well as for holiday packages and plenty of other rewards.

In May this year, Morgan Stanley launched its Buy and Fly! credit card, competing with the AirMiles credit card and the Barclaycard-Nectar partnership. Cardholders earn one point for every £10 and can redeem against flights with 17 airlines ? including AA, bmi, Flybe and Air France ? as well as hotel breaks, holidays and excursions.

Compared with the AirMiles and Nectar-Barclaycard credit cards, which award one mile per £20 spent (though AirMiles does run occasional promotions giving 1 point per £10 in the first 6 months of account opening), this seems a great deal. For example, Buy and Fly claims that to accumulate enough points for a free ticket to Paris, you only need to spend £3,900 ? that's compared with £8,800 with the AirMiles card and £12,000 on the Nectar card. However, these calculations are based on points collected with non-partners. If you take into account the extra points you can collect when doing your daily shop in Tesco, Debenhams and the myriad other major retailers partnered with Air Miles and Nectar, it is clear that you can boost your points faster than these figures suggest. Morgan Stanley has opted to award slightly more to their cardholders regardless of where they shop. So it comes down to whether you are a creature of habit in your day-to-day activities or prefer to be able to collect points wherever you go.

One important thing to remember with the consumer credit cards, though, is that the awarding company must purchase their tickets at market rates, so this will be reflected in the number of miles needed to earn them; airline loyalty programmes can offer flights on their own aircraft at much lower costs, so on the whole free flights can be earned faster.

Overall, the choice of card should reflect your own priorities, spending habits and travel plans, but there is no doubt that if you make a wise choice (or even if you don't) credit cards are an unmissable opportunity to get more out of your travelling.

For more details on how the airline credit cards compare, see the October edition of Business Traveller magazine.

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