FREQUENT FLYER Advice and Reviews
When it still makes sense to take the FF miles (WSJ)
Card issuers continue to flood the market with a wave of new cash-back offerings. Yet for many travelers, frequent-flier miles may still offer better deals.
Credit-card strategies for frequent fliers can be as complex as airline ticket pricing itself, but some basic rules-of-thumb are emerging. For those who trade in their accumulated miles for domestic coach-class flights planned in advance, cash-back cards are often a better deal. But for others, especially frequent business travelers and those in search of first-class upgrades, tickets to Hawaii or international destinations, miles are a better value, even though they aren't worth as much as they used to be. That's because the more expensive the flight or upgrade, the more a frequent-flier mile gains in value.
For example: An unrestricted business-class ticket to Europe costs 180,000 miles on American Airlines. But you'd likely have to charge $500,000 or more on a cash-back card to get the same ticket. And if your cash-back card has a $300 annual limit on its rewards, as some like Citi Dividend Platinum Select card do, it could take 20 years to earn that business-class fare.
"I've thought about switching [to a cash-back card], but I'd rather have the miles because we travel so much," says Pete Aiena, a New York insurance executive. He recently took his family to Maui for 20,000 miles plus $250 per ticket on American, booking three months in advance. With cash-back cards, he says, "You've got to charge a lot of money to get a good award like that."
Major credit-card companies say cash-back offerings haven't cannibalized their mileage cards. Indeed, savvy travelers have long been loyal to credit cards that pay one frequent-flier mile for every dollar charged. That can add up for big spenders, and go a long way to supplement miles earned by actually flying. In fact, miles paid to frequent fliers for card usage and other nonflying activities now outnumber miles actually earned onboard airplanes.
The best strategies for redeeming miles revolve around using them for last-minute trips that would otherwise be expensive, like attending funerals or checking on elderly parents. Many travelers use them almost exclusively for upgrades rather than buying first-class tickets. And plenty do get award seats to Europe, Asia, Latin America, Hawaii or other attractive, distant destinations. Just plan ahead and be flexible on dates and routings.
But frequent-flier miles don't have the buying power they used to -- fares are cheaper, devaluing awards, and the plethora of miles chasing fewer airline seats has made it even harder to score prime free tickets.
Capital One Financial Corp. began marketing to that frustration in December 2003 with "No Hassles" cards that reward customers with airline tickets without any blackout dates or availability limits.
That freedom comes at a steep price, however. While the Capital One card offers a good value if you want only basic advance-purchase domestic-travel tickets, it's expensive for trips to Europe, Hawaii or other far-flung destinations.
Here's why. Capital One pays at least one point for every dollar you charge, and purchases at some merchants get double points. In addition, some customers earn higher rates -- up to two points per dollar charged -- based on their credit score and other factors. Consumers purchase a ticket from an airline, and Capital One credits back the purchase price and deducts points.
Capital One used to multiply the price of the ticket by 90 to get the number of points. In November, the company raised that cost, but also made it easier to earn more points. Spokeswoman Pam Girardo says the changes were made to simplify redemption, not raise the price.
Now, a ticket priced between $150 and $300 costs 35,000 points, a $300 to $600 ticket costs 60,000 points, and anything more expensive than $600 is charged in points at 100 times the ticket price.
So to get a $700 advance-purchase ticket to Hawaii, you'd have to charge $70,000 on your Capital One card if you earn one point per dollar. That's double what you'd have to charge on a mileage card to get the same 35,000-mile award to Hawaii. But if you earn two points for every dollar charged to the card, that trip to Hawaii would require only $35,000 in spending -- the same as a mileage card, but with greater availability of airline seats.
Like the No Hassles card, cash-back cards work better with cheaper tickets and not so well with expensive ones. They do offer complete flexibility, as you can spend the cash on whatever you want.
The Citi Dividend card pays one cent for every dollar, plus five cents for every dollar spent at gas stations, grocery stores and pharmacies. The Blue Cash card from American Express pays 1.5% cash back on most purchases, plus 5% back on groceries, gas and drug-store purchases, if you spend more than $6,500 a year. (Buyer beware: The fine print on both cards excludes discount stores.
Assume 10% of your monthly spending goes to gas, groceries and drug-store purchases. A $250 airline ticket could be earned after spending less than $18,000 on your Citi cash-back credit card, or less than $14,000 on your AmEx cash-back card. Both are cheaper than the $25,000 you'd have to spend on a mileage-based credit card, and cash is far more flexible. But the more expensive the ticket, the more your miles are worth, making cash-back cards less attractive.
One advantage of mileage cards is that you pool your purchasing power, combining miles earned flying with miles earned spending to get awards.
Another advantage is that you can control the redemption value of your miles. Spending 25,000 miles -- by far the most common award redemption -- on a $200 ticket isn't a good value, but if you spend the same 25,000 miles to avoid paying $500, you've done better. And using miles for upgrades can bring rich value: Upgrading to first class can make your miles worth as much as 20 cents each.
Many heavy business travelers have latched onto hotel reward cards, such as the Starwood Preferred Guest American Express card, now that hotel room rates are rising so fast.
The Starwood card offers one point for every dollar charged and has a "redemption grid" with six different classes of hotels, giving travelers a lot of flexibility in redeeming their points. One weekday night at the Sheraton Lima Hotel and Casino in Peru, for example, can be had for just 3,000 points, while one night at the St. Regis in New York can cost up to 25,000 points.
Cardholders can also use their points for airline tickets, but at either the low end or the high end of the hotel redemption grid, you can spend 25,000 points and get far more value than you can with a discounted domestic airline ticket.
"Hotel rates are going up, and hotels haven't yet adjusted redemption rates," says Randy Petersen, chief executive of Frequent Flyer Services, a publisher of newsletters and Web sites.
New fees and rule changes are making frequent flyer awards tougher to claim. Many passengers are finding frequent flyer miles more difficult to cash in since airline programs tightened restrictions in recent months, according to a Consumer Reports analysis of 11 U.S. airlines and Air Canada in its May edition.
"They're making it harder in many ways," Deputy Editor David Heim said. "The alliances between airlines and airlines' frequent flyer programs keep shifting, which makes it harder for people to keep up and harder to claim awards because you may be in a program that's lost its partner."
What's more, American Airlines raised the number of miles needed to claim an award. For a business class ticket to Hawaii, for example, you now need 75,000 miles, up from 60,000 miles, while continental business-class mileage requirements jumped to 45,000 from 40,000 miles, Heim said. "Economy class tickets didn't change, but the less restrictive, anytime awards for travel in the U.S. jumped by 10,000 miles" on American within the last six months, he said. While American is the only airline that's raised its minimum mileage requirements to claim an award, "the concern we have is the other carriers will follow suit," Heim said.
Consumers should expect more fees as well. Continental is charging a booking fee for mile redemptions made less than 15 days in advance, Heim said. Those booking within three days of departure will incur $50 to $75, compared with a $35 to $50 fee for four to 14 days out, he said.
There's other evidence of nickel-and-diming. Depending on the carrier, you also may pay up to $100 to change your departure or destination city once you've booked, Heim said. "Redepositing miles back into your account could cost you 50 to 100 bucks." Many airlines have done away with black-out periods, but that doesn't mean the seats are available, Heim said.
Here are a few guidelines to consider for your free ticket award, according to Consumer Reports:
- Maximize your miles. If you don't travel often, consider earning miles in one or two programs instead of accruing slowly in multiple programs. "If you have too many programs going on, you may never accumulate enough miles in any of them to make it worthwhile," Heim said. Don't forget to look for bonus mile promotions, many of which are online-only.
- Be flexible. Mondays and Fridays are typically the toughest days to find frequent flyer seats. Travelers who can bend their schedules around have the best chances of landing a free flight.
- Plan ahead. Airlines can open their seats as early as 331 days in advance, according to Consumer Reports. But even a few months ahead is better than waiting until the last minute.
- Stick to your plan once you book. Many airlines no longer allow you to hold a frequent flyer award reservation for up to 30 days, Heim said. "They've cut that back to two weeks -- 14 days with American, Delta and United, and US Air gives you three days to change your mind," he said. "Continental and Northwest don't give you any window at all."
- Don't count on unrestricted awards, but don't rule out double-the-mileage offers. Black-out dates may be gone and most major carriers no longer impose time limits on mileage, but seats are far from available in many cases. At the same time, some passengers are paying up twice the amount of miles for a particular time, which may not sound like a value unless the airline raises its threshold or becomes insolvent. It's better to use them than lose them, even if you have to spend more to do what you want.
- Mileage upgrades may be difficult. Consolidator tickets, deeply discounted fares and some Internet-only specials often are exempt from upgrades, according to Consumer Reports. It pays to ask before buying since those fares are typically nonrefundable.
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