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Amex Airline Fee Credit

The Amex Airline Fee Credit has been a popular benefit for a lot of miles and points aficionados. The primary reason for this has been the gift card loophole. One could buy airline gift cards and get a statement credit for the airline fee credit. However, this wasn’t necessarily intended to be the way it was supposed to be used.

The benefit and its attached workaround provided an avenue to offset the high annual fees on some of the prominent Amex cards. After reports started coming in that Amex had recoded transactions, speculations were rife about what was next. Everyone was wondering, what’s the value proposition of Amex’s ‘premium’ cards once this loophole is closed?

Under the scanner were the Amex Platinum Card, the Business Platinum Card, the Hilton Aspire Card and the Amex Gold Card. Over the last couple of years, Amex has shown us a trend. They’ve increased annual fees on their premium cards and added credits as new benefits. These credits range from their traditional airline credit to a credit on Grubhub, Uber and Boxed.com.

Amex’s Business Needs

If you take a look at this recent report from Reuters, you’ll see that some of these changes aren’t totally surprising.

AmEx has been ramping up its reward programs on its cards and striking partnership deals with a number of companies in a move to attract and retain customers. The company in 2018 renewed a partnership with Delta Air Lines Inc (DAL.N) that rewards customers with air miles. Card reward expenses jumped 9% in the second quarter to $2.65 billion, compared with a 4% rise in the first quarter.

It’s crystal clear that reward program costs are forming a major component of Amex’s customer acquisition mix. When a company is looking to cut costs, it first tries to cut costs at places where they feel the least impact would be felt. Taking away actual benefits would be a real bad deal for loyal customers. Increasing annual fees further would probably only drive customers towards canceling their existing cards. As a result, Amex decided to close a loophole that they knew was open for a long time anyway.

Amex’s Ideal Customer

If you look at things from Amex’s side, they’ve probably made their mind that the person buying airline gift cards isn’t the customer that they’re really after. From Amex’s standpoint, their ideal customer for these products is a frequent traveler or a road warrior.

However, given Amex’s contractual obligations with airlines, Amex hopes that this ideal customer brings business to them and their partner airlines by flying them. Every now and then, this customer doesn’t fly enough or fails to use the entire airline fee credit. This helps Amex keeps the remainder of the money. This customer also has elite status. Airlines waive a lot of his fees and he ends up not using his entire fee credit benefit.

Clearly, by nixing this benefit, Amex has decided that they no longer want to cater to the customer segment that buys gift cards to offset the airline credit. My hunch is that their data tells them that this segment isn’t big enough to cause a dent to them long term.

What the Future Holds

So, what’s the future of this benefit? Let’s examine a few scenarios.

The benefit gets reinstated

If Amex sees a significant uptick in card cancellation or a drastic change in customer behavior, they may just reinstate the benefit. They’ll simply have to make a change to the code to allow this loophole to function as it used to. While I hope this happens, I’m not sure it will. The miles and points may be quite a vocal community of frequent travelers. However, my hunch is that Amex has taken this decision taking into account how miles and points lovers may react to this change.

Gets converted to a Travel/Airline Credit

What if Amex ends up converting this into a flat airline or travel credit like the Citi Prestige or the Chase Sapphire Reserve? Wouldn’t that would be a great win for all customers? However, given existing contractual obligations, I don’t see Amex doing this in the near future.

Product Life Cycle

Let’s examine the credit card product life cycle. Amex introduces a new card. It generates buzz and gains a lot of following. people sign up en masse. However, one particular benefit becomes popular in a small group of travel hackers. The workaround is popularized and more people sign up for the cards. From a business standpoint, it eventually crosses the standpoint where Amex thinks that they’re losing money on providing these rewards. They kill the workaround.

What’s next in this sequence? The miles and points community is well read, active and vocal. However, Amex thinks it’s not large enough to hurt them by way of rapid card cancellations after the announcement of this change.

The Pundit’s Mantra

For now, Amex has killed the workaround. If you’ve only relied on buying gift cards to offset the credit, then I don’t see the value in holding on to these cards long term.

What do you think about this change? Do you plan on canceling any of your existing Amex cards? Let us know in the comments section.

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