The End of the Northwest Visa, and Some Basics on Proprietary Bank Points-Based Rewards Programs

With the Northwest/Delta merger (Delta acquisition of Northwest), the surviving credit card partner is American Express. The US Bank-issued Visa will be going away later in the year. American Express, with its higher interchange fees, is likley in a position to be offering more for miles, and American Express has played an integral role in the financial viability of Delta over time — prepurchasing as much as a half a billion dollars worth of miles at a time and extending a $100 million line of credit.

Naturally this is a blow to US Bank, as their Northwest partnership is big business for them. Word is that they are going to try to keep customers in a new proprietary points program, offering their own points where 20,000 points buys a domestic ticket on any airline. Most people think in terms of 25,000 domestic coach awards with capacity controls, so these offers have been a powerful selling point for banks in the past several years. US Bank will throw in sweeteners like $20 credit towards travel purchases like luggage, onboard meals, and such.

US Bank is really anxious to push the new product, and they’ll give 500 Northwest miles to current cardholders who sign up to learn more about changes to the card.

Whether there’s any meaningful value at all in the program remains to be seen. In the meantime, though, even as a Northwest partner the only reason to be carrying the US Bank Visa (or for that matter the Delta Amex with the abolition of its ‘everyday double miles’), signup bonuses aside, is for bonus elite qualifying miles based on spending provided that you’re looking to top off towards elite status. Actually, with the specific Delta American Express Reserve Card the other benefit is upgrade priority within elite status and fare class. But certainly these products aren’t attractive for their earnings, since a NW/DL mile is worth less than most other North American mileage program currency units.

One Flyertalk member, in a discussion on the new details-yet-to-be-announced US Bank program, asked whether he should have been putting his spending on an American Express Membership Rewards-earning card instead. The answer, elite qualifying mileage opportunities aside, is an emphatic yes (though there are other cards to consider such as the Starwod Amex or the Hilton HHonors Amex Surpass card — where $40,000 in spend earns top tier elite status — that are better options.

120,000 Amex Membership Rewards points transferred to Air Canada gets you a first class Star Alliance award from North America to Asia, you’re allowed to transit both the Atlantic AND the Pacific on that award, and you’re permitted TWO stopovers (or a stopover and an open jaw). 63,000 Amex points transferred to ANA is enough for a Virgin Upper Class award roiundtrip New York-JFK to London-Heathrow (and of course transferring from Starwood means even fewer points because of the Starwood’s transfer bonuses where 20,000 Starwood points yields 25,000 airline miles with most programs).

The new US Bank card program will be a proprietary points program, which is usually even less valuable than Northwest/Delta miles. If you’re interested in domestic coach tickets for your credit card spend, then such programs are indeed useful. You earn points in their program, they buy you a domestic ticket. But if you’re interested in premium class travel, these cards are usually a poor value — and such rewards are precisely the sweet spot in airline mileage programs. Plus you really don’t have options for mileage earning and combining miles from various sources in a single account the way you do with airline programs (flights, hotels, rental cars, restaurant meals in addition to paying for the meal with your credit card, sometimes test driving a car, etc).

Occasionally these points programs can be valuable, and those situations seem to fall into three possible categories:


  1. If they provide signficant number of points per dollar, eg up to 12 points per dollar on the Citi Drivers Edge Mastercard (bonus categories earning 6 points per dollar matched by the miles you drive, and then converted into Thank You Points which are now worth a penny apiece only on airline travel, but this can still yield a 12% rebate).


  2. When the points are worth more than a penny apiece, eg prior to the past month or so when Citi Thank You points could be worth 3 cents a point redeemed for premium class awards.


  3. When there’s no cap on the price of the ticket redeemed, the credit card program is buying you a ticket but doesn’t say that the 20,000 miles buys you one “worth up to $400” or some such, rather the cost is what it is and they purchase it, then you can extract significant value from the program.

In the old days of the Citi Thank You Network rewards program, there was no cap on the price of tickets. Redeem for a flight to Japan in coach, only full fare tickets were available, and they buying you say an $8000 airline ticket instead of a $1000 ticket.

That got too costly to Citi and so they did impose limits on the price of tickets they’d pruchase, with coach travel amounting to two cetns a point in value on their fixed price redemption chart, and three cents a point for premium class travel. But this was still far more lucrative than just the one point = one penny formulation that’s most common in proprietary programs (or one penny as a cap rather than a fixed value).

But that was deemed too expensive, and they limited the fixed point redemptions to only some specific cards and excuding the vast majority of Thank You Network earning accounts. But there were ways around that, since points from various accounts could be combined and you only needed an Expedia account (which was free) to be eligible for fixed point redemption.

But that was deemed too expensive, and so in January they announced an end to the fixed point redemption chart entirely effective March 1. That meant all points would be worth no more than a penny apiece, rather than up to three. And then without any notice in early February they imposed a limit of 2 cents a point in value for premium class redemptions, down from three. Now the fixed point redemption option is no more.

Now, I’d venture a guess than many many people redeeming for North American business class travel (90,000 points for a ticket up to $2700) really had no interest in such a redemption. Instead, whether under the old program where you could get an $8000 ticket to Japan or the more recent version where you could score a $2700 ticket between Elko, Nevada and Montreal, one would be sure to include a nonrefundable segment in the itinerary and then once the ticket was issued, cancel the itinerary. That way instead of Citibank getting their money back, the customer would have an airline credit for the value of the ticket minus any change fee. Delta was an especially popular airline for such redemptions, because their credits — after booking a first ticket in your own name — could be used by anyone. (You’d see a whole lot of ~ $1900 Delta credits being traded on Flyertalk’s Coupon Connection.)

I’ll be watching the new US Bank points program, of course, to see if it includes any of the features of the Citi Thank You Points program that once made it special. The guess of course is that even if it does, it won’t last, but such offers are great to take advantage of while they’re around. If the US Bank program offers significant bonus points, leverages the redemption value per point in some way, or doesn’t cap the price of tickets purchased with their points then it will be worth considering their card.

If on the other hand they just offer a straight $1 = 1 point, 20k points = a domestic ticket worth $X, then move along, not worth your time. If that’s of interest to you just get a decent cashback rewards card since you can do better than 1% and you get real money instead of someone’s else’s currency that’s restricted to use towards travel (or sometimes offering less valuable redemptions towards merchandise at a lesser value than one cent a point).

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. Nice analysis, Gary. I appreciate the extra effort, and the pros and cons discussion.

    One thing I want to point out that hit me this year with the Citbank promotion: you may get a 1099-MISC form that they file with the IRS. This means you can get dinged for taxes on the value of the ticket.

    Anyone else have this problem? If so, that’s another BIG negative for bank-related awards.

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