Why Use an Airline Credit Card?

We actually can’t think of any good reason. Frequent flyer tickets are becoming harder to obtain, and the miles needed are being increased, thus devaluing your reward per mile.

Airline frequent-flyer-mile credit cards generally cost in the neighborhood of $75 or more per year in annual fees, and then you end up with miles usually worth 2 cents each, or less. The old logic was that you received good value if you could use 25,000 miles for a domestic ticket that you’d probably pay about $500 for (less real value, though, because of that annual fee).

But as miles became devalued, the argument then became that you would get better use of miles for upgrades from economy to business or first class. With premium-class tickets sometimes 3 or 4 times the price of economy, that made some sense, even though you had to purchase the economy ticket itself first.

But now, several airlines are imposing fees of up to $300 to upgrade domestically, and up to $1,000 to do so internationally. The biggest abusers so far appear to be American, Continental, and United. Plan on the other majors following the herd.

This seems to be another squeeze-the-customer moment that the airlines have imposed without much thought to its consequences. If this, as we suggest, means that people will simply stop using airline credit cards, the banks that pay the airlines for those miles will begin to see customers migrate to other cards, and the airlines stand to lose one of their few reliable income streams.

In today’s environment, we can’t recommend an airline credit card anymore. There are several cash-back credit cards that offer 2% or better for purchases, and which have no annual fees. We remain convinced that over the long run, most consumers will be better off with the Chase Freedom Visa (3% cash back in several categories), the new Schwab Visa (2% cash back on everything), or the American Express Blue Cash (up to 5% after reaching a spending threshold).

Put that cash reward in a piggy bank, and buy yourself the airline ticket you want – any seat, any time, no extra fees for using cash, and probably inexpensive if you watch the airfare sales.

Airfare Watchdog has a good chart of the latest frequent-flyer fees.