Airline Cards vs. Bank Credit Cards
If you’ve taken a flight in the past 10 years I’m sure you’ve been bombarded with pitches by flight attendants to apply for their airline’s co-branded credit card. It seems like a no brainer, right? You fly a lot with this particular airline, so why not beef up your mileage balance with their credit card? After all, they’re offering a huge signup bonus. This is where nuance and strategy comes into play.
Basics of an Airline Co-Branded Credit Card
Almost every domestic airline in the US has a co-branded credit card. It’ll help to understand how these work and why airlines are selling these so hard on your flights. Airlines work with a bank to administer the actual card and in return the bank essentially buys the miles that they award for each dollar spent on the card. Say I spend $1,000 on my Citi American Airlines card. Citi has already purchased those 1,000 miles from American at a pretty steep discount. In reality they bought billions of them during the pandemic to shore up their finances. So the airline didn’t really award you those miles, the bank did after they bought them previously.
This is hugely profitable for both the bank and the airline. For example Delta expects to earn $6.5 billion dollars in 2023 from their partnership with American Express. Consumers charge nearly 1% of the US GDP on their Delta cards each year. That is insane to me. Let me explain why.
What Airlines Have Co-Branded Credit Cards?
Pretty much every major US airline has a co-branded credit card. And most of them have their no annual fee entry level card all the way up to their super premium card that comes with lounge access and a ton of perks.
American: Citi and Barclays
Delta: American Express
United: Chase
Southwest: Chase
JetBlue: Barclays
Spirit: Bank of America
Frontier: Barclays
These credit cards are massive profit centers for airlines. In fact, most of them wouldn’t be profitable without their credit card portfolios. Surprisingly, most airlines don’t actually make any money by flying paying passengers. Passengers are a loss leader for airlines and they only really make money by selling miles to banks and flying freight.
Personally, I have a few airline cards but hardly put any actual spending on the cards.
Why You Should Never Put Any Spend on Your Airline Card
I’m going to pick on Delta here for these examples but I have the same sentiment for all other airlines. My preference is to earn transferable points from a bank like American Express vs. an airline like Delta. There are a few reasons.
American Express points are much more flexible than Delta SkyMiles. Amex points transfer to 15 airline (including Delta) and 3 hotel partners.
Because of that flexibility, I value Amex points at 1.7 cents per point versus 1.1 cents per SkyMile
No Delta card will come close to the return on spending of any Amex card. The Amex Platinum earns 5x points on airfare vs. 3x SkyMiles for Delta purchases only on the Delta Reserve and Platinum. That’s like an 8.5% return on the Amex Platinum compared to 3.3% back on the Delta cards.
The important part here is that I don’t think you should put any spending on an co-branded airline card. There are always caveats to this but for 99.9% of people out there that is the case. There are far better cards out there that earn points faster in bonus categories that you can do more with than you can being stuck with just your airline’s miles.
Would you rather your employer pay you in US dollars or Starbucks gift cards? That might be an extreme example but hopefully it gets the point across (no pun intended).
Spend Your Way to Status
With last year’s revamp of American Airlines’ AAdvantage program and this year’s massive changes to Delta’s Medallion program, you can now spend your way to status with both airlines without ever stepping foot on a plane. United has followed suit to some extent, but they still want you to actually fly somewhere with them.
For American Airlines, you could achieve their top tier Executive Platinum Status after spending $200,000 on one of their many co-branded credit cards.
With Delta, you now would have to spend a whopping $280,000 on the Delta Reserve card to get their top tier Diamond status. If you have the Delta Platinum card it would be an even higher $560,000 to get Diamond status.
Arguably, if you’re after status with an airline, the only thing that matters is having top tier status. You’ll be the top of the priority list for the thing that matters most, upgrades to first class. Everything else that comes with status you can for the most part get from holding one of their co-branded credit cards. Want priority boarding and a free bag? Both of those are offered with pretty much every credit card.
Sure there are some incremental things you get like free same-day flight changes and higher priority on the standby list the higher up on the airline status list you go. But, for the average traveler you are better off picking up an airline credit card to get the same perks of entry level status while continuing to be a free agent and flying the airline that has the best fares and most convenient flight times. I think chasing status is only beneficial for those road warriors out there that are flying pretty much every week.
We’re also not factoring the opportunity cost of using your airline card versus the best possible credit card for the purchase. If you’re putting $25,000 on your Delta Reserve card you’d be forgoing an additional 3x Amex points you could have earned on the Amex Gold. On $25,000 at a grocery store you’d earn 4 Amex points per dollar and earn a total of 100,000 points worth $1,700. With the Delta Reserve card you’d only get 1 SkyMile per dollar on the same $25,000 in spend earning you 25,000 SkyMiles worth only $275. That’s a $1,425 difference by using two different cards for the same purchases. This is based on the assumption that an Amex point is worth 1.7 cents per point to me versus a SkyMile at 1.1 cents per point.
The Reason For Airline Cards
Like most other credit cards out there, figuring out if you should get a specific airline card really depends on your personal situation. As I mentioned before, airline cards come with a lite version of their status with free checked bags and priority boarding. If you only fly a handful of times a year, this is all you need anyway. You aren’t going to get that free upgrade to first class anyway so just suck it up in the back, or splurge for the first class seat.
The other big reason to get an airline card is for the lounge access. This perk comes at an equally great price. However, in almost every case it can be cheaper than buying a lounge membership with the airline directly.
If you are chasing status with the airline there are some other perks to be had like a slightly quicker way to status than without it. Southwest has a pretty compelling reason to chase after their Companion Pass which is essentially a buy one get one free pass. All you have to pay are the taxes and fees on the flight which start at $5.60. If you and your travel partner fly a lot, that Southwest Companion Pass can make a lot of sense. for 2023 you need to earn 135,000 Southwest Rapid Rewards Points.
Finally, the most compelling reason for picking up an airline card is the potential for a huge signup bonus. These sign up bonuses can easily net you enough miles for a one way business class ticket to Europe.
One of the first huge bonuses I ever earned was on the American Airlines World Elite Mastercard back in the day and it is a card I’ve kept since. At the time they were offering 100,000 American Airlines miles after spending $6,000 in 3 months. The reason I’ve kept this card for so long is that it comes with an Admirals Club membership which is extremely valuable for me considering how much I fly.
What Airline Cards Offer Lounge Access?
There are a handful of cards out there that come with lounge access. Airline lounges can be hit or miss and some can be extremely overcrowded so I would never recommend going out of your way to visit one. However, when you have a long layover it is well worth it not to have to sit in the terminal. Additionally, if you are dealing with irregular operations, the staff in the lounges are typically some of the best airline agents around and are the best trained and most knowledgeable to get your trip back on track.
American Airline’s new Admirals Club at DCA
American: Admirals Club Membership: Between $750 and $850 depending on your status
AAdvantage Executive World Elite Mastercard:
$595 Annual Fee
Unlimited lounge access when flying American same day
Delta: SkyClub Membership: starts at $695 and is only available to elite members.
Delta SkyMiles Reserve:
$550 Annual Fee
15 lounge visits per year (1 visit is considered as unlimited visits at any SkyClub within a 24 hour period)
United: United Club Membership: $550-650
United Club Infinite:
$525 Annual Fee
Primary Cardmember gets United Club Membership
United Club Business Card:
$450 Annual Fee
Primary Cardmember gets United Club membership
United Explorer Card:
$95 annual fee (waived the first year)
2 free United Club passes annually
Bottom Line
It hurts me when I see people using an airline card when I’m out. They are losing out on tons of potential points and miles by using an inferior card. Airline cards certainly have a place in your credit card portfolio where it makes sense, but it hardly deserves a place in your actual wallet that you carry around. Most airline cards deserve a place in your desk drawer at best.
The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved, or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.
