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Wealth and Wants

Travel credit cards remained popular throughout the pandemic

Many of us avoided travel amid COVID, but consumers still racked up rewards on their everyday spending. What happens now that travel is back?

Summary

COVID-19 crushed travel for a while, but it didn’t lessen credit cardholders’ appetites for travel credit cards, according to a recent J.D. Power report.

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COVID-19 crushed travel for a while, but it didn’t lessen credit cardholders’ appetites for travel credit cards, according to a recent J.D. Power report. In January and February, the firm surveyed 8,710 U.S. adults who opened or considered opening a personal credit card account over the past 12 months and found “11% of all new credit card co-brand acquisitions were travel cards, a rate that remained stable with the previous year.”

Furthermore, “earning valuable rewards” was the top reason for respondents’ card selection (22%). The trend is even stronger among travel credit cardholders. Rewards were the top factor for 28% of those who signed up for travel cards versus 16% who signed up for non-travel cards, “a good indicator that travel points are driving this trend,” notes the study.

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Card openings were still down overall

Banks originated 26% fewer credit cards in 2020, compared with 2019, Equifax revealed. Layering the J.D. Power data on top of that indicates that while the proportion of travel cards remained consistent, the total number of originations was down substantially. Still, I’m surprised that travel card originations held up so well – especially relative to other types of cards – during a year when travel was so depressed. I would have expected more of a migration to cash back cards.

I can think of two primary explanations

One is that many consumers smartly realized that travel would bounce back at some point, so they put their everyday spending on travel cards during the pandemic with an eye toward future trips.

The other is that travel credit card issuers made smart adjustments to diversify their rewards programs beyond travel, at least temporarily. Many offered enhanced rewards on pandemic-friendly categories such as groceries, takeout, food delivery and streaming services. We also saw a lot of expanded credits to offset purchases in categories such as groceries and dining.

And on the redemption side, programs such as Chase Pay Yourself Back allow cardholders to redeem their rewards for cash back (in the form of statement credits offsetting eligible purchases). These credits qualify for the same elevated valuation previously received for travel on popular cards such as the Chase Sapphire Reserve and the Chase Sapphire Preferred Card. That program is currently scheduled to expire on Sept. 30, 2021. I hope Chase extends it further, as it has done previously since this adds strong value even as travel rebounds.

The recovery appears to have begun

Credit card originations fell further in the first five months of 2021 (they were down 16% year-over-year), according to Equifax, but June may have been an inflection point. The TSA recently processed more than 2 million passengers per day on several occasions for the first time since the pandemic was declared. Thanks to improvements on the health and economic fronts and issuers’ efforts to capitalize on increased consumer spending, many credit cards are offering eye-popping sign-up bonuses. These align well with the return to travel and should juice sign-ups.

For example, in early June, the Chase Sapphire Preferred increased its welcome bonus to a record-high 100,000 points after new cardholders spend $4,000 in their first three months. That’s worth $1,250 toward travel when redeemed through Chase Ultimate Rewards.

And in mid-June, several Delta Airlines credit cards upped their introductory bonuses for a limited time. The Delta SkyMiles® Gold American Express Card, for instance, gives new cardholders 70,000 bonus miles after they spend $2,000 in their first three months, along with a $200 statement credit after they make a Delta purchase with that card during that span (the deals are slated to expire on July 28, 2021). There are plenty of other examples, too.

Watch out for devaluations, though

Travel cards have held their own during the pandemic, and they’re poised for major growth as COVID continues to subside (hopefully). One risk for consumers is that the points and miles they’ve earned will probably be worth less in the future. While this is a trend we’ve seen for years, there are reasons to believe it will accelerate.

Devaluations happen when airlines or hotels require more miles or points to get the same free flight or hotel stay. Airlines have increasingly tied the value of their loyalty miles to the cost of a ticket, and with prices surging, those miles won’t stretch as far as they did previously. And in early 2020, even before COVID hit with full force, Marriott moved 22% of its properties to a higher rewards tier and only lowered 7%.

With travel providers desperate for paying customers after suffering massive financial losses in 2020, and with their customers awash in points and miles, airlines and hotels are likely to encourage their customers to liquidate their rewards balances at ratios that are more favorable to the businesses.

Bottom line

While we’re thankful that society is reopening and the economy is recovering, travel is getting more expensive, and rewards programs are ripe for devaluations. From a consumer’s perspective, the best approach is to use your points and miles sooner rather than later. Take advantage of sign-up bonuses and everyday earning opportunities, but don’t hoard those rewards, since they’ll probably be worth less in the future. Earn and burn strategically, redeeming often and following a game plan to unlock that value.

And don’t forget about cash back cards, which offer more simplicity and universal appeal and should hold their value better. Citi and Wells Fargo both recently unveiled attractive new cash back cards. Suddenly, after a slow year in the credit card industry, things are really hopping.

Have a question about credit cards? E-mail me at ted.rossman@creditcards.com and I’d be happy to help.

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Credit Card Rate Report
Business
14.22%
Airline
15.51%
Cash Back
16.10%
Reward
15.90%
Student
16.78%

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