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What is the future of airline credit cards in the UK?

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I wrote this article last week for potential use in another publication.  It seemed a shame not to run it on here too.  Whilst very little in this article will be new to regular readers, it does pull together a lot of news and ideas from various different HFP articles into one place for the first time.

On Monday 6th November, all eight UK airline credit cards issued by MBNA were closed to new applicants without any warning.  This meant that 75% of the UK airline credit cards disappeared overnight to new applicants. This article explains:

What cards have gone
Why it happened
What cards consumers should focus on now if they want to collect airline miles
How I believe the airline and broader loyalty credit card sector in the UK should evolve if it is to survive the world of 0.3% interchange fees

What cards were withdrawn on 6th November?

These are the UK airline credit cards you can no longer apply for:

Lufthansa Miles & More
Emirates Skywards
Emirates Skywards Elite
Virgin Flying Club White
Virgin Flying Club Black
Etihad Guest
United Airlines MileagePlus
American Airlines AAdvantage

I know that the two Virgin Atlantic cards will return shortly under the Virgin Money banner. There are no confirmed plans for the other cards to return under a new issuer.  I know that some early stage discussions are taking place with niche low-cost card issuers – there is an opportunity here for someone to come into the market and pick up these contracts if they can make the numbers work.

Why did 80% of the UK airline credit card market disappear overnight?

Today, the only UK airline credit cards still open to new applications are the two British Airways Avios credit cards (one from American Express, one from Lloyds) and the very small Flybe credit card.

Two linked events caused this. The core driver was the European Union cap on interchange fees charged by Visa and MasterCard.

The EU believed that Visa and MasterCard were operating an oligopoly. It claimed, arguably correctly, that the two companies were exploiting their oligopoly on payment processing by charging disproportionate fees, especially as all of the risk was taken by the retailer (in case of chargebacks) and the card issuer (in case of bad debts).

New rules brought in last year restricted the fee that payment processors could charge retailers for accepting credit cards to 0.3%. It is very difficult to run a successful mileage card on this basis – if you earn 0.3p per £1 spent, you cannot pay an airline 0.5p to 1p per £1 to buy the cardholder an air mile!

(There is interest income, but airline cards tend to be held by wealthier people who do not run a balance. The only other source of income is the 3% foreign exchange fee, but increased awareness of specialist 0% FX fee cards such as Halifax Clarity has cut this income stream too.)

How did American Express get dragged into this?

The second driver was American Express being caught up in the 0.3% cap, even though it was originally expected to be exempt.

In theory, American Express should have nothing to do with this. Amex is vertically integrated and there is no intermediary sitting between the retailer and Amex who is adding additional fees. A retailer was free to either work with Amex, paying the fees they requested, or not.

There was no doubt that American Express could no longer issue franchised cards in the UK as, under the convoluted EU interchange rules, they were capped at 0.3%. This meant that MBNA, Lloyds, TSB and Barclays had to stop issuing Amex-branded products. (The Lloyds Avios Amex is still being issued but the end is nigh.)

Weirdly, even ‘directly issued’ Amex cards are being capped

Back in July, the EU’s Advocate General ruled against an American Express appeal that it should not have fees on its co-brand cards capped.

This primarily impacts the British Airways American Express card. With over £1 billion of monthly billings, it is by far the most successful travel credit card in the UK.

This Head for Points article goes into this ruling in more detail.

The bottom line is that unless the EU court throws out the preliminary view of the Advocate General – which is rare – the British Airways Amex will be at risk too. The current generous benefits package cannot be funded if merchant fees are cut from 1.75% to 0.3%.

The ONLY personal credit and charge cards which will remain outside the interchange fee cap are non co-branded Amex products – Gold, Green and Platinum.

What can customers do if they still want to collect airline miles from a credit card?

The British Airways American Express credit cards, and the Lloyds Avios Rewards credit cards, are – for now – still available.

ALL other airline credit cards have been closed, apart from the small Flybe card.  Some may return next year in a different guise – I will discuss in a minute what that guise may be.

You can still earn airline miles via American Express Membership Rewards pointsI recommend American Express Preferred Rewards Gold as the best choice. This card is free for the first year, comes with a 20,000 points sign-up bonus and comes with two free airport lounge passes.

Amex points can be transferred at 1:1 into three of the airlines whose cards were closed – Virgin Atlantic, Etihad and Emirates.

Anyone wanting Lufthansa, United or American Airlines miles should take the Starwood Preferred Guest American Express card instead. Whilst this is a hotel credit card, the points transfer into almost 30 airline schemes at 1:1 (United is 2:1). The card does have a £75 annual fee.

How will this change the face of travel loyalty cards?

For years, credit cards have been a licence to print money for airline loyalty schemes in the UK. It is believed that 2/3rd of income from the sale of miles to third parties comes from financial services companies.

It’s not just about money though.

Co-brand credit cards are an amazing marketing tool. The value to British Airways of having you see their brand every time you pay for something is HUGE.

Going forwards, these cards will not be able to offer huge numbers of miles per £1 spent. So, what now?

I have been arguing for a while that I expect airline status to become available via a UK credit card in the medium term. Here are two possible scenarios I envisage could happen (these examples are both made up, of course):

Would you pay £495 for a new British Airways Elite American Express card which came with BA Silver status, giving you airport lounge access, fast track security and priority boarding, potentially with a high spending threshold?

Would you pay £195 for the British Airways Premium Plus if the earning rate was cut to 1 Avios per £1 but you also received free British Airways Bronze status? This would give you fast track security and free seat selection.

This is the future, I believe. A future where co-brand partners need to bring more to the table if they want to keep their logo in your wallet as a marketing tool.

For years the airlines have had it all their own way. They found a way of placing their logo in a prominent position – on a payment card – where you would see it every day. And, instead of actually paying for this exposure, they were making money, lots of money, from it.

Those days are gone. MBNA’s actions in culling eight airline cards overnight proved it. It would be a foolhardy loyalty programme that decided to walk away from such an amazing marketing tool though, even if they have to actually spend money – instead of making money – to achieve it.

(Want to earn more miles and points from credit cards?  Click here to visit our dedicated airline and hotel travel credit cards page or use the ‘Credit Cards Update’ link in the menu bar at the top of the page.)

Aer Lingus and Avios Part 3 - I try US pre-clearance in Dublin and the '51st and Green' lounge
Aer Lingus launches new Seattle route - and how to redeem Avios with minimal taxes
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Comments

  1. I have a Platinum card, the 1st line suggests 18K for referring any card other than the Basic Card:

    The Platinum Card®
    REFERRAL PROGRAMME TERMS
    1. You will receive 18,000 bonus Membership Rewards points if your friend or family member uses the Referral Programme to apply for a card (other than a Basic Card) and is approved. You will not receive any points if they apply for a Basic Card.
    2. Only friends and family: You must only send the referral link to close friends and family….
    etc

    • The problem is Amex are not famed for having clearly written T&Cs – the same wording appears on other cards too, I think we won’t know for certain until some cross-card currency referrals have been made and they’ve gone through!

  2. OT This week’s Marriott Twitter answer is 16. #RewardsPoints

    • Haha you’ve snuck in for speed this week I think! Handily I find each Sunday Twitter has the Marriott/NFL post as the top one on my stream 🙂

      • 🙂 We’re having a few drinks in the hotel lounge before dinner. Mrs G reading, me reading about points lol.

        • I was in the Renaissance at Heathrow last night so feel I’m doing something more than just turning up on a Sunday for freebie points 🙂

        • Haha enjoy. I’m just back in from Morrisons – made a trip specifically to buy some Amazon gift cards, now saved an extra £30 in an already good Black Friday sale thanks to points on gift cards, whilst also hitting spend target on Nectar and IHG (for Spire) – good Sunday afternoon result! 🙂

      • Alan and Cate, can’t reply to your earlier comments about Krisflyer. Thanks for the pdf, I can see Europe to Sin will be 85,000 in Bus saver, but how can you get ZRH to SIN in first for 85,000 as stated earlier? Is ZRH in a different zone?
        TIA

    • Thanks! Do we know how long this Sunday treat will last for?

      • Scallder says:

        6 more regular season games and then 4 weeks of post season plus the pro bowl so up to another 11 weeks perhaps (they have already skipped one week so might do do again…)

  3. thehornets says:

    O/T Marriott Rewards 1000 points:

    https://twitter.com/MarriottRewards/status/932307596563816448?s=17

    Answer: 16 #RewardsPoints

    • LOL I think Genghis must have been sitting ready to submit – he squeezed in before you by under a minute 😀 Thanks as ever though, thehornets – love this weekly free points hand out!

      • thehornets says:

        Don’t I know it. He was quick!

        @Ed – TPG mentioned that there are at least 7 more weeks of this.. So plenty of time for people to sign up to Twitter, link their accounts and accrue thousands of free Marriott points.

    • How do you link your accounts to get the points? I can’t see how.

  4. I am going to test a SPG referral for a Amex Gold application tonight.

    Will let you know in a few days.

    • Ah, cool – will be interesting to hear how you get on!

      • Just applied but they couldn’t give me a decision instantly so might take a bit longer to report back. For some reason I never get approved for charge cards instantly but credit cards I do. Really annoying. Will let you know.

    • Excellent timing – I’m due to refer my wife for the SPG and I currently hold Platinum and SPG… would be nice if I can get 18k MR rather than 5k SPG!

    • Any update on the application?

  5. And nectar

  6. Completely OT but no bits section.

    The NOW TV boxes are back in stock again at Tesco. Just bought one 2 minutes ago.

  7. I just received an offer in the post from American Express offering a companion Gold credit card to my Gold charge card, with the offer of 5,000 points if I spend £500 on it within three months. Has anyone else? It is interesting in light of the article above, but also unexpected given that it is quite generous for an offer to an existing customer.

    • Johnny_c-l says:

      Had this offer a couple of times, it’s easy points. I guess they plan to profit from interest charges on this card in the hope you’ll use it if you need to spread out repayments.

    • Yes, my wife too. We were about to cancel the GC. Will probably still do so tbh, but I wonder if this was a way to keep us signed up over the card anniversary

  8. If you see the awards and rewards available on US cards, and then look at UK cards, you just want to cry

    • true that, but as Rob said recently they do tend to pay more fees on redemptions

    • RussellH says:

      I suspect that many US retailers might be looking at EU and Australian capped card acceptance fees and weeping..

  9. As an infrequent flyer who uses air miles to cut the cost of family holidays I wouldn’t be particularly thrilled at the prospect of losing air miles earning potential in return for status.

    Sad, but hey ho I’ve had a good few years of effectively getting something for nothing…

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