Credit-card companies escalate war of the perks
By RON LIEBER, The Wall Street Journal via AP
A credit card that offers new ways to earn airline tickets is raising the stakes in the increasingly competitive rewards-card business.
The new card, which is called the Citi PremierPass, is in a category
of cards aimed at the big spenders the banks covet. It offers points for
every purchase, which cardholders can then trade for free travel. Already
this year, companies like Merrill Lynch & Co. and a newcomer called
Stratus Rewards have upped the ante on these cards with offerings like
free nights at a Ritz-Carlton and yoga sessions with movie stars.
Someone buying four plane tickets on a 5,000-mile round trip from New York to Los Angeles, for example, would get 20,000 points, plus one point for every dollar spent buying the tickets, plus any frequent-flier miles awarded by the airline itself. The credit-card points can then be traded in for free travel on any airline; the frequent-flier miles would have to be cashed in separately.
Companies like Citigroup Inc., which is issuing PremierPass, have little choice but to continue to improve their card rewards. U.S. consumers will likely spend $1.7 trillion on credit cards this year, according to the Nilson Report. But most credit-worthy consumers who want a rewards card have one already. As a result, the challenge for issuers is to persuade people to trade one card for another.
Mostly, the wooing happens through direct-mail pitches over five billion each year. In the past, when card companies were pushing zero-percent interest rates, people who paid their bills off each month got used to tossing credit-card teasers in the trash.
Today, that could be a mistake. About 58 percent of the credit-card offers during July were for rewards cards of some sort, according to Mintel's Comperemedia. That's up from 38 percent for the July 2003 period.
The growth in cards that offer points rather than frequent-flier miles comes at an auspicious time. Some travelers are having trouble using frequent-flier miles to book the free seats they want, while those on carriers like US Airways and United, which have both filed for Chapter 11 bankruptcy, worry that their airline might not be around when it comes time to redeem their miles.
Indeed, Citibank seems to be attempting to capitalize on frequent-flier malaise in its mailing for its latest card: "We give you rewards they don't," it says.
To observers like Jay Sorensen, president of Idea-Works, a Milwaukee, Wis., marketing and loyalty consulting firm, this seems a bit odd, given that Citibank also has a lucrative deal to issue the MasterCard that earns American Airlines frequent-flier miles. "For every advantage that (the PremierPass) card offers, they're making a direct comparison to a weakness in their partner's program," he says.
Peter Knitzer, a Citi Cards executive vice president, says that the airline is aware of the new card and adds that he believes that the two are aimed at different consumers.
A good chunk of the recent batch of rewards cards offer different levels of cash and rewards for different kinds of purchases. By contrast, many of the earlier cards offered a straight 1 percent refund on charges racked up on the card. The new approach has led many credit-card users to carry more than one piece of plastic using one card at the gas pump and another at the grocery store, for example.
Citibank is trying to avoid that. Cardholders who want to redeem points earned by flying have to turn in an equal or larger number of points they acquired through purchases that didn't involve getting on an airplane. That makes the flight bonus points close to worthless for people who don't use the card for anything but buying airplane tickets.
Another potential drawback to the Citi PremierPass Elite card: It has a $75 annual fee. That's higher than most cards that earn frequent-flier miles. It's also more than the $39 fee that Capital One Financial Corp. charges for its Go Miles Ultra card, which also gives out points that can be exchanged for free flights on any airline. Merrill Lynch's new card has no annual fee.
Citibank is also introducing a free version of the PremierPass card today, but it doesn't offer nearly as many bonus points. Both cards allow customers to trade points for merchandise in addition to free travel.
The company is trying to protect its profit margins in other ways as well. Besides requiring cardholders to redeem the same or a greater number of purchase points as travel points, they are also not allowed to earn more than 200,000 total points per year. Only half of those points can come from the points earned by flying. Both the Capital One and Merrill cards have no such limits.
The Citibank card comes out ahead on other fronts, though. When it comes time to redeem points for free domestic plane tickets, most airline-miles and points programs require at least 25,000 of them for a free seat.
The PremierPass card does too. But it doesn't place a cap on the price of the ticket you can get. Merrill Lynch does impose certain limits, while Capital One charges different point levels for its "free" tickets, based on how much they'd cost if you paid for them with money. Citi and Merrill Lynch have advance booking requirements for many rewards tickets, while Capital One doesn't and none of them have any travel blackout dates.
Another freebie that comes with its new card is a buy-one-domestic-coach ticket, get-one-free feature though you have to buy the seats at least 14 days in advance, stay over on a Saturday, and pay at least $359 or $379 (depending on the season) to qualify.
Still, many experienced frequent fliers deride cards like PremierPass as being "fake" miles cards. That's because you can't combine the points you earn with the card with the miles that airlines give you for flying on their planes.
These people prefer to earn a single currency frequent-flier miles that they can trade for upgrades to first class on their favorite airline and free seats in premium cabins on long international flights. Every major airline offers a mile-earning credit card with a bank, including Continental, which partners with J.P. Morgan Chase & Co., and Northwest, which works with U.S. Bancorp.
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