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Travel rewards aren’t just for frequent fliers anymore, as credit card issuers ramp up intro bonus rewards on travel credit cards.
New research by MagnifyMoney found that the average introductory bonus on a travel rewards credit card in 2018 is now 40,556 points, more than double the average bonus in 2008 (16,050 points) and up from 34,327 points five years ago.
This comes as debit card rewards have nearly disappeared extinct following implementation of the Durbin Amendment, which capped the interchange fees banks could charge on debit transactions.
Just 18% of Americans with a debit card said their card offers rewards as of 2017, according a MagnifyMoney analysis of data from the Atlanta Fed’s annual survey of consumer payment choice.
Credit card companies have long used introductory bonus offers as a way to lure potential customers into getting their travel-related cards. And in an increasingly competitive space, those reward offerings have steadily increased.
“More and more cards are offering travel rewards without being tied to one airline,” said Brian Karimzad, vice president of research at LendingTree, the parent company of MagnifyMoney. “We wanted to see what that competition has done to intro bonuses.”
MagnifyMoney looked at more than 90 intro bonus point offers from each of the five largest credit card issuers for personal credit cards in five-year increments, February 2018, 2013 and 2008. Some issuers targeted offers to consumers via email, direct mail or site login but those weren’t included in this study.
- These bonuses come at a steep cost to consumers. The average annual fee on a card with a bonus offer is $120, up 62% from $74 in 2008.
- Airline miles offers more than doubled to 38,438 miles from 15,500 miles on average in 2008.
- Cards with travel rewards you can use as cash on any airline have the highest growth rate – with bonuses tripling over the last 10 years, from 10,000 points to 30,455 points.
10 year change
Average introductory bonus points
Cash for travel
Average annual fee
What’s driving these changes?
Competition among banks and airlines is heating up as miles have become bigger business over the last 10 years, which is likely feeding the rise in lucrative intro bonus offers. A tipping point may have been reached on Sept. 14, 2005, when Delta Air Lines filed for Chapter 11 bankruptcy protection. As part of its filing, American Express agreed to provide Delta with $350 million of secured financing. This was on top of a $100 million loan and the pre-payment of $500 million for SkyMiles executed on Oct. 25, 2004.
And in 2008, Delta signed a multi-year extension with American Express and sold $1 billion in SkyMiles to the card company in lieu of cash payments. These deal showed how miles could add to a carrier’s bottom line.
It’s hard to get firm numbers on revenue earned by airlines and hotels under their credit card deals, since they aren’t separated as line items in their financial reports. Delta showed a slide in its December 2014 investor relations presentation that valued its new multi-year contract with American Express at $2 billion. American Airlines announced new deals with Barclays and Citi on July 16, 2016, that it valued at $800 million by 2018.
So it’s clear that reward offerings are a key factor in drumming up new consumer interest and are adding to the bottom line of both airlines and card companies.
“Airlines are earning upwards of 50 percent of [income] from selling miles to a credit card company, which we believe is a great business to be in,” wrote Joseph DeNardi, a senior airline analyst with Baltimore-based Stifel Financial Corp., on March 20, 2017.
In turn, credit cards use these points and miles to lure new customers with intro bonus offers that allow them to cash in quickly for things like flights and hotel rooms. Here are just a few examples:
On Dec. 5, 2017, Marriott International announced it had inked new deals with JPMorgan Chase and American Express for Marriott Rewards and Ritz-Carlton Rewards Visa credit cards, and the Starwood Preferred Guest credit cards.
Marriott also announced new co-brand products coming later in 2018, including super-premium consumer and small business co-branded products from American Express, and mass consumer and premium consumer co-branded products from JPMorgan Chase.
In 2014, Delta Air Lines announced a multiyear extension of its co-branded credit cards with American Express, and a spokeswoman says that deal is still in place, although she declined to share further details. In its 2017 annual earnings release, American Express cited its strategic co-brand agreement with Marriott and its announcement of a suite of new co-brand cards with Hilton as a bright spot during the year.
Southwest Airlines Chief Revenue Officer Andrew Watterson said in a Skift interview that credit cards are “core to the airline business,” noting that his carrier’s planned service to Hawaii is partly driven by potential customers interested in using the carrier’s Rapid Rewards points for flights to the island.
That’s a long way away from what the airline credit card space looked like in 2008. Ten years ago, an IdeaWorks study found that airlines were generating more than $4 billion a year in revenue. Back then, rewards were pretty basic, where miles and points were accumulated on appointed cards and revenue was generated from loyalty program customers.
But then Chase raised the bar when it introduced its Chase Sapphire Preferred® Card card in 2009 and the Chase Sapphire Reserve® in 2016, targeting more affluent customers who wanted more perks and benefits. That included access to its Chase Ultimate Rewards® website, where cardmembers use their points to book travel, transfer points to airline and hotel loyalty programs, buy gift cards and merchandise and get cash back. Chase Sapphire Reserve® members get 1.5 cents toward travel for every point, while it’s 1.25 cents per point for Chase Sapphire Preferred® Card.
This created more competition among card companies like American Express, Bank of America and Citi, which have unveiled new products and more intro bonus programs to keep up.
The bottom line
Not all points are created equally. You could earn the same number of miles on one card as points on another card but each can carry very different redemption values. For example, 50,000 United miles could get you two round-trip domestic coach tickets worth $700 or more if you’re flexible, while 50,000 Hilton points might not be enough to cover a full night at a $400 per night big city hotel. In general, hotel points tend to give you less reward value per point than airline miles, while cash for travel points tend to be worth at least one cent each, so 10,000 points gets you at least $100 in travel rewards.
Cards that offer cash for any travel purchase give people who don’t want to mess with miles — but want to save on travel — a way to get more value from their spending than many straight cashback cards.
With hotel-branded cards, you can use bonus points for travel or transfer them into airline miles with their respective partners, which helps boost miles in a loyalty program to use for things like flights and seat upgrades. Some airline-branded credit cards not only offer intro bonus miles, but also the chance to earn qualifying miles that count toward that all-important elite status. And travel-branded cards offer websites where you can get bonus points to use toward travel.
Sometimes the chance to get higher bonus points may not be worth it, due to a high annual fee or higher spending needed to get them. Cards with high bonus points coupled with lower annual fees and/or spending could be a better fit.
The study is good news for frequent travelers who are finding it more difficult to earn rewards by racking up miles alone. Banks are realizing that some people are frustrated with their airline miles and the rules for using them, said Karimzad.
“The airlines have made it harder to earn miles by flying in recent years,” he said. “Many of them now award miles based on the price of your ticket, instead of how far you fly, making sticking with a single airline mile program less lucrative for people who aren’t heavy business travelers.”
Cards that offer cash for any travel purchase give people who don’t want to mess with miles — but want to save on travel — a way to get more value from their spending than many straight cashback cards, he added.
These days, 50,000 miles is the new 25,000, said Karimzad. “As offers and competition have increased, the bar for going through the trouble of applying for a card has gone up, and consumers should be looking for offers that get them more value than the 25,000 miles of years ago,” he said. “Transferable point cards are the most flexible because you can use the points like cash for travel, or convert the points into real airline miles, so a big bonus on a transferable point card is a great place to start.”
The information related to the Chase Sapphire Preferred® Card and the Chase Sapphire Reserve® has been independently collected by MagnifyMoney and has not been reviewed or provided by the issuer of this card prior to publication.