Frequent Fliers, Choose Your Card

With the integration of Northwest Airlines into Delta (DAL), two large banks are tussling over a rare pot of consumer gold: a pool of nearly 1 million of the most lucrative credit-card holders a banker could hope to corral.

By month's end, travelers who collect Northwest WorldPerks frequent-flier miles from US Bank will confront a decision. Should they switch to one of the Delta mileage cards from American Express (AXP) or go with a new "FlexPerks Travel Rewards" Visa card from US Bancorp (USB), whose US Bank unit has offered a Northwest-branded WorldPerks Visa card since 1995? Delta won't award elite qualifying miles, or EQM, for purchases on the current US Bank card after June 30, with all WorldPerks card mileage accrual ending July 17. That means cardholders yearning for a monthly mileage fix must choose.

For the banks, battered by the weak housing market, the recession, and rising credit-card losses, this pool of 800,000 accounts is virtual manna from heaven. Consumers who carry airline-branded cards tend to have higher incomes and credit scores, spend heavily on the cards, and pay off their loans. "Clearly they're a very valuable customer both to the airline and to the bank," says John Owens, US Bank's senior vice-president of retail payment solutions. "They're hooked on the heroin of the frequent-flier miles so they tend to spend accordingly."

Pitching Points Products

The fight over this customer base has been ferocious. Northwest sued US Bank over the FlexPerks card in April, arguing that its name was too similar to the old card and accusing the bank of cutting off its members from WorldPerks miles far before the agreed date in August. That suit was settled a month later, with the parties agreeing to alter some transition dates in the programs' integration. Northwest's frequent-flier program has about 37 million members, although some are also enrolled in Delta's SkyMiles program and likely already have a Delta-branded credit card.

Divorced from its Northwest relationship, Minneapolis-based US Bancorp, like other travel-related card purveyors, is pitching the flexibility of points that one can redeem on some 150 airlines or use for car rentals, hotel rooms, cruises, and the like. "Our goal at this stage of the game is to keep as many of the legacy WorldPerks cardholders as we can, and we have a few bullets in our gun that will help us with that," Owens says. For its part, US Bancorp's unit, US Bank, will waive the card's $49 annual fee with annual spending of at least $24,000 on the card, and will start offering free tickets with 20,000 points—5,000 fewer than where most airlines' award levels start. As further inducements, US Bank will reimburse FlexPerks cardholders up to $20 per trip for new airline fees and award miles on reward flights.

Such cards can appeal to people who don't want to consider themselves beholden to a particular carrier, or who find airline mileage program rules onerous. Capital One (COF) has been among the most aggressive to mine this market, with its "No Hassle Rewards" card and comedian David Spade appearing in a TV campaign that highlights consumers' frustration about being unable to book reward travel. "If you're held to the availability of a seat on one airline, best of luck," says Owens. The points system is pitched to consumers as one of choice and flexibility—access to almost every airline and better odds of landing the free seat you want. American Express also offers points products, including a no-fee travel reward card dubbed Blue Sky.

Heavy Advertising in Airlines' Markets

The banks behind airline-branded cards such as American Express' Delta and JetBlue (JBLU) cards are fighting back with a slew of enticements. These include upgrades for high-mileage earners and massive airline networks such as Star Alliance and oneworld, which offer destinations worldwide. "The more elite a customer is in that program, the more loyal they are to the card…the card then serves as a glue to strengthen the relationship," says Pam Codispoti, an AmEx senior vice-president and general manager of branded products. "To be treated really well and to be recognized by the airline, that's what [cardholders] are really looking for."

The Delta and Northwest mileage plans are expected to be merged at the end of 2009, although the card issuers' scramble for customers will likely play out well into next year. David Robertson, publisher of The Nilson Report, a trade publication that covers the credit-card industry, predicts a split between hard-core road warriors, who will migrate to AmEx to keep accruing "currency" with their predominant carrier, and "the average Joe," who travels less and has a smaller mileage balance. "The road warriors, for sure, are going to move to AmEx," Robertson says. "The average Joe who had that card on a more aspirational basis is disinclined to be aspirational in a recessionary environment."

As part of an agreement with Northwest-Delta, US Bank has the advantage of being able to send current cardholders its new FlexPerks card, which the recipient merely needs to activate. American Express, on the other hand, is being forced to urge Northwest's cardholders to apply for its SkyMiles card. That has spurred an enormous AmEx advertising campaign in Northwest-heavy markets such as Minneapolis-St. Paul, Detroit, Seattle, Tennessee, and the Upper Midwest, on everything from TV to radio, billboards, online, and newspaper ads. American Express is also offering former WorldPerks cardholders bonus miles to switch. "We are doing our very best to educate those customers about our value proposition…and encouraging them to apply now so they don't skip a beat," AmEx's Codispoti says.

For both banks, such heavy spending to win a spot in the wallets of this group is clearly worth the investment. Says Codispoti: "With the environment these days, it's a great opportunity."

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