Update: This offer for the Starwood Preferred Guest® Credit Card from American Express has expired. Learn more about the current offers here.
One of the most compelling new offerings from Barclaycard is their Arrival Card, which is an extremely lucrative travel cashback credit card:
- It offers two miles per dollar spent on all purchases
- You get a 5% refund on miles when you redeem them
- Each mile can redeemed for one cent towards the cost of travel, meaning you’re getting a return of ~2.1 cents per dollar spent
That’s a return that’s tough to beat for spend that otherwise doesn’t fit in a “bonus” category.
The best award redemptions now often involve fuel surcharges
What makes this card even more interesting than before — at least from a mental accounting standpoint — is that we’re now seeing that many of the best award redemption values involve fuel surcharges. Last week I wrote a post about the best ways to redeem for Star Alliance first and business class awards once the United devaluation kicks in and US Airways leaves the Star Alliance.
So the reality is that with United’s massively inflated award costs you’re stuck either paying a ton of miles or booking through a partner program with fuel surcharges at a lower mileage rate.
As a general rule of thumb, fuel surcharges are much higher to Europe than to Asia. Mentally the way to justify fuel surcharges is to look at it as paying (at most) the cost of an economy ticket and getting a two or three cabin upgrade to first class. To Europe that’s pretty accurate, while to Asia fuel surcharges are usually considerably lower.
Comparing the value of an Arrival mile to an airline mile
When does it make sense to collect Arrival miles? As I said above, it generally makes the most sense for everyday spend in a category that wouldn’t otherwise accrue a bonus. I consider the two best cards for everyday, non-bonused spend to be the Barclaycard Arrival® Plus World Elite Mastercard® and the Starwood Preferred Guest® Credit Card from American Express. I value the “return” on everyday spend for both cards at roughly 2.2 cents.
Starpoints can be converted into airline miles at a 1:1 ratio, and for every 20,000 points you transfer you get a 5,000 point bonus. So 20,000 Starpoints is the equivalent of 25,000 miles in most major programs.
Therefore since the Barclaycard Arrival is accruing a similar return on spend, let’s say that each airline mile is worth roughly 1.68 Arrival miles (simply taking the 2.1% return and dividing it by 1.25, since that’s the opportunity cost in terms of the number of miles that could be earned through the Starwood American Express).
Using the Barclays to supplement fuel surcharges
Understandably most people want to redeem their miles for “free” travel, and not pay several hundred dollars in addition to the miles.
That’s kind of where the Barclaycard Arrival can be really helpful, since you can use it to pay the fuel surcharges on award tickets.
Say, for example, you want to fly roundtrip first class from Chicago to Frankfurt on Lufthansa:
- If booking through United MileagePlus that award would cost you 220,000 miles roundtrip as of February 1, 2014
- I booking through ANA Mileage Club that award would cost you 100,000 miles roundtrip plus about $850 in fuel surcharges
Meanwhile as Gary noted yesterday, if you want to fly roundtrip business class between the US and Tokyo in the low season, the costs between United and ANA would be as follows:
- If booking through United MileagePlus that award would cost you 150,000 miles roundtrip as of February 1, 2014
- If booking through ANA Mileage Club, that award would cost you 75,000 miles roundtrip plus about $580 in fuel surcharges.
Crunching the numbers on supplementing fuel surcharges
In the above example from Chicago to Frankfurt you’re paying 85,000 Arrival miles to cover the ~$850 in fuel surcharges, and the opportunity cost of that spend would have been roughly 48,000 miles (~$38,000 of spend).
So in the end you’d be paying what I consider to be the equivalent of 100,000 ANA miles plus the opportunity cost of 48,000 miles in a program of your choice, for a total of 148,000 miles. That’s much less than the 220,000 MileagePlus miles the same itinerary would have cost you.
Meanwhile with the second itinerary from the US to Tokyo you’re paying 58,000 Arrival miles to cover the fuel surcharges, which I value at ~33,000 miles in a program of your choice. Between that and the 75,000 ANA miles needed for the award, you’re paying the equivalent of a total of 108,000 miles, compared to 150,000 MileagePlus miles.
I don’t think US airlines will begin imposing fuel surcharges across the board anytime soon. That being said, with the massive mileage inflation we’re seeing, it may be in your best interest to book awards through airlines that do impose fuel surcharges. You can come out way ahead by having some Arrival miles to complement those mileage currencies, since they can basically wipe out the taxes, fees, and fuel surcharges on awards. Look at it as using miles from two different currencies to book the same award at a discount.
Ultimately this isn’t useful for everybody, but if you’re a big credit card spender it’s just another way to diversify your mileage “portfolio.” If your goal with miles is international premium cabin travel you don’t want this as your primary card, though it’s a great supplement.