My Thoughts On 2 Fascinating Mileage And Credit Card Articles In The Wall Street Journal And What Chase And United Can Do To Fix Their Problems

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On Wednesday, the Wall Street Journal wrote an article titled “The Best Frequent-Flier Awards Programs of 2019.”

On Thursday, the Wall Street Journal wrote an article titled “Sapphire Reserve Strains JPMorgan’s Ties With United Airlines”

You can try opening those links in an incognito browser to read the articles.

The criterion in the first article for what determines the best mileage program is far from what I would use. They calculated the percentage of domestic flights available for 25K or fewer miles and came up with this:

Personally I care more about coach availability within a week of a flight or premium cabin availability in general as those are where airline miles can become insanely valuable. Anyone can buy an advance purchase domestic ticket for relatively cheap, so the miles in that case aren’t as valuable.

The author then talks to the head of United MileagePlus,

While international business-class awards can be very difficult to score, Mr. Covey says United is focusing on award seats in the economy cabin. Even frequent fliers with big mileage-account balances often want to take family and friends on trips with their miles. They’re liable to look for three and four coach seats rather than a business-class ticket that may cost three or four times as much as a coach seat.

In November, United will do away with its award chart completely. “The constraints of the award chart didn’t really match supply and demand,” Mr. Covey says.

With all due respect Mr. Covey, the reason people with high mileage balances are liable to look for 4 coach seats instead of business class is because airlines have made it increasingly difficult to find business saver awards. That is the case even close to the flight when airlines know they won’t sell all of the seats.

United’s award charts had no real constraints. They could have kept the charts, increased the cost of everyday awards, and had frequent award sales below the saver level when they felt like stimulating more demand.

Instead they plan on killing their award charts in November, which means they can devalue without warning. It’s nothing more than spitting in the face of your customer.

The 2nd article is more interesting.

The article quotes a Chase card user by the name of Al Sanzari, who used to have a Chase United Explorer card and a Chase Sapphire Reserve® card. He cancelled the United card as he said,

“There wasn’t anything the United card was doing for me that the Chase Sapphire Reserve® couldn’t.”

If he was a DansDeals reader he would know that is far from the truth. The United card actually has some pretty sweet benefits. Non-elites get access to elite level expanded saver and last seat everyday award availability, free carry-on bags on basic economy fares, free checked bags, free priority boarding, and more. Elites get access to upgrades on award tickets. And everyone gets free clubs passes, Global Entry/Pre-Check, plus 25% off in-flight WiFi, food, and drinks.

Thanks to expanded award availability, your Chase Ultimate Rewards points are far more valuable if you also have a United card, which is why I included it in my Killer Combo/Quinfecta post.

However it’s excusable that Mr. Sanzari didn’t know that as both Chase and United do a terrible job marketing those benefits.

The Sapphire Reserve is not a be all and end all card. In fact Chase Sapphire Preferred® Card and Ink Business Preferred® Credit Card both do a great job allowing you to earn bonus points on travel while giving you the ability to transfer Chase points into miles. Plus they both have richer signup bonuses than Sapphire Reserve and have lower annual fees. No annual fee cards like Ink Unlimited and Freedom Unlimited earn 50% more points on everyday purchases than the Sapphire Reserve, while no annual fee cards like Ink  Cash and Freedom earn a whopping 5 points per dollar in valuable categories. You’ll want one of the premium cards for transferring points into miles, but they are not great everyday cards.

“United executives have told JPMorgan they believe the Sapphire Reserve card is competing directly with the airline’s cards and siphoning off customer spending, according to people familiar with the matter. While the deal lasts for another six years, according to people familiar with the matter,

United President Scott Kirby has said publicly that the airline has had tough conversations about the JPMorgan partnership and wants to get more money out of it.

The airline has asked JPMorgan to pay it more for miles, among other things, according to people familiar with the conversations. JPMorgan, meanwhile, insists the cards aren’t direct competitors and believes the airline should be doing more to earn traveler loyalty, the people said.”

So United has 6 more years on its deal and wants to renegotiate. Sounds like they hired an NFL agent. In the end, Chase is correct here, United keeps on devaluing their miles and can’t figure out why they’re having a hard time competing with Sapphire Reserve. Could they possibly be this clueless?

I’ve long advised banking “Hybrid points” over locking yourself into airline miles and hotel points. In other words the Sapphire Reserve offers the ability to redeem directly for paid travel at a value of 1.5 cents each (multiplied by 1.5-5 points per dollar earned means a return of 2.25%-7.5% at the minimum) and it offers the ability to obtain even more value by instantly transferring points into a variety of airline miles and hotel points. Or you can even cash out the points at 1 cent each if you so desire.

I’m not sure how United doesn’t understand this, but they keep on proving again and again exactly why you should NOT use their card or any airline card. The United card is worth holding onto for its benefits, but there’s no good reason to use the card over other cards that earn more points per dollar spent and more critically, allow you to keep the points as a hybrid currency so that they are not devalued.

Unmentioned in the article is that United’s $95/year Explorer card isn’t trying to compete with Sapphire Reserve. United’s premium card is their Club card which matches the Sapphire Reserve’s $450 annual fee. However United has obliterated the benefits on that card and continue to make new cuts to their clubs, such as getting rid of showers, eliminating all newspapers in the clubs as of this week, and restricting access to United ticket-holders as of November. The card earns 2 points per dollar on United flights versus 3 on Chase Sapphire Preferred® Card and doesn’t include the protections that Sapphire Reserve provides.

“When the bank launched Sapphire Reserve in 2016, applications for the United cards slowed, according to people familiar with the matter.”

True, the Sapphire Reserve card launched in August 2016 and United thinks the slowdowns in card applications were caused by it. I don’t think it’s fair to blame everything on Sapphire Reserve. After all, Chase Sapphire Preferred® Card has been around for years and also offered more compelling spend benefits while retaining hybrid points.

A more likely culprit is tougher underwriting standards by Chase. For example 5/24 rules were implemented on United cards in May 2016 and surely slowed down the number of new Chase cards that people could open during the same time period as the Sapphire Reserve launch and those rules continue until today.

If anything, United should be lobbying Chase to lift 5/24 rules off of their cards. At the bare minimum, Chase should allow the option for someone to get approved for a card they want and agree to forgo the signup bonus if they are over 5/24 or received the bonus on a card within the past 24 or 48 months based on the card’s bonus rules. AMEX currently has an eligibility popup when you apply for a card and there’s no reason that Chase can’t have the same type of popup asking if you want to proceed without a signup bonus.

“JPMorgan pays United for the miles cardholders accrue. The airline gets paid before customers book flights, and a portion of the miles is never redeemed. United also gets a cut of the swipe fees merchants pay when customers use the cards…

…Sapphire Reserve points are worth 50% more when used to book travel, making the card particularly attractive to frequent travelers who aren’t loyal to a particular airline.

The perks on airline cards have been enhanced in recent years to better compete with banks’ premium offerings. Some United and American Airlines cards, for example, added 2 miles per dollar spent at restaurants last year.”

If United wants to sell more miles, devaluing their program and getting rid of award charts is not the answer. And their cards are setup today are simply not worth spending on. Adding 2 points for dining is laughable when that merely matches Chase Sapphire Preferred® Card (let alone the 3 points offered by Sapphire Reserve) while those points have the advantage of being hybrid points that aren’t subject to be devalued into oblivion by United. If you want United miles you can transfer them there on demand, but there’s zero reason to bank them there.

“Citigroup wants its customers to be able to transfer American miles to its Prestige credit card, according to people familiar with the matter. American hasn’t historically allowed for that.”

That’s fine American. You can lock down your miles for people spending money on your weak credit card offerings and I’ll keep ignoring your miles as there’s no chance that I trust you not to devalue them. I’ll accumulate miles from signup bonuses and that’s about it. Or you can make more money by allowing Premier and Prestige cards to transfer to AA miles as I’d be happy to transfer miles over for a specific redemption.

This graphic is pretty incredible. Airlines are becoming flying credit card marketing companies, making billions of dollars on selling miles to the banks:

Earnings from mileage sales are fairly close for the 3 big airlines in 2019 and fall in order of how big each airline is, with American as the largest airline, followed Delta and then United. Delta however project their revenues from mileage sales to skyrocket due to a new deal they inked with AMEX:

I’m sure some will ask how Delta is able to serially devalue their program and still make that kind of money on selling miles. However they have several things going for them:

1. AMEX doesn’t have a 5/24 rule, so anyone can signup for a Delta card when they want to.
2. They have a more robust card portfolio, with Blue, Gold, Platinum, and Reserve levels of consumer and business cards.
3. They offer more reasons to use their cards, including the ability to earn elite status from hitting spending thresholds.
4. They recently signed a new more lucrative deal with AMEX, which is possible because they hold a whopping 21% of AMEX lending after AMEX lost the Costco and JetBlue co-brand cards. They gave Delta an incredible amount of leverage in negotiations.
5. They are the best operated big airline in the US, which gives them more leverage to sell their cards. Their share of earnings from mileage sales is actually much lower than AA and United, though that’s because they run their airline better than AA and United.
6. Delta runs valuable flash sales in Premium and Business class. They seem to actually get what people want, it was enough to make me take a trip to Amsterdam, something I didn’t think would be possible with Delta “Skypesos” in the past.

It’s worth noting that you don’t hear Delta complaining about cards like the no annual fee AMEX Blue Business Plus Credit Card that earns 2 points per dollar spent everywhere and can be used as Hybrid points (with a 35% rebate on paid airfare if you also have the AMEX Business Platinum card) or transferred into Delta or other miles on demand should you need them.

Consumers are slow to react to changes, but Sapphire Reserve proves they know a good deal when they see one.

I believe that cashback cards and banks offering hybrid points are going to continue to steal market share away from airline cards and that’s a good thing. Airlines make billions on their mileage programs and they think they can keep devaluing the programs without the public noticing. But there are more options now than ever and until airlines come up with a way to entice me to spend on their credit card, I’ll keep banking hybrid points and advising others to do the same.

Later this year Qantas will introduce elite benefits based solely on how many miles you accumulate from non-flying activity. Hopefully US airlines are paying attention as that would be a good reason to start spending on airline cards, if they make it more rewarding than earning hybrid points.

However based on United’s clueless responses to the first article, I don’t think they’ll realize that they are actively causing some of the problems that they complain about in the 2nd article.

What is your current credit card spending strategy?