By AnnaMaria Andriotis and Alison Sider
Kimberley Moore called JPMorgan Chase & Co. in October to
ask if it would lower the $450 annual fee on her United Airlines
Holdings Inc. credit card. A United cardholder for roughly 15
years, Ms. Moore traveled often. Then the coronavirus pandemic hit
and Ms. Moore, 53 years old, scaled back her spending and canceled
travel plans.
Ms. Moore, a senior director at a national health care
organization in Washington, D.C., decided to keep the card after
JPMorgan offered her a $200 statement credit. But she has barely
used the card since, and is instead mostly using debit cards.
Nearly nine months into the pandemic, banks and airlines are
scrambling to rescue their airline rewards cards. The companies
have deployed the cards for years to win big-spending customers,
but the perks they offer -- like flight upgrades and airport lounge
access -- are all but obsolete in a global pandemic.
Typically, card companies don't disclose the volume of spending
on their airline cards versus other, more general-purpose cards.
But travel purchases were down about 70% on Visa Inc. cards in the
last quarter compared with a year ago. Travel and entertainment
purchases were down 69% on American Express Co. cards.
Other categories are faring better. At AmEx, spending outside of
travel and entertainment was up 1% in the third quarter. (AmEx says
this category represents the majority of its cardholder
purchases.)
People moved away from credit cards in general during the
pandemic and the accompanying economic downturn, often using debit
cards instead as they sought to avoid incurring new debt. At Visa,
the largest U.S. card network, credit card spending volume was down
about 9% and debit volume was up 20% in its most recent
quarter.
As more airline credit cards come up for renewal, more people
are rethinking whether the hefty annual fees are worth it. Some are
sticking their cards in a drawer, or downgrading to lower-frills
versions. And while airlines and issuers expect consumer travel to
eventually return, they worry that business travel might never
fully bounce back.
Some banks have launched new airline cards that don't charge
annual fees and rolled out larger sign-up bonuses. Airline-card
solicitations that were emailed or mailed in the third quarter had
an average sign-up bonus of 50,037 miles or points, up 53% from the
prior quarter, according to Competiscan, which tracks credit-card
offers.
The airlines have adjusted frequent-flier programs to make it
easier to earn and hold on to status, which allows for early
boarding and free seat upgrades. And some rewards programs, which
often give cardholders extra points for travel purchases, increased
points for grocery purchases and other non-travel categories.
Still, everyday purchases are usually smaller than
travel-related purchases. That can translate to less swipe-fee
revenue. Merchants pay swipe fees whenever a customer pays via
card, with the dollar amount based partly on purchase price.
"You can't get enough grocery purchases to offset travel," said
John Grund, a managing director of payments at Accenture PLC.
Issuers don't publicly disclose swipe fees collected from their
airline co-branded cards. But overall swipe-fee revenue at major
card issuers is falling. It totaled $5 billion at AmEx in the third
quarter, down 24% from a year prior. It was down 6% at JPMorgan,
and 20% at Citigroup Inc.
Card issuers say the decline in travel spending has been partly
offset by airline cardholders' spending on other categories, like
groceries and home improvement. Airlines say the declines in
travel-card spending have been much smaller than the declines in
overall ticket purchases, which have plummeted.
But the situation is particularly fraught for the airlines. Many
big banks have weathered the coronavirus crisis surprisingly well,
in part because Wall Street trading has thrived in the crisis.
Airlines, which got federal aid this year worth up to $50 billion,
are all but completely dependent on a travel industry that
continues to sputter.
Rachel Lauren recently downgraded from an AmEx Delta card, which
carried a $250 annual fee, to a free version of the card.
She now puts most of her spending on a Chase Sapphire Preferred
card, which carries a $95 fee. Ms. Lauren, who is 24 and a venture
capital investor, said she prefers the new card because it offers
more flexibility to redeem points with different airlines. She
plans to travel frequently once the pandemic ends.
Gordon Haff of Lancaster, Mass., canceled his United card with
JPMorgan in October. "It makes no sense for me to be paying money
for a United club that I'm probably not going to step foot in for
another possibly close to 12 months," said Mr. Haff, who is 61 and
works in software marketing.
For banks, the cards represent an important way to reach
affluent cardholders, market other services to them, and charge
them high annual fees. They can also account for a large share of
their card business. At AmEx, for example, Delta Air Lines Inc.
cards accounted for about 20% of total card balances at the end of
last year.
The airlines make money by selling miles to the banks, which
dole them out to customers as rewards. The airlines also share in
the swipe fees.
The airlines and their card partners are tied together in other
ways too. In past crises, airlines have asked their card issuers to
buy miles in bulk in advance, which can give the airlines a quick
cash infusion.
This summer, when airlines like American Airlines Group Inc. and
Frontier Airlines were negotiating loans from the U.S. Treasury,
the government asked the airlines to negotiate extended card
agreements as a condition of getting the bailout loans, according
to people familiar with the matter.
Jeffrey Ward was on the cusp of canceling his American Airlines
card after coronavirus hit.
But the issuer, Citigroup, announced that certain customers will
receive a $225 statement credit to offset the $450 annual fee. And
American announced in April that spending on the airline's
co-branded cards from May through December would count toward
lifetime status benchmarks. Now, Mr. Ward, 59, a travel adviser in
New York who once worked for American, is putting almost all his
spending on the card.
Whether he keeps the card once he reaches his goal is another
question.
"I think," he said, "I will be traveling less."
Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com and
Alison Sider at alison.sider@wsj.com
(END) Dow Jones Newswires
December 03, 2020 05:44 ET (10:44 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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