Deal Seen as Escalation in Credit Card War : MasterCard Offers Discounts on Travel

MasterCard International, searching for a larger chunk of the highly competitive credit card market, on Tuesday unveiled a program for member banks that allows premium cardholders to earn discounted travel and lodging if they use their cards for certain travel expenses.

Industry experts predicted that other companies will soon follow suit as the lucrative summer season neared and vacationers began using their plastic in full force.

Russell E. Hogg, MasterCard’s president and chief executive, said the Master Plan for Travel program, which begins July 1 and runs through June 30, 1988, enabled the company to compete with such products as American Express’ newly announced Optima Card.

The Optima Card has a variable interest rate linked to the prime lending rate, which currently stands at 13.5%, about five percentage points lower than the average bank credit card rate. Optima is scheduled to be in circulation by early next month.

“MasterCard and all of us are in a highly competitive environment,” Hogg said Tuesday. “It’s sort of a marketing ‘one-upmanship.’ The main thing is to stimulate usage and the dollar value spent.”

To do that, MasterCard is focusing on its most affluent clientele. Customers holding the Gold MasterCard, which offers a line of credit starting at $5,000, would be awarded bonus certificates for free or discounted travel and lodging whenever they charged any hotel, airline or car rental expenses with the card.

American Airlines, Sheraton Hotels and National Car Rental would provide the travel awards.

5 ‘Award’ Levels

The MasterCard program has five “award” levels, with an introductory bonus that includes a 50% discount on an American Airlines round trip ticket when another is purchased and a free car rental upgrade.

The more a cardholder charges, the more certificates are accumulated. Customers making five travel transactions qualify for the first award level--two round trip plane tickets anywhere American flies, for $120 each way; 15% off the cost of a room at a participating Sheraton Hotel, and 15% off a National car rental. Normal flight restrictions would apply.

Fifty transactions are good for an award of a free round trip coach ticket anywhere on American Airlines, free rooms on Friday and Saturday nights at a Sheraton Hotel and two free days for a National rental car.

“It is the first time such a program is available on a credit card,” Hogg said.

Hogg estimated that about 70% of MasterCard’s 4,000 member banks would have the technical capability to participate in the program. Of MasterCard’s about 135 million worldwide cardholders, 5 million have the Gold Card.

Industry analysts predicted that similar travel incentive programs would crop up this summer.

“The trend will be less on rates . . . but on services. This is very much the wave of the future,” said John Crothers Pollock III, publisher of the Bank Credit Card Observer.

Robert K. Heady, publisher of Bank Rate Monitor, said the most attractive of such services would be for travel and entertainment, for which consumers use their plastic the most.

“I think what you have is an escalation of the credit card war,” Heady said. “This has been a long time coming. Travel incentives have come on like gang busters in the banking business.”

Over the past two years, for example, several banks have been offering discount air fares with the purchase of a certificate of deposit or contribution to an individual retirement account.

A month ago, Citibank and American Airlines announced they would offer a credit card enabling users to earn mileage points in American’s frequent flier program.

Analysts said the timing of MasterCard’s announcement Tuesday was meant to take the wind out of the unveiling of American Express’ Optima Card.

“It’s designed directly to take business away from American Express, which shortly unveils its 13.5% Optima Card,” Heady said.

“If I were Visa (International), I’d start digging deep into my bag of tricks,” he added. “The phenomenal use of credit cards during the summer season is simply too important for Visa to take a back seat.”

Visa spokesman Dan Brigham said the credit card concern was planning to announce a similar travel program before the end of the year. He declined to elaborate.