Rethinking Mileage Credit Cards

With the recent wave of airline bankruptcies (Frontier) and shutdowns (Aloha, Skybus, ATA), you may be wondering what could happen to your frequent flyer miles. Most likely, if the airline stops operating, your miles go with them. (A bankruptcy such as Frontier’s generally means the business continues operation while they straighten out their financial situation. As long as they’re still flying, your miles should be OK. For awhile.)

There are two significant types of frequent flyer miles (although in nearly all cases, both types go into the same bucket). First are miles you earn by flying (which, incidentally, also count toward elite status with that airline, but that’s another topic). Second are miles you earn elsewhere, primarily with credit-card spending. For actual flight miles, the only way to hopefully “preserve” your miles is by affiliating with an airline which you hope will stay in business. Also by not hoarding miles but using them as much as possible. But credit card miles are discretionary. You can choose to use a Delta American Express, a United Visa, or any of the other airlines’ credit card partners. (As an added incentive, with an airline card there’s usually a big mileage bonus for signing up for the card.) But, those miles are dumped into your Delta or United or whatever account, just like flight miles. So if the airline folds, kiss your miles goodbye.

One alternative is to not even worry about miles from credit cards. There are many cash-back credit cards, some offering up to 3-5% on certain purchases. Percentage-wise, that may be a better deal than one-mile-for-one-dollar on your United Visa (depending on how you value your miles).

The second alternative is to use a payback-type system. Cards like Capital One, Merrill+ Rewards, or the American Express FreedomPass card accrue fake “miles” that can be redeemed for any travel purchase. Most offer about 1% back and most can be had for no annual fee. (We recently reported on a Capital One MasterCard which offers 2% back and has a $39 annual fee.)

Thirdly, if you want other types of travel awards, consider a hotel-affiliated credit card. We’ve used the Hilton American Express card (no annual fee) for years, and have accumulated a lot more Hilton points than we’ve used for stays at Hilton hotels. We’ve also heard many good things about the Starwood Amex card ($45 annual fee). Many of these cards have some sort of transfer program with various airlines, but generally at no better than a 1-to-1 ratio. The benefit of this system is that you hold your miles/points in a program which isn’t tied to a particular airline, yet can transfer points to certain airlines as needed. So unless the hotel chain goes under (much less likely) your points should stay valid. And if you use the hotel points in these programs for actual hotel stays, your “value” may be a lot higher than a 2% airline equivalent or a 3% cash-back program.

Finally, there are the proprietary systems such as the American Express Rewards or Diners Club programs. These, also, generally offer transfers into various airline programs, but most of these cards have significantly higher annual fees ($95-$350, for example) than even the airline’s branded credit cards (which are generally $50-90 per year). Most of the Amex/Diners programs also offer other perks to cardholders, but while the perks may make the annual fee acceptable, that’s beyond the scope of this article.

With any of the non-airline programs, the benefit is that you’ll keep at least some of your “miles” should the airline go bust. The miles already in the airline program might disappear, but you’ll still have some miles in the bank/hotel/card program for future travel. Personally, we go back-and-forth, back-and-forth. We’ve changed our thinking on this more than we care to admit. But in today’s environment, we believe that: 1) we’ll never pay an annual fee again (unless there is some big “other” benefit to the card); 2) we’ll consider carefully what airlines we choose to dump credit-card miles into (and then only if we can get the airline credit card for free); 3) we’ll use a cash-back credit card if we can get 3% or better; 4) we’ll only use a no-foreign-exchange-fee credit card overseas, whether it gives us miles or not (at least with Capital One or Discover, you can get some points/rebates, even if they’re not the greatest); 5) we’ll continue to use our Hilton Amex for points into that system (no card has been consistently better for us over the years).

Several websites have good info on credit card programs, including Frequent Flier, Free Frequent Flyer Miles, Ask Mr. Credit Card, Index Credit Cards, and Rewards Cards. Be forewarned, if you search for “Best Airline Credit Cards” or such, you will stumble upon several very OLD articles – one search of ours turned up a 1999 posting on the first search page.

This machine does not take credit cards