Those dreams of trips to Australia, London, and Miami are now off on the horizon as countries scurry for an antidote. The solution will undoubtedly emerge, but for credit cardholders with ties to airlines, cruises, and hotels, it might be time to consider the benefits of cashback on your credit cards. Accumulating travel points may be passe for now. Cashback never goes out of style.
PaymentSource covered the topic today in an article titled “Coronavirus Creates Turbulence for Cobranded Travel Cards.” The story points out that consumers began to reduce travel even before governments started to restrict it. Concurrently, those annoying solicitors who hawk cards as you walk through an airport disappeared.
The author points out that no major credit card issuer was available for comment regarding the impact on travel offerings on cards with annual fees ranging from $95 to $550.
Consumers are likely to shift their spending toward cards that generate loyalty points good for redeeming cash or merchandise, said Brian Riley, a director in credit card advisory at Mercator.
“Co-branded airline and cruise lines will see less interest from consumers, and cashback rewards cards are winners,” Riley said.
Overall profits for co-branded travel credit cards may plummet for the year, some observers predicted.
The play for cruise line co-branded credit cards might be different than airline co-brands.
Cruise line-based credit cards may not pursue alternative strategies at this point because most charge no annual fee, and their loyalty programs are straightforward.
For example, Princess Cruises, which — along with several other major cruise lines — halted all cruises last week until further notice, offers the Princess Cruises Visa Signature issued by Barclays US. The card has no annual fee. Users receive 10,000 points with their first Princess Cruises purchase, 2 points for every dollar spent on all Princess purchases, and 1 point for all other purchases.
Bank of America has the co-branded Royal Caribbean Visa Signature card, which has no annual fee and a similar points structure to Princess Cruises.
Synchrony issues the Norwegian Reward World Mastercard, which offers double points for purchases at Norwegian.com or Norwegian Air, along with all dining and grocery purchases, and 1 point per dollar elsewhere.
Things on the merchant acquiring side will be just as ugly. Expect scrutiny on merchant related credit card travel accounts.
“Merchant acquirers for airline credit cards need to keep funds in an escrow account in case of mass flight cancellations, and the risk is shared between the issuers and the airline,” Reef said. The card networks set certain risk and capital requirements for issuers, but even if reserves are at minimum levels, issuers could take steep hits, Reef said.
“There’s a lot of strategy behind co-branded cards to make these programs profitable for both issuers and travel partners, and it can get tricky when unexpected losses occur,” he said.
This travel issue may have a tail that takes us into 2023. Until then, forget the pina colada and trip to Maui, the stroll down Collins Avenue, or walk around Windsor Castle. For now, go for the cashback.
Plenty of cashback options are available at American Express, Bank of America, Chase, Citi, Discover, and other issuers!
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
