How do airline credit cards work?

Airline credit cards are credit cards associated with a particular airline or loyalty program. As you spend money on your credit card, you earn a form of rewards points known as “miles,” which you can use to get award flights.

As airline credit cards have added benefits beside the ability to get free or discounted flights, the programs have become more complicated. You may be able to use your airline card’s miles on other things, such as seat upgrades, credit toward in-flight meals and drinks, or airport lounge access. You may get other perks specific to the card. For example, with an Alaska Airlines Visa Signature® credit card, you are entitled to purchase one bargain-priced ($121) companion fare each year.

The benefits and perks of airline credit cards sound tempting, and in the right situation, these cards can be well worth your while. In this article, we’ll focus mainly on co-branded airline cards, affiliated with specific airlines. Here’s how airline credit cards work and how to tell if one may be right for you.

How airline credit cards work

Airline credit cards are just like other credit cards in that they’re offered by a bank and a network payment processor such as Visa or Mastercard. The difference is the cards are also co-branded with an airline and designed to work with its loyalty program. When you get an airline card, you can use it like any other credit card for all your everyday purchases.

With an airline credit card, you deal with the airline company for your rewards and benefits. The bank collects your payments and deals with your account. And the network payment processor deals with transaction information when you make a purchase.

The basic idea of airline credit cards is simple. You spend money on your credit card, and you are rewarded with miles you can use for travel. One confusing part of the deal, however, is the term “miles.” The miles you earn for flying may or may not be based on the number of miles you actually flew. And your miles balance generally has nothing to do with how many actual miles you can fly free on an award flight. You’re better off thinking of them as “points” that can score you benefits.

Airline cards vs. travel rewards cards

Travel rewards cards come in two basic types:

• Fixed-rate or cash back: These travel cards let you earn points (sometimes called miles) for money you spend on your card, which you can redeem to pay for travel expenses.
• Transferable points cards: These cards let you earn points in the issuer’s loyalty program. You can use the points with their travel partners, which gives you considerable traveling flexibility.

Credit cards affiliated with a specific airline primarily fit the first category. Although you earn miles for purchases in other categories, airline cards are designed primarily to reward purchases on that airline. But the miles you earn with your card can sometimes be used to redeem flights on its partner airlines as well. While there are many similarities between these airline loyalty programs, each works a little differently, and so do their credit cards.

Travel rewards cards that offer American Express Membership Rewards, Capital One miles, Chase Ultimate Rewards or Citi ThankYou points provide more flexible travel rewards you can use for flights on a number of different airlines, as well as hotels and other travel. But they may not get you the perks you want on your favorite airline.

Another plus of an airline credit card is that once you’ve paid your monthly balance, the miles you earned that month (via credit card) transfer into the loyalty program you set up with the airline. They are no longer affiliated with the credit card. So, if you cancel your credit card, you don’t lose your rewards, as long as you’ve paid your balance in full. As long as you keep your frequent flyer account active with the airline, those miles will be waiting for you when you’re ready to book an award flight.

Are airline credit cards worth it?

If you fly frequently, or plan to in the near future, an airline credit card could save you a significant amount of money. With the great deals, perks and bonuses these cards offer, you may even be able to start traveling more.

On the other hand, most airline credit cards carry an annual fee, and you have other options that may work as well (or better) for you. Here’s how to decide if a co-branded airline credit card is worth it for you.

Should you get an airline credit card?

Ask yourself these questions before you decide whether to get a new airline card:

• Do you fly one airline more than others? Co-branded airline credit cards give you the most benefits if you usually fly one particular airline.
• How often do you fly? If you’re frequently in airports and airplanes, having the extra perks that come with an airline card can make your travel time faster and easier. The United℠ Explorer Card, for example, gets you two passes to a United Club airport lounge and up to a $100 credit for Global Entry/TSA PreCheck every four years.
• Do you want free checked bags and other perks? Airline card perks usually include letting you check a bag for free, which can save you about $25 per bag coming and going. Your card will also usually get you priority boarding and discounts on in-flight purchases.
• Are you trying for elite status? Some cards help you earn elite status, which can make traveling much more convenient and comfortable. You may get seat upgrades, free baggage, preferential service, and extra miles when you travel.
• Would you be better off with an all-purpose travel card or rewards card? If you do more road trips than flights, or fly a lot of different airlines, you may be better off with a more flexible travel rewards card with points or miles you can transfer as needed. On the other hand, airline credit cards are known for letting you earn frequent flyer miles more quickly, if your primary goal is to accumulate miles for free flights.
• How much free travel will you get with the sign-up bonus? Airline credit cards usually come with generous welcome bonuses, often enough to get you a free flight, sometimes more than one. For example, British Airways Visa Signature® Card offers 100,000 Avios points if you spend $5,000 in the first 3 months, enough to get you a few domestic U.S. flights.
• Will you be able to use the rewards when you want? Carefully read the terms of the airline credit card rewards plan before you apply. It doesn’t hurt to read customer reviews, as well. Some airlines require you to book far in advance, or they have blackout dates, such as holidays, when you can’t use your rewards – or their award fares require too many miles to be feasible. If you’re worried about availability, consider a program such as Southwest Rapid Rewards, which has no blackout dates.
• Do you already have too many cards? Airline cards usually come with an annual fee. If you have half a dozen cards with annual fees, they can add up to a significant amount. If you fly at least three times a year on one airline, however, and pay to check your bags each time, the annual fee will more than pay for itself. If you fly once or twice a year with carry-on only, then you’re probably not going to get your money’s worth.

Bottom line

If you travel regularly with a certain airline, signing up for an airline credit card may be a slam-dunk decision. You have more credit card options than ever, though, so be sure to explore other ways to earn travel rewards. You may find a more general-purpose travel card will serve you better. Or you may have enough travel in your future to warrant pairing an airline card with a travel card. Base your decision on how you spend and how you travel.