Kimberley Moore called
& 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
cards in the last quarter compared with a year ago. Travel and entertainment purchases were down 69% on
American Express Co.
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
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
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.”