Travel perks continue to drive premium credit card uptake, survey finds

Introduction

A competitive repositioning of the customer value proposition during the COVID-19 pandemic fueled the resilience of credit cards that charge significant annual fees, but traditional travel-related benefits continue to drive demand.

Results from a recent 451 Research survey of a targeted group of business and tech professionals show that travel-related perks and enhanced travel protection rank as the most desirable features of credit cards that charge annual fees, even after a two-year period where pandemic-related restrictions may have limited individuals' ability to fully use those benefits.

Issuers diversified the value proposition of certain premium credit card products beyond travel during the pandemic as they sought to attract and retain customers. Now, the combination of the travel-related perks that customers have long desired and the additional lifestyle benefits have facilitated issuers' ability to push through increases in the annual fees associated with certain top-tier products.

The survey, however, shows there is a limit to consumers' willingness to pay more for existing benefits.

Travel still resonates

There is a wide range of co-brand and proprietary credit cards that charge annual fees in exchange for certain enhanced benefits, which often focus on travel and entertainment categories. Top-tier cards such as the American Express Co. Platinum card, JPMorgan Chase & Co.'s Sapphire Reserve card and Capital One Financial Corp.'s new Venture X card typically include annual travel credits and access to airport lounges along with exclusive dining benefits, for example. They also offer automatic elite member status in the frequent travel programs of select hotel and car rental chains. Fee-bearing co-brand cards, such as those American Express and Chase issue in partnership with Marriott International Inc., and cards linked to the frequent flyer programs of major airlines typically incorporate certain brand-specific rewards. A second tier of cards may offer a lower number of travel-related benefits or focus on enhanced cashback rewards in exchange for lesser annual fees.

The 451 Research "Leading Indicator Survey" included 302 U.S. respondents who said they hold at least one credit card that charges an annual fee. Of those, 52.0% listed travel-related perks such as access to airport lounges and/or elite-level membership in frequent travel programs among the features associated with fee-bearing cards that they considered to be most important. Enhanced travel protection, including trip delay/cancellation/interruption insurance, auto rental collision coverage and/or roadside assistance, ranked as the second-most-popular feature, with 39.4% of respondents listing it among the most important features. Other popular categories also had a travel focus, including annual airline companion passes, free hotel credits or certificates, and fee reimbursement for certain airport screening programs.

Among the various choices provided, the prestige associated with fee-bearing cards, exclusive access to dining experiences and concerts, and mobile device protection fielded the lowest share of respondents saying they considered these benefits to rank as the most important.

A combination of strong consumer demand and rising costs is likely to drive travel-related credit card spending higher in 2022.

From a demographics standpoint, survey respondents with higher income levels were, not surprisingly, most likely to hold one or more fee-bearing cards. Out of a sample of 686 respondents across income levels, 51.5% said they did not hold a card that charges an annual fee. But among the 291 respondents with an annual income of more than $125,000 per year, 31.6% said they hold one card that charges an annual fee, with another 30.9% indicating they hold two or more such products.

Annual fees for top-tier cards have moved higher in recent years, but there may be an upward bound to consumers' willingness to pay more. American Express increased the annual fee associated with its Platinum card to $695 from $550 in 2021. Chase announced an increase in the annual fee on its Sapphire Reserve card to $550 from $450 in early 2020, prior to the declaration of the pandemic, but temporarily credited the difference to customers' accounts.

Among 304 survey respondents who said they hold a card that charges an annual fee, 70.4% checked an increase in the amount of the annual fee as the action that would most likely cause them to reconsider holding the card. Approximately 62.8% said a reduction in benefits would prompt them to reconsider.

The higher Platinum annual fee coincided with American Express's expansion of perks into various lifestyle categories, including credits toward gym memberships and certain digital entertainment services. Despite the survey's findings, American Express found the combination of enhanced benefits and higher fee has been well received.

According to statistics unveiled during American Express's March 16 investor day, its number of U.S. consumer Platinum accounts increased by more than 2x between 2016 and 2021, despite a 54.4% rise in annual fee amount during that period. The quarterly average rate of new Platinum account acquisitions increased by 30% between the first and second halves of 2021 even as the most recent hike took effect.

Howard Grosfield, executive vice president and general manager of U.S. consumer and global premium services, noted during the investor day that the growth also occurred during a time of "heightened competitive intensity" in the industry. The company reported particular traction in generating growth among Generation Z and millennials, which combined to account for 75% of new U.S. customer acquisitions across its Platinum and Gold card portfolios in 2021.

"Their best earning and spending years are still ahead of them, which is why they provide a steeper growth trajectory as they age, increase their income and expand their need for a wider set of financial and lifestyle services," Grosfield said.

Cash is king

Among the broader population of survey respondents who hold at least one credit card and know the name of the card issuer, the lack of an annual fee resonated as a popular response to the following question: Which feature(s) of your primary credit card are most important to you? A total of 57.7% checked "no annual fee" among the up to three responses they could have provided to that question. The top response, however, was cashback rewards on all purchases. A total of 60.3% listed that among the features they deem most important.

The survey's responses appear to align with what Citigroup Inc. found among its customer base.

Anand Selvakesari, CEO of personal banking and wealth management, said during Citi's March 2 investor day that more than 60% of the bank's credit card customers preferred cashback as their choice of reward — a finding that led Citi to introduce its Custom Cash card, which provides an enhanced level of rewards based on individual cardholders' highest monthly spend category in each billing cycle. Wells Fargo & Co. also notably targeted that market segment with the 2021 introduction of its Active Cash card, which offers 2% cashback on all purchases without an associated annual fee or warehouse club membership requirement.

Satisfaction with no-fee cards ranked as the top reason survey respondents do not hold fee-bearing cards. Of the 343 respondents who indicated they did not hold a fee-bearing card, 54.8% said they were satisfied with no-fee cards. Another 35.9% indicated the benefits associated with fee-bearing cards were insufficient to justify the cost.

Even among fee-bearing cards, cashback rewards may be emerging as an area of competition. The premier fee-bearing cards have traditionally offered higher levels of reward in the form of miles or points on travel spending conducted through the issuers' proprietary platforms, but the new Venture X card also boasts unlimited double miles on all purchases.

Methodology

The "Leading Indicator Survey," fielded from Jan. 4 to Jan. 21, 2022, sampled a targeted group of approximately 1,700 business and tech professionals as well as early adopter consumers, primarily in North America, on overall spending, consumer sentiment, digital banking and investing trends. The margin of error for top-line statistics is +/- 2 percentage points at the 95% confidence level. Respondents are asked about their overall spending patterns and then each respondent is randomly assigned to one of two sections that dives deeper into current ownership, usage trends and future buying plans for specific topic areas. 451 Research is a global research and advisory firm focused on the topics and technologies driving digital transformation.

^{451 Research is part of S&P Global Market Intelligence.}

^{This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.}