Evolving co-brand: AAdvantage adjusts soft benefits for cardholders

The value co-branded credit cards bring to airlines is indisputable. As a result, changing the card benefits is a risky play. Go too far and consumers will close their accounts, moving on to the next huge sign-up bonus and vaguely interesting offer on the market. For the American Airlines Aviator card from Barclay such changes are coming in 2019. The new options are creative and intriguing for consumers, though not all necessarily as good as they appear at first blush.

Most of the card benefits remain the same, with a couple new additions and a couple benefits removed. A $25 credit for wifi purchased on board is a small win for passengers, though likely only covers a trip or two. Then again, the relatively infrequent flyer is the prime target for this card, with many of the benefits overlapping with even the lowest elite tier in the AAdvantage program. Those travelers are also most likely to see value in the biggest feature the card is adding in 2019: Flight Cents. But is it really a good deal??

AAdvantage Flight Cents by Barclays

The concept is an interesting one: Barclay’s will round off your charges on every transaction to the nearest dollar and use that “leftover” cash at the end of the month to purchase miles on your behalf. Grocery stores sometimes offer a similar round off for charity and some bank cards over the years have used similar rounding to automatically transfer some money into savings. In this scenario, however, the auto-transfer buys more points. The example given shows the power of such a program – with 15x earning from the rounding versus the initial transaction.

Buying miles directly is also an option with the AAdvantage program, with a price point north of three cents per point including taxes. The Flight Cents program buys points at two cents each, a nice discount to the retail price, though you’re locked in to making that purchase every month. And, while the 3+ cents number is the normal price for such purchases American often runs bonus promotions for the AAdvantage buy miles scheme, dropping the price down significantly if purchased in bulk. The catch, of course, is that enrolled cardholders are committed to the purchase every month; it is a passive play but also one where the amount of money spent is unclear until after the transaction is complete.

With an average of one transaction on the card each day we can estimate $15-20 in Flight Cents purchases for the typical user of the card. That leads to roughly 10-15,000 extra points purchased across the year, as well as a nice boost in revenue for both the bank and the AAdvantage program.

No more 10% award rebate

Disappearing from the card benefits is a different way card members could earn a decent number of points annually. Previously any award redemption earned a rebate of 10% for anyone that paid the annual fee. With the new rules (and increased annual fee) this benefit disappears in favor of the new programs that all cost consumers a bit more along the way.

Shifting Priorities

The rebate is a passive benefit; no extra effort required to take advantage. One could argue that Flight Cents is passive as well. After all, set it once and then let the points roll in (and the charges add up). But trading a free benefit for one that costs extra every month could prove a hard sell for the card as it seeks to grow its base. Then again, many consumers think only about the number of points and not the real costs of the acquisition so this creative play could prove a big winner.

But the shift in priorities is clear: Barclays and AAdvantage want to be in the business of selling more points and Flight Cents creates a new, recurring revenue stream on that front.