Air travel has really taken off this summer as most people are jetting to holiday destinations across the globe but if you’ve been using the same airline for most of your travels, it might make sense to sign up for an airline credit card. Just like normal cards, airline credit cards have a point-earning system which allows customers to accumulate bonus points with each ticket purchase and use them to buy a cheaper flight in the future.
Frequent flyers can avail a ton of benefits and perks with these cards including free checked baggage and priority check-in and boarding. Credit card analyst Bailey Peterson says that airline cards can be valuable for people who travel a lot, but if not used with caution, they can end up doing more harm than good. `Here’s the low-down on different airline credit cards in the market and how they stack up against each other.
The sign-up bonus
One of the biggest perks of getting an airline credit card is the bonus points you receive at the time of signing up. Most companies offer this bonus in the form extra miles that you can use within the first few months of getting the card. Wondering how much the points are actually worth? According to a study by ValuePenguin, the extra miles can save you up to $400 on average on your next ticket purchase. But of course, there is a catch to it.
In order to be eligible for these points, you must spend an average of $1,388 within the first three months of getting the credit card. Some companies even require you to spend up to $5,000 on flights to get the extra miles. Doesn’t seem very appealing anymore, does it?
Peterson says that some people who travel frequently for business or leisure may find the economic benefit in investing in one of these cards but if you’re only flying a handful of times a year, you might want to avoid them and get a regular cash-back card instead which offers similar perks but doesn’t have astronomical spending requirements.
The Yearly Fee
The sign-up bonus might seem enticing for most people to get an airline credit card but the long-term costs of maintaining your credit far outweigh the benefits. Besides, the minimum spending requirements, these cards also carry an annual fee of $127 on average which you must pay whether you use the airline’s service or not.
Most companies will be willing to waive off the first year’s fee but eventually you will have the bear the brunt of their annual expenses. According to ValuePenguin’s data, almost 88 per cent of the airline companies charge an annual fee in comparison to only 12 per cent of average cash-back credit cards.
Interest on balances
If you thought that your average credit card interest was high, wait till you hear how much airlines are charging on their cards if you don’t pay off your monthly balance on time.
While most average cash-back cards charge an average interest of 17 per cent, airline credit card interest can go as high as 22 per cent. So spending too much money trying to earn extra miles won’t save you any money if you can’t pay back the balance in full before the end of each month.
The initial 12-month period after getting an airline credit card is often considered the honeymoon phase due to sign-up bonuses and perks, but their value starts to drop once the first year is over.
Peterson says that extra miles and waived annual fee in the first year can bring down the cost by 50 per cent in the initial year but if you really want to look at the airline card’s true value he recommends looking at the second year’s cost.
Despite the drop in credit card value after the first year, most companies continue to offer ongoing benefits such as annual discounts on flights once you spend over a certain limit or special fares for your friends and family if they travel with you.
In some cases you can even avail free checked baggage and priority boarding for a fixed number of flights per year. However, these perks are only beneficial for frequent travellers who would otherwise have to pay extra at the time of purchasing a ticket.