Citibank and Chase Going Ga-Ga with Airline Frequent Flier Miles to Extend Credit to Consumers

Citibank and Chase Going Ga-Ga with Airline Frequent Flier Miles to Extend Credit to Consumers

Less than a year ago many US consumer finance pundits like Suzie Orman and Dave Ramsey were suggesting that your opportunity to get free airline miles for opening a credit card would be ending soon. These pundits believed that banks that were giving out 25,000 miles for opening a credit card were spending much more than they could afford for the pleasure of giving consumers unsecured credit. It seemed the perks were a last vestige of the credit bubble waiting to be eliminated or at least cut back dramatically. They were not.

While airlines regularly carry miles on the accounting books at 1.4 to 2 cents a miles, it is widely believed they sell miles to their credit card partners for no less than 0.8 cents a mile.  In other words, the 25,000 miles - enough for an free domestic ticket on many airlines - which you were getting for opening a credit card was believed to cost the bank or credit issuer $200.  In 2010, $200 seemed like a steep price for Citibank, Bank of America or Chase to pay to issue a credit card to someone who could very well be just seeking a free trip.

It seemed like the credit card rewards programs had to be cut, but they actually exploded into mid-2011.  Banks are now offering more and more miles or other incentives to draw consumers in. 

The extension into new still more rewarding airline programs started last year when Chase introduced a new British Airways card that offered 100,000 miles with a new account if you spent over $1,000 in three months.  The offer has since been modified, is occasionally withdrawn, and, unlike most offers, requires that you pay the annual fee in the first year ($95). 

Chase quickly followed the British Airways offer with a United Airlines card that provides you with 40,000 miles, and a Southwest card that offered 50,000 points. 

Not to be outdone, Citibank is offering two American Airlines cards that give you 75,000 American Airlines points each as soon as you have spent $1500 on one and $4000 on the other.  These programs are discussed here. 

American Express has even mildly increased the points that it is giving for new card members to its wildly successful Starwood program (30,000) and its Delta program (40,000 as soon as you have charged $1000).

If airline and hotel miles with a specific airline or hotel are not entirely your thing, Citibank and Chase also have reward program (Citibank Thank You rewards and Chase Sapphire rewards) that give you flexibility to use miles across several airlines or even get cash. This article discussing the Chase Sapphire Preferred program outlines an option to redeem your Sapphire reward points for a $500 as soon as you charge $3,000 to the card! 

The major airlines have made it more difficult to redeem miles for flights on domestic routes at the lowest reward levels (and made miles less valuable), yet nobody believes that they are selling these miles to credit card partners for less than they were only one year ago.  Citibank and Chase are giving away hundreds of dollars in frequent flier miles for each new account; in fact, Chase will even just give you $500 instead of the miles for opening their account.  It seems highly inconsistent with the world that we are living in and it is difficult to understand how the banks are making these programs possible.  It also seems like something that consumers should be taking advantage of (as long as they remain cautious of the potential adverse impact on their credit scores).

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to financial literacy and bank transparency. Since co-founding this website in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

Your code to embed this article on your website* :

*You are allowed to change only styles on the code of this iframe.


Comments

Add your Comment