Virgin Money tackles airline loyalty programmes

"Credit card holders think they are getting a good deal, as the message that is conveyed by their banks is that they simply need to spend money and they'll accumulate air miles," says Virgin Money's Gavin Muller.

"However, what they don't realise is that everything comes with a price, there are no free lunches in the air miles world, and the mere fact that every programme charges an annual fee of some sort, is proof of this."

"No matter what type of air miles' programme your existing credit card offers, the objective of each one is to egg you on to spend as much money as possible on your particular credit card. It's about time card holders are made aware that the free flight they think they are getting will land up costing them thousands of rands."

No free lunches

The basic fact of any air mile programme is that everyone experiences a high degree of delayed gratification as they are required to accrue a certain amount of miles before they can be exchanged for a 'free' flight. When this process can take up to 11 years, trying to spend over R200,000 and getting hit with over R1,500 in card fees to earn these miles - you need to ask yourself 'why are you allowing your bank to take you for a ride year after year after year?'

Over the course of those six years, the average cardholder is hit with R1524 in annual card fees. When you consider that, with the existing price war between the various low-cost airlines, you can pick up a return flight from Johannesburg to Cape Town for under R1000, it seems that 'free' flight to visit Great Aunt Maude in Cape Town isn't so 'free' after all...

Virgin Money investigated 11 credit card air mile offerings, looking at how much you have to spend, how long you have to wait, and how much in annual card fees you have to pay, in order to qualify for a return flight from Johannesburg to Cape Town on a variety of airlines including SAA, British Airways (BA) and Kulula.

Accumulate miles/points

Air mile programmes work by 'awarding' you a certain amount of 'miles' or 'points' in return for your credit card spend. Each mile/point accumulated requires a specific amount of money to be spent. You then need to accumulate a certain number of miles/points to be able to acquire your 'free' flight.

The 'spend per mile' depends on the individual credit card, but Virgin Money's research shows that this was anywhere between R5.00 and R12.50 per mile. The number of miles/points needed for a return flight between Johannesburg and Cape Town also varied greatly - from 18 000 'miles' using the SAA Voyager card to 84 200 'points' using Absa rewards to fly with BA.

The fact that you have to pay for airport taxes is usually not communicated upfront, either when you are redeeming your free flight, and only pops up at the last step of the redemption process when it's just about too late to back out. These taxes can add anywhere between R300 and R750 onto the cost of your 'free' flight.

Small print expert

What's even worse, if and when you do eventually qualify for that 'free' flight, you still aren't assured a seat on your preferred flight. This is because you now have to be a small print expert to navigate through the terms, conditions, 'black out' periods and exclusions that could apply to your preferred flight.

Put it this way - you probably won't be able to fly over long weekends, public or school holidays, Christmas, Easter, Cape Argus weekend, or basically any day that you're not alone in thinking how nice it would be to hit the Cape Town Waterfront.

Virgin Money's calculations were based on industry figures that show the average South African credit card holder spends approximately R3000 on his/her credit card per month.

The programme that topped the list in terms of the amount of money needed to be spent, and how long you had to wait to accumulate enough miles to earn a free flight, required you to spend a hefty R421 000, which equated to 11.5 years waiting for the 'free' flight. Great Aunt Maude might not be around by that time.

Worst offender

In terms of the overall card fees that would have been incurred waiting to earn the 'free' flight, the worst offender had the unlucky cardholder incurring R2 00 in card fees, over a period of nine years and four months, as they spent R338 750 to earn enough miles.

What also turned up in Virgin Money's research was the need for consumers to really watch the small print. A number of the programmes insist that the air miles you have worked so hard to accumulate expire after a certain amount of time - sometimes even after just six months. What this means is while the average cardholder might be able to get down to Cape Town for 'free' - they're pretty much stuck there, unless they dip into their own pockets to fly back.

Questions to ask

Evaluate your current credit card 'free miles' offering against these simple questions:

• Do you have to pay an annual or linkage fee to belong to the programme?
  
• Do you have to pay an annual fee for the credit card that the loyalty programme is linked to?
  
• Does your card status determine the size of the reward or the time it will take to accumulate miles?
  
• Is the reward limited to availability or capacity restrictions? For example, can you get on to any flight you choose?
  
• Are there any thresholds or amounts you have to spend before earning points or miles commences?
  
• Do your points expire after a certain time period?
  
• When last did you redeem your miles?