American Express Launches Frequent-Traveler Program
NEW YORK - Attempting to gain some ground in the credit card marketing wars, American Express Co. on Thursday unveiled a frequent-traveler program.
The enhancement, similar to those offered by big Visa and MasterCard banks like Citicorp and First Chicago Corp., lets cardholders earn program miles every time they use their American Express cards. The miles can then be redeemed for transportation on 31 airlines, as well as for other travel and entertainment packages.
The New York-based charge card giant has designed Membership Miles to appeal to frequent business travelers, said Phillip J. Riese, an executive vice president and head of the charge card division at American Express Travel Related Services Co. While participating cardholders earn one membership mile for every dollar they charge, they can only redeem those miles after accruing 5,000 in a single enrollment year.
Incentive to Use Card
"We believe consumers will feel [the program is] a compelling reason to put more American Express cards in their wallets," Mr. Riese said. Consumers can elect to have nearly all of the American Express cards they carry - including green, gold, platinum, Optima, small-business corporate, and two supplemental cards - accrue credit into a single Membership Miles account.
Frequent-flier programs are seen as an effective - but expensive - way for card marketers to stimulate usage and add new customers. According to Carl H. Novotony, chief executive officer of American Card Services Inc., Wellesley, Mass., card issuers typically pay 1 cent for each mile their cardholders accrue on an airline's frequent-flier program.
That's why some banks have had to scale back their airline tie-ins. Banks stand to lose money when their customers run up - and quickly pay off without interest - huge credit card balances to win travel miles. Indeed, First Chicago recently placed limits on the bonus miles that cardholders can receive as part of its program in conjunction with United Airlines.
Because most American Express products are charge cards that do not revolve, the company is not as dependent on interest income as bank card issuers. Therefore, it can better afford to offer a frequent-traveler perk. "American Express has built its whole business on nonrevolvers," Mr. Riese said. "We know how to make money on a nonrevolver program."
The higher fees that American Express receives from merchants that accept its card will also help it better finance this latest enhancement, said Mr. Novotny of American Card Services. And, by setting a 5,000-mile redemption minimum, American Express ensures that it will not waste money by providing the perk to infrequent users of its cards, he added.
American Express is offering to enroll in the program all card-holders for free for the first year. There will be a $25 fee - except for platinum cardholders - the second year.