True, but this does not add up to anywhere near the 4% they are giving back.
I think Barclays is the one that is actually running the program. I guess since the the no annual fee card pays 2% and the $69 fee card pays 4% then the other 2% would have to come from the profit made on people carrying a balance and the merchant fees.
I just got the Travelocity MC and everything looks like it is working as advertised (although, I did initially get the same confusing material describing the other rewards program). It appears that I am accruing at a 4% points rate.
My question is: how can they keep this up? The 4% rate is significantly higher than the interchange fees they are getting from merchants (say 2% - 2.5%). And, if it's true that the travel agent commission is very small then aren't they losing money on all of these transactions? The $69 annual fee isn't enough to make up for the losses. If they're losing at approximately a 1.5% rate (2.5% interchange - 4% points) then they fall under breakeven once there are $4,600 in purchases. That's without accounting for the value of the 5,000 signup bonus, either. I've got to believe some FTers are putting up $4,600 in purchases in a single month.
The question isn't totally irrelevant. I'm concerned they'll wake up one day, realize how much they are losing on the program, and then notify cardmembers that Travelocity points will be revalued to 1 pt = $0.01. At some point, their money has to run out, right?
I know that they must have some card holders that carry balances and they must make some interest income off of them but I wonder if that can be enough. Those balance holders come with bad debt expense (and credit card companies are incurring very high levels of bad debt expense in this environment) and even those balances are being originated at a 1.5-2% initial loss. Meanwhile, the horde of responsible FTers are costing 1.5-2% per transaction without corresponding interest charges (I hope).