If you are thinking of signing up for a credit card because it offers air miles, you should ask yourself just how much that “free” flight will actually cost you.
In light of their recent advertising campaigns, Personal Finance took a closer look at the rewards programmes offered by South African Airways (SAA) and British Airways (BA) via Nedbank and Standard Bank respectively to determine which programme offers you more value. For the purpose of this exercise, Personal Finance used three different levels of expenditure on credit cards: R5 000 a month, R10 000 a month and R15 000 a month.
Personal Finance calculated that a “free” flight will save you between R200 and R720 of the cost of a domestic return flight. But, once you consider what you have to spend to earn that discount, it is worthwhile asking whether or not you are getting value for your money.
The option to earn “miles awards” towards a “free” flight makes sense only if you are a big spender or use your credit card for business purposes.
If you are neither a big spender nor use your credit card for business purposes, your choice of credit card should be based on the fees you will pay and the account facilities you will enjoy rather than on the promise of “free” flights.
If you use your credit card sensibly, you will use it only for purchases for which you can afford to pay in full at the end of each month, thereby avoiding interest charges.
Some of the questions you should ask when you evaluate a rewards programme are how much money you will have to spend to earn a domestic return flight, how long it will take you to accumulate the air miles you require for the flight and the card fees you will be charged. You should weigh up the answers to those questions against the convenience and cost of paying for the same flight yourself.
For example, assuming you spend R5 000 a month on your credit card, it will take you between 1.8 years (or 21.6 months) and 3.03 years (or 36.4 months) to earn the air miles required for a domestic return flight, depending on which credit card you use. During this time, you will have paid between R1 100 and R4 950 in credit card fees.
If you spend R10 000 a month on your credit card, it will take you between 10.8 months and 1.4 years to earn the miles required for a domestic return flight, depending on which credit card you use. During this time, you will have paid between R550 and R3 300 in credit card fees.
If, however, you are a big spender or use a credit card jointly with your spouse and you spend R15 000 a month, it will take you between 7.2 months and 1.1 years (or 12.1 months) to earn the air miles required for a “free” domestic return flight, depending on which credit card you use. During this time you will have paid between R540 and R1 650 in credit card fees.
The annual fees for a “vanilla” (plain or ordinary) credit card from Standard Bank or Nedbank are lower than the fees for the credit cards included in the Personal Finance survey, because “vanilla” cards do not have linkage fees.
Standard Bank’s “vanilla” Gold and Platinum credit cards will cost you R270 a year and R515 a year, compared with the annual fees of R540 and R785 on its British Airways Gold and Platinum credit cards. Nedbank’s “vanilla” Gold and Platinum credit cards will cost you R219 a year and R500 a year, while the annual fees on the Nedbank South African Airways Voyager Gold and Premium credit cards are R550 and R1 650.
SAA/NEDBANK AND BA/STANDARD BANK CREDIT CARDS: WHAT WE FOUND
How much you will have to spend: We calculated that you will have to spend between R109 650 and R184 200 to earn sufficient air miles to redeem just part of a “free” domestic return flight.
You will have to pay airport taxes and surcharges out of your own pocket when you redeem your air miles. In some cases, these charges will be higher than the basic cost of the flight that you redeem as a “free” reward.
How many air miles you will have to earn: Both British Airways (BA) and South African Airways (SAA) expect you to accumulate a minimum of 18 000 air miles before you can redeem these miles for a “free” domestic return flight.
BA’s only condition to redeem the 18 000 air miles is that seats must be available on the relevant flights.
With SAA, the 18 000 air miles are referred to as “mileage-keeper awards”, which are subject to limited seat allocations. It is unlikely that you will be able to redeem these air miles for flights on weekends or public holidays, over school holidays or during other peak periods.
If you want to use your air miles to reserve an SAA flight at any time – provided a seat is available in the appropriate class – you will have to earn 28 000 air miles (which are referred to as “anyday miles”).
Companion tickets: Provided you spend a certain amount using your Nedbank SAA Voyager credit card, SAA will award you a complimentary companion ticket each year.
If you have a Premium card, you have to spend a minimum of R60 000 to qualify for a “free” domestic or continental companion ticket (travel on SAA between South Africa and other countries in Africa, including Mauritius) and R160 000 for a global companion ticket (travel on SAA between South Africa and any foreign country).
Gold cardholders have to spend a minimum of R80 000 for a “free” domestic or continental companion ticket and R180 000 for a global companion ticket.
Your complimentary companion ticket allows a person of your choice to accompany you for free (you still have to pay airport taxes and surcharges) on your next trip, regardless of who pays for your ticket and whether or not your Nedbank credit card was used to pay for your ticket.
However, your companion ticket can be used only in either business class or “selected economy class fares”. This means that your ticket must be booked in either business class or “selected economy class fares”, which are more expensive than discounted economy class fares.
BA does not provide you with companion tickets, but if you earn enough air miles for two domestic return tickets, you can use the tickets for yourself and a companion of your choosing. SAA also allows you to use your air miles for a companion of your choice, if you have earned sufficient air miles for two return tickets.
Validity of miles: SAA Voyager air miles expire after three years. However, you can extend the validity of the air miles if you spend R60 000 on your Nedbank SAA Voyager credit card in a calendar year. BA air miles do not expire as long as you continue to earn air miles or you redeem air miles on your rewards programme.
Surcharges and taxes: These fees are for your own account when you claim a “free” domestic flight through either SAA or BA. In the case of domestic flights, you may find that the taxes and surcharges amount to more than the basic cost of the flight.
Best deal: If you are looking for a rewards programme that provides you with a “free” flight that can be redeemed at any time, subject only to the availability of seats, the Standard Bank BA Gold Mastercard offers the best deal out of the cards we surveyed.
You have to spend R7.50 to earn an air mile. You can earn 18 000 air miles over 2.25 years (or 27 months) if you spend R5 000 a month on your credit card. The annual fees over this period are R1 620.
You will have to spend a total of R136 620 to qualify for a domestic return flight. This amount drops to R136 080 if you spend R10 000 a month and to R135 540 if you spend R15 000 a month.
Cheapest deal with restrictions: The card that appears to offer you the best deal is the Nedbank SAA Voyager American Express Premium card.
You have to spend R108 000, at an earn rate of one air mile per R6 you spend, to reach the required 18 000 air miles. But bear in mind that these are “mileage-keeper awards”, which means there will be restrictions on when you can redeem your domestic return flight.
The total annual fees are R3 300 over 1.8 years (or 21.6 months), which is how long it will take you to earn 18 000 air miles assuming you spend R5 000 a month on your credit card.
If you spend R10 000 a month, you will pay R1 650 in fees over 10.8 months. If you spend R15 000 a month, you will pay R1 650 in fees over just 7.2 months.
The Nedbank SAA Voyager American Express Premium card is the most expensive card in our study: it has a price tag of R1 650 a year.
Lowest fees: You will pay the lowest overall fee – R540 – if you spend R15 000 a month and use the Standard Bank BA Gold Mastercard.
If you spend R5 000 a month or R10 000 a month, the Nedbank SAA Voyager American Express Gold card will cost you the least in annual fees while you earn the required 18 000 air miles (note that these are “mileage-keeper awards”).
At an annual fee of R550, it works out to R1 100 over two years (23.4 months) if you spend R5 000 a month or R550 in fees over 7.8 months if you spend R10 000 a month. You earn one mile for every R6.50 you spend.
You will have to spend a total of R118 100 or R117 550 to qualify for a domestic return flight.
Most expensive deal: The worst deal (the card that will cost you the most money to earn a domestic return flight that you can redeem without any restrictions) is the Nedbank SAA Voyager Gold American Express card. You have to spend R6.50 to earn one air mile.
You will have to spend a total of R184 200 over 3.03 years if you spend R5 000 a month and R183 100 if you spend either R10 000 or R15 000 a month.
Nedbank’s dual card offering: If you join the Voyager programme through Nedbank at a cost of R1 650 a year for the Premium offering, you will receive an American Express credit card and a Visa credit card, Graeme Holmes, the head of Nedbank’s consumer card division, says. You will pay an annual fee only for the American Express card.
Both cards earn you Voyager miles, but the American Express card earns one mile for every R6 or R6.50 that you spend, whereas the Visa card earns one mile for every R10.50 or R11.50 that you spend, he says.
“The reason for dual cards linked to one credit card account is so that the consumer has the option to use their Visa card at any merchant that does not accept American Express credit cards,” Holmes says.
WHAT YOU ACTUALLY SAVE
Personal Finance checked the cost of the cheapest domestic return flights on both South African Airways (SAA) and British Airways (BA) to determine how much money you actually save when you redeem a flight using your air miles. The flights were booked online more than a month before to depart on Tuesday, January 25, 2011 and to return on Sunday, January 30, 2011.
Johannesburg/Cape Town return:
SAA
Total cost (basic cost plus surcharges and taxes): R1 460
Saving/air miles portion: R720
Surcharges and taxes you pay: R740
BA
Total cost (basic cost plus surcharges and taxes): R1 414
Saving/air miles portion: R560
Surcharges and taxes you pay: R854
Johannesburg/Durban return:
SAA
Total cost (basic cost plus surcharges and taxes): R1 090
Saving/air miles portion: R400
Surcharges and taxes you pay: R686
Johannesburg/Durban return:
BA
Total cost (basic cost plus surcharges and taxes): R786
Saving/air miles portion: R200
Surcharges and taxes you pay: R586