A recent study from CardTrak indicates that co-branded miles-earning credit cards may not be all they’ve cracked up to be, at least for the “average” consumer.
CardTrak examined the fees and interest rates on cards issued by 11 U.S. carriers, and found that co-branded airline cards give an average of 1.4 percent back in the form of miles, but charge an average of about 5.9 percent more interest than other credit cards.
CardTrak looked at roundtrip transcontinental coach fares for the week of Dec. 22-29, which, at the time, averaged about $338.
Then they calculated how much you would have to charge on the card, and how long it would take, to earn that same ticket for free.
They concluded that it would take a little less than two years and you would have to charge $24,300 during that period.
Next they looked at the annual costs for owning an airline bank credit card for a consumer who consistently carried a $3,000 balance. They found the average annual fee was $51.09, and the average interest rate was 14.35 percent. (All of the airline cards carried a variable interest rate based on the prime rate. Nearly all charged 9.99% over the current prime rate.) The annual costs for maintaining the card averaged $482.
CardTrak also looked at the difference between what banks charge for their lowest interest (non-airline-affiliated, no-rewards) cards – about 8.46 percent. The annual costs to own such a card average $254 per year. On average, the airline cards cost $228 more per year to own than cards with low rates – again, if the consumer carries a balance.
Finally, they compared the extra cost you would pay to earn a free ticket against the cost of simply paying cash up front. The America West, Frontier, and Southwest programs will save you between $13 and $91. But with the rest, you would have overpaid from $38 to $343. On average, these programs cost about $70 more than the cost of just purchasing the ticket.
The lesson here is not that airline co-branded cards are a bad thing. To the contrary, for many consumers, and particularly those who fall within the frequent-traveler profile, they are worth every penny. The vast majority of the average business traveler’s miles come from flying – any miles that can be tacked on through the use of a credit card are really just gravy.
The trick, not surprisingly, is that the cards are best suited for higher-spending consumers who have the ability to pay off the balance in full every month. And this is precisely how the typical businessperson uses them – hence the popularity of pay-it-off-every-month-or-else cards like American Express and Diners Club within the frequent flying community.
In the end, our take on CardTrak’s study echoes that of the loyalty-management experts at Colloquy: “If you need a study to teach you that you lose money when you revolve your credit card balance, then you have our sympathies.”
CardTrak’s study can be found online at cardweb.com.
We wonder what they would have found out, as we have, when you focus on the best card – fee-free ones are available – and when you smartly manage your mileage redemption into such things as international and/or upgrade awards or for last minute travel when the ticket is much more than $338.