The True Value of Airline Incidentals and Travel Credits
Two weeks ago I kicked off a 4 part series that discusses four of the most hotly debated topics in the travel hacking community. This week I would like to discuss what the true value of airline incidentals and annual travel credits are.
My goal is to offer up both sides of the argument and then have a civil discussion about it in the comments section. The last two weeks have been amazing and I can not thank the readers who commented enough…you guys are great! We had comments that swung on both sides of the argument, everyone was respectful, and everyone brought great points to the table.
The Four Topics
The four hot button topics that we will be discussing over the next month are:
- Opportunity Cost.
- Is Award Travel Really Free?
- The Value of Credit Card Airline and Incidental Credits.
- Should There be a Minimum Redemption for Award Travel?
What Are Airline Incidentals and Annual Travel Credits?
I know pretty much everyone who reads this has heard of the Chase Sapphire Reserve, the Citi Prestige, and the American Express Platinum card. These are the kings of the premium card market. They bring prestige, perks, and travel credits along with their hefty annual fees. I want to focus on that last part today, the travel credits.
These credit cards all have one thing in common, they offer credits to offset their high annual fees. The American Express Platinum offers a $200 airline incidental credit every calendar year. The Citi Prestige offers a $250 airline travel credit every calendar year. And the Chase Sapphire Reserve offers a $300 general travel credit per cardmember year.
Depending on which card you have, these credits can be used on seat upgrades, flights, hotels, drinks, award taxes etc. Because of this they are often looked at as a rebate that offsets the annual fee. People will say the CSR only really costs $150 a year since you get a $300 travel credit. I question whether or not that is accurate though.
The Value Of These Credits
We have all seen the posts and comments where someone discounts a card’s annual fee because of travel or airline incidental credits. I’ll give you an example:
Get the American Express Platinum card with a 100,000 sign up bonus. It comes with a $550 annual fee but you get 2 – $200 airline incidental credits your first cardmember year. That means you really only pay $150 out of pocket for all of the perks plus a 100,000 sign up bonus!
I have personally been sucked into this line of thinking in the past. And I know a lot of people out there agree with this train of thought. We all are travel junkies which means we travel a lot. And when we travel we tend to spend money on award taxes, hotels, or plane tickets etc. So if we are spending the money anyway then what does it matter if it comes from a credit card travel credit or not? People think – I would have spent it anyway so this really is a discount on my annual fee.
The other trap people fall into is that the travel credit is free money. This is not as prevalent but I have seen people claim that part of their trip was “covered” by their travel credit. These are not free. You paid for them up front so please stop thinking that way. They are a sunk cost which you have to use but they are not “free”.
I believe there are a lot of the people in this hobby that think of these credits as a discount off of their annual fees. They also value these credits at 100% of their listed amount.
My Take
Do I believe that these credits discount a cards annual fee? 100% yes I do! Do I think the credits should be taken at their face value? 100% no I don’t. There are a four different reasons why.
Reason 1
You are giving the banks an interest free loan. If you pay your annual fee on January 1st but don’t use your travel credit until August of that year then you gave Chase etc. a $300 interest free loan for 8 months. With today’s interest rates this doesn’t amount to much but it should still be considered.
Reason 2
You are locking yourself into using that particular card for your travel. You are forced to use that particular card until you use up your entire credit otherwise you risk losing some of it. Most of the time the premium card may be the best option anyways but it limits your choices and flexibility. Would you rather have 2 SPG points or 3 UR points? How about 12 Hilton points or 3 UR points? Would you rather have 5 MR points or 3 UR points? These are all examples of decisions that are made for you until your credit is used up.
Reason 3
The main reason I think travel credits should be discounted is because most of what is covered by the credits can be purchased at a discount via gift cards. Airline gift cards can be bought for 10-15% off. Southwest was on sale from PPDG just yesterday. Uber gift cards are on sale all the time. It is possible to get hotel gift cards at a discount, Hilton has a 20% off Amex Offer right now. If you can purchase these things at a discount then shouldn’t the credit be discounted as well?
Reason 4
Lastly, there is going to be some breakage. Even some experienced players in our hobby have had a portion of these credits expire. That is what the banks are hoping for.
Rebuttal
I know there is going to be some disagreement about what I just said. A good rebuttal is what about public transportation? I agree that it is difficult to get public transportation at a discount. I would say that even if you buy a $300 metro card on day one to maximize your value the bank forced you into buying more than you needed at that point in time. And there is a chance you could lose the card with money on it. It is still a valid point and if you regularly use public transportation then you may not discount the CSR credit but it doesn’t work for the others.
Another valid rebuttal is that there will be times where you couldn’t plan ahead and purchase gift cards etc. And someone shouldn’t be sitting on a stack of them. While this is true you still gave the bank an interest free loan and locked yourself in to using their card to make the purchase. So there should be some discount for that.
How Much Should the Credits be Discounted?
Now that we have discussed that travel credits should be discounted how do we decide by how much? The answer to this would depend on how you make valuation decisions. Do you value things based on their replacement cost or on their cash value?
If you value things according to their replacement cost then I think a 10-15% discount is in order. That is the amount most of these gift cards are discounted when you go to purchase them.
If you value them based on their cash cost then that value would be 15-20%. That is the amount most of the gift cards could be sold at on the open market.
I usually discount the credits 10% when I am making a decision on whether or not to keep the card long term.
Conclusion
While I think travel credits have value I don’t think they should be taken at face value. In my opinion they should be discounted at least 10% when you are making your decisions on the worthiness of a credit card. They are still an important part of the premium card’s offerings.
At one point in time it was possible to make a profit with your travel credits the first year you had the card. Back when the CSR allowed them once per calendar year, even if you discounted the amounts you still came out ahead.
Maybe the easiest, most concise argument I could make is would you rather have a $300 travel credit or a $300 statement credit? I am guessing you would take the statement credit and that is because the $300 travel credit is not as valuable.
Do you think premium card travel credits should be taken at their face value? If yes, let us know why in the comments section. If no, let us know how much you would discount them and why you think that in the comments section.
Please remember these are only opinions and to be civil. Enjoy your weekend! And Happy Thanksgiving!!!
Chase Sapphire Preferred® Card
Chase Sapphire Preferred® Card is the old king of travel rewards cards. Right now
bonus_miles_full
Learn more about this card and its features!
Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities.
I have the Hilton Aspire for PP lounge access..I forgot to mention it
The discussion of the $450 Chase card as this magnificent card. The Ink Preferred Business card gives you 3x on travel at only $95 a year. Combine that with AMEX Gold which is 4x for restaurants and groceries and I feel you have a winning combination.
I use my points for premium air travel so “only” getting 1.5 through the Chase portal doesn’t compare. As for using it for hotel stays that you don’t have points (Hilton, Hyatt), I rather book at Hotels.com com where I buy Hotels.com Gift Cards at 5x with my old Ink Plus card and every 10 stays gives you a free night.
As for my AMEX Platinum card, I am going to keep in one more year in case AMEX is either just looking to weed out a lot of people and/or realizes too many people cancelled and makes some concession along the lines of CSP and brings back a travel credit.
I would agree the Ink Preferred & Amex Gold is a great combo if you don’t use the 1.5 Chase portal. If you don’t have PP lounge access from another card then I would say the CSR is better than the Ink Preferred since it is only $55-$85 (depending on how you calculate credits) more and comes with the best Priority Pass membership. It would be something to consider if you didn’t have it somewhere else already.
I think I would prefer to have a travel credit to a statement credit. You earn miles (at least with amex) on the travel credit but not on the statement credit. If I immediately know and have a plan (when getting/renewing the card) regarding how to use the travel credit, it’s not much of a loan or loss.
Overall, great and thoughtful article. Thanks.
It is nice that you earn points with Amex. I would still prefer cash since the credits with Amex are not true travel credits either.
Just use your CSR to make a $300 refundable travel reservation (e.g. Southwest Business Select fare). Cancel the reservation after the credit posts and you’re all set. With this technique in play I would think the CSR travel credit should be valued at a true $300.
David – that doesn’t take into account that you can buy Southwest gift cards at 10% off often or that you just gave Southwest an interest free loan until you actually use the credit you got from the canceled flight.
I take those two things into account when placing a value on the credits but not all people do.
[…] Remember that I discount airline credits since I value them at their cash worth or replacement cost. You can buy airline gift cards at a discounted rate most of the time. I lowered the value of this perk by 15% since I can recoup 85% of the cost reselling it on the gift card market. […]
[…] The Value of Credit Card Airline and Incidental Credits. […]
[…] The Value of Credit Card Airline and Incidental Credits. […]
[…] the comments section of my latest Great Debate series article I got into an interesting discussion that sparked the idea for this post. Which premium Chase […]
Mark – Another great article.
I just look at my card fees as a pre-paid expense as long as I can get more value out of it at redemption. So I have some cards that I will drop prior to renewal since they don’t have any good annual value (I got them for the signup bonus). Other cards that have a benefit that I use like my DL Reserve card with Sky Club access and the First Class companion pass I retain. Or my Hilton cards with the free night cert.
I’m kind of ambivalent on the Chase UA Explorer cards right now since they really have zero ongoing value and no bonus spend categories other than on UA. We don’t fly UA that often anyway. At least my AA cards have the annual 10% point rebate.
Thanks for the comment and reading Michael!
At least they have “spend $25k, get 10k bonus points”.
For me, it is very simple: A travel credit is worth the amount USED. So, if I have the CSR and I use the full $300 travel credit, then the credit was worth $300 and I paid $150 for the card. But, if I have the Amex Platinum, perhaps I use the $200 travel credit by buying airline gift cards (which I do wind up using to purchase airfare), but perhaps I do not use the Uber credit at all, so therefore I paid $350 for that card.
So, from there, I decide whether the card is worth what I paid.
While I agree that I am giving the bank an interest-free loan on my money, I do not see that as sufficiently relevant to consider that in my valuations. If the card is worth having at all, then the interest-free loan angle just isn’t important enough to worry about.
HOWEVER, I might impose a mental penalty for inconvenience. For the CSR, there is little to no inconvenience at all. CSR gets 3x on travel, which is, to date, the best general travel bonus available, tied with the ThankYou Premier. Even if I would prefer ThankYou points right now, they are equal in effective value, so I lose nothing. Likewise, I have not been inconvenienced, as I simply charge regular travel to the card as per usual and get a credit – easy and effortless; I need only remember which card I mean to use and use the correct one. (Yes, true, there are cards out there with a better rate for sub-categories of travel, such as flights purchased directly through an airline, or 12x at Hiltons, or whatever, but, for the “not inconvenienced” to be fully true, let’s assume we have used the CSR because it’s the best option even before the waiting credit is considered.) By contrast, for that Platinum credit that I had to purchase gift cards for just to turn around and redeem them, well, that was an inconvenience. It wasn’t that hard, but it was inconvenient all the same. I still say I got my full value of $200 back monetarily, but at the cost of inconvenience. So, I still paid $350 for the card, but I also paid some inconvenience, which goes into the equation that way. I hope that made sense.
As for the case where I’ve got a light-travel year (or a year with tons of credits to account for and use), let’s say that I purchased some Southwest tickets on the CSR, despite having a Platinum earning 5x, just to use up the credit. I don’t take the travel insurance into account here, because it’s Southwest. So, in this case, I might stamp an inconvenience penalty on my calculations, because I lost out on 2x. But, at the same time, unless this winds up happening a second time, I probably don’t give that too much weight on the theory that it was probably a fluke that won’t repeat itself next year.
Makes sense to me – thanks for the comment Jenny!
I’ve definitely fallen into the trap of thinking the Amex travel credits are worth full value. And I have a bunch of gift cards gathering dust, with no plans to use them anytime soon. I need to think harder about justifying the high fees based on the credits!
Mark, I appreciate these discussion(s). Anyone doing this knows that these kinds of questions depend completely on one’s personal situation and that there’s (almost) never a single correct answer.
But only by becoming accustomed to the large amount of info can you decide what makes sense for you. And discussions are better for this then just reading blogs. People first need to know their own situation and their travel needs/wants before they can figure out which cards work for their personal situation.
I agree 100% that a lot of this depends on a persons individual situation. That is why this is all just opinion and it is interesting to see everyone’s take on it.
For credit card issuers, fees are revenue. Travel credits issued reduce those revenues (offset by addtl interchange fees).
Rewards and sign-up bonuses put money in our pockets whereas interest & fees (less travel credits to reduce them) eat right through it. It is up to each cardholder whether credit card companies profit from them.
(note: $95 CSP annual fee starting second year)
Yes, I was taking the Travel
Credit out of the equation to arrive at my number since I award it 100% face value.
CSP is not even for the average spender if groceries & gas are their big ticket items. I think a co-branded card might be better for the occasional traveler as it will also provide some status. It might give a nice room bump on that annual vacation?
For sure I was just comparing the two Chase cards. Something like the EDP is a better long term card for most people.
Hi Mark, I didn’t discuss the CSP (only the Citi Prestige), but I personally had the CSP before the CSR. In hindsight, I was such a dope focusing on the annual high fee, cos the reality was I was much better off with the CSR in the first month with my spend. Coupled with the CF quarterly bonus categories, I was buying rooms at the Four Seasons at a discount in no time on the Chase portal!
I similarly think people are short-sighted focusing on the old 100k CSR UR bonus that may never reappear, as well as the double travel credit first year. If a person has sufficient travel expenses, they can make the extra 50k URs in short order. There can be a huge cost in waiting (unless 5/24 of course is an issue) at even 1 extra point over the CSP.
I have never owned a card before the CSR that offered me 3 bonus points towards: timeshare HOA fees; Hotwire, Travelocity, or any other travel website posting a good deal; Toll fees in my state; Parking fees anywhere, including the airport, and I am very pleased that thousands of dollars of out-of-pocket spend can now be captured with bonus points that are even more pleasant to redeem. I am still surprised when some items on my statement pop up with 3x when I never thought they would (i.e. the occasional ice cream shop, a tire shop).
A person traveling on company business comes out-of-pocket for these travel items – they would not use their awards. I would just again say that if a person has at least $3,500 in travel spending a year, they are better off with a CSR. The rewards are unprecedented in the luxury travel card arena. And there are no tricks or catches – Chase plays their side straight by the book, and it is refreshing doing business with them with their premium product.
If you compared the CSR and CSP for the first year you would need to spend $10,000 on travel and dining to make it the better option – not taking the lounge access or other perks into account. Just focusing on spend. And that is valuing the credit at the full $300.
$450 fee – 300 = $150 – $0 CSP fee. $150/.015 = 10,000 in spend.
That is a simplistic approach since you are not including the other perks like PP lounges or the increased portal redemption etc. But I do think the card is best for people who pay a lot out of pocket or have reimbursed travel. For the average Joe the CSP would probably give them the better return in the first year and would be a better card to sign up for.
I guess that was the point I was trying to make above. That I agreed with you that the CSR is best left to road warriors or people with a lot of travel spend.
I wouldn’t recommend a person even apply for the CSR unless they travel a good deal. Exactly how much is up to them, of course, but I personally wouldn’t advise anyone to get the card unless they could more than cover the large fee thru their spend:
$10,000 in travel and dining purchases =
30,000 UR x .015 value = $450 which covers the Annual Fee. After only $300 of that same spend, Chase issues an immediate credit of $300, so then only $3,333 (3,333 x 3 = $9,999 UR x .015 value = $150) of additional spend is necessary to cover the entire fee.
I remember receiving my first $300 credit within the first few days of using my CSR! Others who also use their card a lot similarly aren’t “loaning” much to Chase for any measurable period! And likely also spreading out their travel spend among other cards (i.e. SPG AMEX) so that $300 of spend really much if you are spending at least $3,333 anyway! As for gift cards, no thanks…I have enough aggravation keeping up with the ones given to me as gifts much less trying to make a living/improve my lifestyle off of them!
I enjoy the transparency & ease of the CSR travel credit, & I feel I receive 100% of its face value (by the math above). But that is, again, because I travel a lot. I also think AMEX’s credits are convoluted to use (to the point where I feel AMEX sets the stage for breakage), and so I conversely do not value their credit at face value. I have no use for the Citi Prestige card now that they have no hotel partners, so their credit does me no good if I no longer want the card anyway. But a flat airline credit is easy to earn and redeem so I think it s/b also valued at face value even though, again, I place little value on Citi’s travel partners anyways for redemption.
The CSR is superior with their travel credit and their card in general, in my opinion. I cannot say the same for its “competition.”
Thanks for the comment Pam!
Once the credit on the CSR changed to once per cardmember year and the sign up dropped to the same level as the CSP I would agree that it is much less attractive. I would also argue that the CSP may be the better offer with the waived annual fee unless you heavily spend in the travel or dining categories.
If you pay out of pocket for a lot of travel then I would agree that the credits should probably be rated higher in that instance.
Based on the travel forums I am convinced the Amex travel credits for most are worth almost zero. If you are getting multiple cards that have the credits with Amex it gets worse. I think you are being generous. I think a small percentage get the credits for expenses they really would of spent. A lot manufacture the credits and pretend it offsets the annual fee. A lot of blogs have conditioned people into believing it is so. The CSR credit is a lot more valuable because it is more flexible. I also believe the more of these cards a person holds the less valuable the credits become for most people.
Scott if you believe they are worthless then let me give you some food for thought. You can buy $200 in Southwest gift cards with them and then turn around and sell them for $170. So I am not sure which forums are saying they are worthless but they are worth a minimum of $170 in CASH. You get two your first year so that is $340 in cash.
If you have the gold card you would get $170 in cash your first cardmember year without having to pay an annual fee at all. They should be discounted imo but they are far from worthless.
Enjoy the Southwest gift card loophole while it lasts. The forums are filled with the lamentations of MPX and Alaska gift cards redemptions no more. As more and more people get pushed into the Southwest bucket you have to wonder when that door will also close.
Most people are not going to try and sell gift cards. I accept that for the few who are willing there is some money there.
I would agree that when/if the loophole ends the credit wouldn’t be worth much.
Mark, the Platinum annual fee went to $550 earlier this year. $200 Uber Credit can offset for some, but your point about breakage is even more true for Uber credits, spread in monthly allowances. Cheers.
Jeepie, that is very true on the breakage thing. I have to actually TRY to remember to make a Uber trip some months just to get something out of the deal. I don’t use or need it much because of where I live. I drive too, so there is that. Only good for drop off a car for fixing OR picking it up as it is right about $15 each way.
Jeepie – wishful thinking on my part….missing the old days haha. You think I would have caught since I just paid mine too :(. Thanks for the assist I updated the article.
I agree on the Uber credits – I do not think it is worth anywhere near $100 for most. I thought it was a terrible change. If they simply gave you $100 in Uber credit throughout the entire cardmember year I think that would have been better, even if less overall money. I tend to use Uber in big chunks at a time and missing out most months.
Mark, this: “Get the American Express Platinum card with a 100,000 sign up bonus. It comes with a $450 annual but you get 2 – $200 airline incidental credits.”
I don’t know about you, but I on;ly got ONE $200 travel credit. I think you’ve got a mistake here.
The $200 airline credit is per annual year, whereas the annual fee is per cardmember year. e.g. If you got the card in June this year, you could get a $200 credit this year, then another $200 from Jan 1 next year. This only works in your first cardmember year though.
Yes, but that is not clearly stated. Someone just reading that would think it meant TWO $200 credits a year.
Carl, Stephen is correct you get two the first year you have the card. I did highlight that the amex credit is per calendar year earlier in article but I added it in lower down too just to make it clear. Thanks for the suggestion!
Sub
All of your points are valid Mark. However for most people, in the big picture of their lives, the real value of $300 is minimal to none. Giving the bank an interest free loan on $300? How much is a person really losing out on? Tying up $300 spend with a particular credit card? How much is a person really losing in real dollars?
Again, all your points are valid, but for most people their validity will have little to no impact worth spending time on. But thanks any ways for the article.
Thanks for the comment Jay. You are right $300 is not a significant amount of money but I think this information is useful when deciding whether or not to keep a card long term.