Randy Petersen has recently been making the argument as I understand it that the big credit card signup bonuses are a temporary phenomenon, the gist of the argument is that during the financial crisis the airlines sold large blocks of miles to their credit card partners at deep deep discounts. The airlines raised tons of cash but sold the miles cheap, so it hasn’t been that expensive for banks to offer the bonuses, and the miles have to be used within a defined time period so they’ve had an incentive to use up the miles fairly quickly.
American Express pre-purchased half a billion dollars worth of miles from Delta, and Chase pre-purchased half a billion dollars worth of miles from United. That drove down their costs and help keep those airlines liquid.
There’s a certainly plausibility to Randy’s argument, except that the miles that were purchased in such huge quantities haven’t been the ones given away with the biggest signup bonuses.
One of the most frequent uber-large bonuses has been the 100,000 mile signup offer for the British Airways Visa Signature® Card from Chase.
They’ve made the spending requirements on that card more significant since they first brought out the offer, it’s 50,000 points after $1000 spend within 3 months; 25,000 more after $10,000 spend within a year; 25,000 more after the second $10,000 spend within a year. So $20,000 spending required to meet the full 100,000 mile signup bonus. But the real value in the card comes after $30,000 in spend anyway — a companion award ticket that allows you to spend the miles twice (for a second passenger on the same itinerary). And there are lots of ways to reach that minimum spend.
But clearly Chase — BA’s U.S. frequent flyer partner — hasn’t been the same sort of financial driver for the airline that they have been for United. There’s been no half billion dollar pre-purchase of miles from BA. And yet they make 100,000 mile signup bonus offers for that card. Because it’s a way of grabbing attention of busy, lucrative frequent flyer customers.
Meanwhile there’s been no 100,000 — or even 75,000 — mile offers with Chase’s United co-branded credit card — even though Chase had the biggest marketing budget in the history of credit cards ever for the rollout of the United Explorer card. I think they had one of the worst slogans ever for that card (“You’re In” sounds way to much like ‘urine’). But they had a ginormous budget, which they didn’t spend burning through those cheap miles. Their 25,000 – 55,000 mile signup bonuses are more generous than the 15,000 mile bonuses when I first got into the game. But it’s noteworthy that the biggest, cheapest mileage purchases don’t tier to the biggest consumer signup bonuses.
American Express has made a couple of brief, targeted 70,000 mile signup offers for their Delta co-branded card. But mostly the bonuses have hovered around just 35,000 miles. And whereas Membership Rewards had huge transfer bonuses to Delta in 2011, there have been no such bonuses at all in 2012. Again, the biggest pre-purchase deals haven’t been correlated with the biggest credit card signup bonuses.
And what are the very best credit card signup bonuses today, in addition to the 100,000 mile British Airways offer from Chase?
- Ink Bold charge card and Ink Plus credit card both offer 50,000 point signup bonuses after $5,000 spend within 3 months. These are Chase Ultimate Rewards points which transfer to United, British Airways, Korean Airlines, Southwest, Hyatt, Marriott, Ritz-Carlton, Priority Club, and Amtrak. (The cards also earn quintuple points on wireless/telecommunications services, cable and satellite TV and radio, and office supply stores and double points on hotels and gas stations up to 200,000 points per year.)
- Chase Sapphire Preferredoffers no fee the first year, 40,000 points after $3000 in spend within 3 months, no foreign currency conversion fees, double points on travel and dining, points transfers to United, Hyatt, Southwest, Amtrak, British Airways, Korean Airlines, Marriott Priority Club, and Ritz-Carlton. Probably the best all-around credit card, and with a great signup bonus.
- Citi® Platinum Select®/AAdvantage® Visa Signature® Card50,000 point signup bonus, no fee the first year — 40,000 points after $3000 spend within 3 months and 10,000 points after $10,000 spend within 12 months. This is a published, limited time offer scheduled to be pulled on December 13th and with a landing page detailing the offer. If you prefer there’s also an Citi American Airlines American Express or American Airlines Visa: 50,000 bonus points after $2500 spend within 4 months, no fee the first year. The links are direct to application pages, I’ve gotten only one report of a reader being told the correct bonus wasn’t tied to their account.
The first two of these are Chase’s own points, not a case where they purchased points on the cheap and have a deadline to use them. They can create as many as they wish, and at a fairly constant cost. In the case of the Ink cards they’ve even just cut the spending requirement in half for getting the full signup bonus in an end of year marketing push, signaling they may have some end of year internal goals to meet which aren’t in any way tied to a last opportunity to use up points.
And Citibank has had some good American Airlines offers, but in most cases I’ve seen them match to try to stay competitive with Chase. They were the last of the major co-branded issuers to introduce card benefits which approximate the first-tier of elite status, for instance. Rather than innovating, they’ve done what they’ve had to in order to stay in the game.
Signup bonuses are only one of the marketing expenses that credit card companies have, they spend big not just to buy miles and points to award to customers but also to sponsor events and advertise. Chase Sapphire Preferred is a sponsor and advertiser on one of my favorite current television shows, BBC America’s Copper.
Chase has been spending more than their competitors to acquire new customers not because they have to, or because they bought miles less expensively than their competitors, but because they believe they can generate more profit from those customers once acquired. Chase has branches and checking accounts and home mortgages and auto loans and investment management. They’ll offer their top clients private banking relationships. Citi has these things as well but Chase has historically been effective at cross-selling. A new customer is simply worth more to Chase than to Citi.
And that’s why we see big bonuses. Because those bonuses cut through the clutter and attract business.
It’s certainly possible that the banks are overspending to acquire customers; that their acquisition costs will exceed the long-term profitability of those customers. But the fact that some customers sign up for bonuses and don’t remain customers over the long-term doesn’t really undermine that proposition since this group remains a relatively small portion of the banks’ overall customer base.
Further, the banks have also much limited their exposure to folks just signing up for bonuses. It used to be possible to get new Chase cards — the same Chase cards — every 60 days and the same Citi cards every 90 days. Now Chase will rarely let you have a signup bonus for the ‘same’ credit card more than once, and Citi’s policies vary but the best offers require waiting 18 months between applications.
If signup bonuses dwindle it’ll be because of overall changes which undermine the profitability of the card products or the ability of banks to cross-sell and generate profits from across their suite of offerings, not because of an increase in their cost to buy airline miles. Which means their no ‘mileage bonus cliff’ as prepurchased miles expire. And it’s all simply subject to the overall competitive environment — an environment which is heating up (with new, aggressive products and marketing from US Bank and Barclays and a bit of stirring out of Bank of America which should put pressure on Chase, Citi, and American Express).
This game of ours isn’t going away any time soon. And it isn’t too late to play.
(As another sign that the banks are anxious to sign up new customers, in addition to the big signup bonuses they’ll also offer referral credit to me if you’re approved for cards using the links in this post, which I great appreciate.)