By RON LIEBER
The Wall Street Journal

A credit card that offers new ways to earn airline tickets is raising the stakes in the increasingly competitive rewards-card business.

The new card, which is called the Citi PremierPass, is in a category of cards aimed at the big spenders the banks covet. It offers points for every purchase, which cardholders can then trade for free travel. Already this year, companies like Merrill Lynch & Co. and a newcomer called Stratus Rewards have upped the ante on these cards with offerings like free nights at a Ritz-Carlton and yoga sessions with movie stars.

The PremierPass further escalates this battle of the perks. In addition to giving you points for the money you spend (one point per dollar generally; double that for groceries, gas, drugstores, parking garages, subways and commuter trains), the new card offers bonus points for miles flown.

Someone buying four plane tickets on a 5,000-mile round trip from New York to Los Angeles, for example, would get 20,000 points, plus one point for every dollar spent buying the tickets, plus any frequent-flier miles awarded by the airline itself. The credit-card points can then be traded in for free travel on any airline; the frequent-flier miles would have to be cashed in separately.

Companies like Citigroup Inc., which is issuing PremierPass, have little choice but to continue to improve their card rewards. U.S. consumers will likely spend $1.7 trillion on credit cards this year, according to the Nilson Report. But most credit-worthy consumers who want a rewards card have one already. As a result, the challenge for issuers is to persuade people to trade one card for another.

Mostly, the wooing happens through direct-mail pitches — over five billion each year. In the past, when card companies were pushing zero-percent interest rates, people who paid their bills off each month got used to tossing credit-card teasers in the trash.

Today, that could be a mistake. About 58 percent of the credit-card offers during July were for rewards cards of some sort, according to Mintel's Comperemedia. That's up from 38 percent for the July 2003 period.

The growth in cards that offer points rather than frequent-flier miles comes at an auspicious time. Some travelers are having trouble using frequent-flier miles to book the free seats they want, while those on carriers like US Airways and United, which have both filed for Chapter 11 bankruptcy, worry that their airline might not be around when it comes time to redeem their miles.

Indeed, Citibank seems to be attempting to capitalize on frequent-flier malaise in its mailing for its latest card: ''We give you rewards they don't,'' it says.

To observers like Jay Sorensen, president of Idea-Works, a Milwaukee, Wis., marketing and loyalty consulting firm, this seems a bit odd, given that Citibank also has a lucrative deal to issue the MasterCard that earns American Airlines frequent-flier miles. ''For every advantage that (the PremierPass) card offers, they're making a direct comparison to a weakness in their partner's program,'' he says.

Peter Knitzer, a Citi Cards executive vice president, says that the airline is aware of the new card and adds that he believes that the two are aimed at different consumers.

A good chunk of the recent batch of rewards cards offer different levels of cash and rewards for different kinds of purchases. By contrast, many of the earlier cards offered a straight 1 percent refund on charges racked up on the card. The new approach has led many credit-card users to carry more than one piece of plastic — using one card at the gas pump and another at the grocery store, for example.

Citibank is trying to avoid that. Cardholders who want to redeem points earned by flying have to turn in an equal or larger number of points they acquired through purchases that didn't involve getting on an airplane. That makes the flight bonus points close to worthless for people who don't use the card for anything but buying airplane tickets.

Another potential drawback to the Citi PremierPass Elite card: It has a $75 annual fee. That's higher than most cards that earn frequent-flier miles. It's also more than the $39 fee that Capital One Financial Corp. charges for its Go Miles Ultra card, which also gives out points that can be exchanged for free flights on any airline. Merrill Lynch's new card has no annual fee.

About 58 percent of the credit-card offers during July were for rewards cards of some sort, according to Mintel's Comperemedia. That's up from 38 percent for the July 2003 period.

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