Using Barclaycard Arrival Miles To Subsidize Fuel Surcharges

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Link: Barclaycard Arrival® Plus World Elite Mastercard®

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.

Bottom line

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.

Link: Barclaycard Arrival® Plus World Elite Mastercard®

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  1. I’ve been thinking along these lines for a while – thanks for summing it up so nicely!

    I might even go a step further though: if you’re the type of person who gets a sizeable majority of their miles / points from sources other than CC spend (sign-up bonuses, actual travel, promotions, etc.), then I could see an argument for diversifying more heavily and using Arrival as your primary card – in order to build up a reasonably-big stash of cash back to use for fuel surcharges and other miscellaneous travel.

    It’s easy enough to generate enough points / miles to cover “costs” for a lot of travel – but the increasing $ costs are easy to lose sight of.

  2. I definitely agree – I think more and more the smart spend is on these types of cards (including Capital One Venture or Citi ThankYou points, depending on the bonuses offered at the time).

    I would rank the places to put spend on as

    1. Spend to reach signup bonuses
    2. Spend in 3x or greater categories
    3. Cards like the Arrival or Venture card

  3. What’s the proportion of your spending that goes into non-bonused categories, though? And is it enough to overcome the $89 annual fee? (equiv. to $8,100 in annual spending)

    For example, it may not be a travel card per se, but the Bank of America cash rewards card gives 3.3% back on gas and 2.2% back on groceries. Combine that with a Sapphire Preferred, and (if you value UR points at 1.8 cents each) you’ve got a pretty good rate of return for a bunch of regular spending categories (gas, groceries, restaurants, travel). The UR mall gives me even more opportunities to spend in potentially big ticket categories that are normally not bonused, like electronics (Best Buy), clothing (J.Crew, Banana Republic, department stores) and sporting goods (REI, Sport Chalet).

    There doesn’t seem to be much spending left for a card like the Barclays to take over. Other than the sign up bonus, it doesn’t seem like a card worth owning in the long run.

  4. Lucky
    I think you are off base with the value of the Barclays

    I think Mike is right for the non-heavy spender
    I would suggest a simple Fidelity Cash back Amex (with no referral link) – 2% cash back with no fees.
    The extra 0.2% for 90$ is a bit steep
    90$/0.2c = 45000$ spend each year
    (45k spend = 900$ cash with Fideity; 990 with Barclays Arrival); barely pays for the card fees.

    Points with a crew is right about signup bonuses
    As long as I can get 220k UA miles from Chase
    43 CSP, 55 Ink Bold; 55 Ink Plus 31 Explorer; 31 Business explorer
    It has really cost me 5 signups instead of 220k spend = 4400$ cash back lost
    Those 5 bonuses gave me 900$ each toward a business class ticket

    Lastly I look at it as follows
    220k UA = 100k ANA + 850
    If the miles are ONLY from non bonus spend,
    then 100k UA cost same as 100k ANA
    so 120k UA = 850$ – or 1 mile redemption is 0.67c; not a good value for something you are paying 2 cpm in lost cash back to get.

    Same for the other one
    150k UA = 75k ANA + 580; or 75k UA = 580$ or about 0.78 cpm back

    However, on UA I get free economy plus on the feeder flights, I get free cancels, I can book for anyone without showing my family tree, etc etc and I get free cancels as a 1k instead of a 10% loss on ANA (?)

    So may I suggest a Fidelity Cash back card + book miles with most effective status that you can find. That is transfer Chase to a friends 1k or PP account and ask him to book it for you.

  5. Lucky,

    I am glad you wrote about this topic.

    Today I redeemed 30,000 Avios points against a $318 eonomy plus ticket from Berlin. I was able to book this high season award (JFK-LHR-TXL-BCN-EWR) on a combination of American Airlines, British Airways and Air Berlin. Due to a combination of some Chase Freedom and Barclaycard points, I “paid” $0 taxes.

    Other cards that are useful for this purpose are the CapitalOne Venture card and the BlueSky Amex Card. However, the Arrival card beats them all, IMO, given the generous signup bonus, 2x on all spending and the 10% redemption “kicker.”

    I am now looking forward to building my Arrival balance back up. I’ll either use it t defray inevitable airline fees during my upcoming trip or to pay for surcharges on the next trip.

  6. @ Mike — Totally agree, it all depends on how much you spend on credit cards. That’s why I added the disclaimer about the card not making sense for everyone, but especially making sense for big spenders.

    If you run several hundred thousand dollars a year of non-bonused spend through a card every year I think it can make a lot of sense. I realize most of us aren’t in a position to do that, but I know lots of people that run businesses with high expenses that they can run through cards, and I think it’s especially useful there.

  7. Question: Can I earn and redeem against the same purchase?

    I spend $200 on a flight ticket earning me 400 points.

    Can I redeem 20,000 points (assuming I have additional points already) against this flight ticket so that it cancels out or -$200? and also give me 2000 point (10%) bonus?

  8. Stacy,

    All spending earns points – your points on anything you buy don’t go away if you redeem against it.

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