Chase Lost Billions On Sapphire Reserve—Here’s The Strategy Behind Its $795 Relaunch

Why is Chase completely revamping their Sapphire Reserve card?

When Chase Sapphire Reserve launched in fall 2016, it took the credit card world by storm. The card offered a compelling value proposition: triple points on travel and dining, transfer points to travel partners or redeem them directly against paid travel at 1.5 cents per point, and unlimited Priority Pass airport lounge access. It came at a premium annual fee, but most of that was rebated in the form of a $300 travel credit.


Chase Sapphire Lounge, Washington Dulles

The product was wildly successful attracting young, affluent cardmembers. But it wasn’t profitable. Early on Chase filed SEC 8-Ks outlining greater than expected costs. My understanding is that in the first five years after launch they’d cumulatively lost around $2 billion on the product.

  • On the one hand, that’s just a few hundred million a year which is more or less tipping money for J.P. Morgan.

  • On the other hand, losses are likely even great than that since they paid more money to re-up United as a co-brand credit card partner early in order to ensure continued Ultimate Rewards points transfers to MileagePlus.


Chase Sapphire Lounge, Philadelphia

The problems, as I understand it, were that:

  • People used the card far more for travel and dining (3x earn) than for unbonused spend (1x earn). They can make money at 1x and 2x (since not everyone redeems points at 1.5x through the travel portal or transfers them to Hyatt) but not 3x.

  • Cardmembers skewed high income and they tended to pay off their bills every month, so Sapphire Reserve underperformed on revolve.

Chase was awarding too many points for the spend running through the card, those points were too expensive to redeem, and there wasn’t enough revenue to offset this – let alone make back the marketing expenses (like initial bonuses) required to acquire cardmembers.

So it appears that Chase set out to re-engineer the economics of the card.

  • Earning: They’ll no longer offer 3x on all travel. That’s going to mean savings on some of the spend that cardmembers were doing with the product.

  • Higher annual fee: This is revenue straight to the product P&L bottom line for every cardmember. And they justify it through merchant-funded offers. They’re giving partners like DoorDash, Lyft, and Southwest Airlines airlines access to their highly desirable customers. Those brands fund these rebates (at least in some proportion). Put another way, cardmembers pay more (higher annual fee) to be marketed to.

  • Better integration of Chase’s travel ecosystem: Chase had been bonusing purchases from Booking.com and Expedia with 3 points per dollar spend, but those online travel agencies are increasingly Chase competitors. Chase says they’re now the number three travel booking platform. Cardmembers are being pushed to use Chase’s platform with 8x earn on all paid travel booked there, and they’ve taken away the 3x incentive for booking through Expedia (since only hotel and airline direct spend earns the new 4x multiple).

    Meanwhile, they have their own internal ‘merchant-funded offer’ in the form of a credit for Chase’s own The Edit hotel portfolio. They’re driving customers to book premium hotels through their own platform, too. And The Shops at Chase has a credit, which is their online shopping platform.

  • Lower redemption costs: Dropping 1.5x on all bookings through the Chase travel portal is going to help on the blended average cost of redemptions. First, because more travel portal bookings will be made at just 1 cent per point. And second because they’re negotiating direct deals that allow them to offer ‘up to 2 cents per point’ on curated redemption opportunities with hotels (that they’ve signed up with The Edit) and for air travel (where there’s enough negotiated margin). Those aren’t costing Chase the 1.5 or 2 cents apiece that cardmembers are getting, whereas the old 1.5x did come close to costing them for air travel.

  • Incentivizing more (1x) spend: By adding a $75,000 spend threshold with benefits like IHG Diamond, Southwest A-List and more, customers have a target to shoot for giving Chase greater wallet share than just travel and dining spend which are in money-losing accelerator categories. They’ve structured the card to give consumers a reason to spend more in unbonused categories to reach this level. Plus, once they have these cardmembers in the portfolio, incremental spend is increasingly profitable.


Chef Nobu Learns Barbecue From Aaron Franklin, Thanks To Chase

Chase is delivering a lot of value with the new Sapphire Reserve product. I’m especially excited to use their The Edit credits in conjunction with PointsBoost redemption opportunities at 2 cents per point, while still earning hotel loyalty points and status credit at these same hotels, alongside both The Edit benefits and elite status benefits.

Alongside the other credits the card will offer, I’m going to get far more than the incrementally higher annual fee. And I’m going to be better off at 4x on air and hotel, while losing the rest of travel (like Uber). Plus I can book flights through their portal and earn 8x.

While the card is losing 1.5x travel portal redemptions (which are grandfathered for two years for existing cardmembers), I rarely used that option anyway.

  • I avoided the portal because it meant dealing with an online travel agency for customer service when things went wrong. And it used to mean losing out on hotel points and status if booking hotels, but now The Edit portfolio solves this at participating properties (since those bookings receive points and status credit as well as elite benefits).

  • I always transferred points to travel partners, and only for redemptions that were better than 1.5x.

  • Now I will sometimes see 2 cent redemptions, and while it’s a matter of luck in some sense that’s okay – it’s like airline saver awards. You don’t always get outsized value, but the new system makes it possible to win more than before. I think of it as moving from fixed value redemptions back to a saver award chart.


Chase Points Are Better For Awards Than Paid Tickets

I did ask Chase executives about whether they were concerned about turning the product too much into a coupon book? American Express hasn’t pushed cardmembers away with their Entertainment Book-style Platinum card that forces cardmembers to jump through a lot of hoops to get enough value out of the product to justify its annual fee. But there’s a lot of frustration and fatigue. Chase contends that their credits are easy to use and already align with how their cardmembers behave. Plus, I’d add, the amount and value of the credits is really strong.

Ultimately they’re trying to get customers to lean in and give them more wallet share, both in terms of direct spend on the card and in terms of shifting their behavior onto Chase’s platforms in their travel and dining ecosystem. They’ve structured a lot of bonuses and credits as carrots to encourage this. I expect that a lot of Sapphire Reserve cardmembers (and potential cardmembers) will see the value, even if there’s a bit of chafing at a $795 annual fee and disappointment over loss in flexibility of 1.5 cent per point redemptions on all travel.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. Man, it seems that all the credit card bloggers are out in force promoting this one. My in-box is flooded with exciting news about the CSR.

  2. Seriously, how many people are going to do $75K in 1x spending so they can get IHG Diamond or Southwest A-List?

    Anyone?

  3. Usually banks can take a hit on one product if it means cross selling to other profitable products. Unfortunately, credit cards are not one that has cross sell success.

  4. @Thing 1 — You’re so right. At least Gary allows us to criticize; meanwhile, those shills at TPG haven’t allowed comments for years and years. I’m still a fan of VFTW for this reason. And for the sense of ‘community’ *wink* So, yeah, he’s still a ‘thought leader’ to me. Bah!

  5. I am in no way incentivized to spend 75K on a premium card just to get A list on southwest. Anyone spending that kind of money is flying a premium airline not a budget airline that doesnt offer first class nor lounges. This partnership smells like a desperate attempt to help out southwest given the recent changes their activist investor has made and chase trying to recuperate the loss of people cancelling their southwest cards as a result of said changes.

  6. Chase Sapphire Reserve created value for me because I was able to get 3X points for expensive cruise bookings. Now that goes away, and not a single article has mentioned this. Just one cruise costs more than all my annual flights combined. And 90% of my hotel stays are on points or certificates.

  7. @DaveM gets it. Don’t let Chase stop you from cruisin’ though, just use a different card!

  8. Are you paid to write this junk? Call it like it is: CSR stinks now. Not our fault it was too good to be true. VentureX and Amex Plat are better now.

  9. I’m getting really tired of these companies’ greed causing instability in this consumer space. If they didn’t over market to begin with, perhaps they wouldn’t have lost so much money. It’s laughable the comment that they expected CSR customers not to pay their bills monthly. Who the hell do they think is paying $500 plus for a credit card with credit scores of 690+?

    And even within that demographic, how many of us are willing to drop $795 on a card and spend $75k just for overcrowded PP lounges, a few extra pennies worth of credits, and Southwest status. With all this movement towards devaluing these cards, I’m thinking that 1) they’re trying to encourage people to drop the card (deal); and 2) I’m at the point that I’d rather just get the best cash rate for great seats/rooms, etc. Capital One Venture X services that need (so far).

    So I say, so long, Amex Platinum and CSR. I’ll take a simpler life and not feel like a slave to these systems just to get an few extra perks. This coupon book thing in my view cheapens the entire experience. It feels “expensively cheap.”

  10. Goodbye CSR we’ve had a great run. My renewal is in August so I’ll keep you one more year as I burn down my points but after that we’re done. The new structure is too complicated and expensive, I just don’t have time for that. In addition, I’ve never liked Chase Travel because it’s usually more expensive than hotels through booking.com or experiences through Airbnb.

  11. Had the card since it came out but will be spending all 350000 points i have left then switching to the cash back card

  12. Chase’s (and Amex, and to a lesser extent CapOne) boils down to the age old sound strategy of “charge more and weed out the riff-raff) if you are dropping the card because of these changes, that is Chase’s intention. With the new Chase lounge at PHL I will be keeping the card, which is for sure worse for everyone after these changes, but again that is by design. Cruises and transit in particular must have cost Chase a bundle at 3x. Chase want young city dwellers who pay with their phone or watch and as a result end up using one card for everything, I evan as an older points system gamer, often fall into this trap, even though I have multiple cards in my Google wallet, I just pay with the primary, because it is so fast and seamless. Good luck to all.

  13. And Chase will end up losing billions more watching their loyal customers walk away from this ridiculous over priced BS card! I’ve been with chase for years using this card and will be canceling it now due to this new cost! I hope others do the same thing! Chase needs to fall on their own sword and eat this cost. You do not just raise costs this high over night because your leaderships ignorant excuse to raise the cards costs!

  14. @Gary

    They have also controlled cost and limted triple-dipping of existing ambitious card holders (EDIT/DINE/STUBHUB $500 if you booked and used the trifecta before 6.30
    2025).

    New card holders might get lucky and triple dip if they applied early 6.23.and got the card the next day.

    Chase is also increasing the liklihood of higher breakage by giving existing CSR a little over two months to use all the new credits during the start of the busy holiday season before 12.31.2025.

  15. Are you certain, it’s unprofitable?
    It was profitable a few years ago. Remember even at launch they didn’t had to spend much in marketing and acquisition.

  16. haters gonna hate, but everything you say is 100% logical. Generally anything over 2x is not profitable unless it has lots of gotchas. This will sift out maximizers and people without organic high end spend. It will accomplish this goal.

  17. When I was young I had a wallet of credit cards from a variety of competing banks which I used responsibly and profitably for personal and business reasons. The combined credit line would be in mid-six figures in today’s dollars.
    I was the guy who could act on opportunities with great flexibility. I could and did buy real estate, cars, inventory, building materials, heavy equipment, furnishings, and other assets without the cost and hassle and delays of loan applications.
    In the 80s Chase went on a crusade to buy up their competition and they bought up all of my cards except for AMEX and Discover, and rebranded them as Chase cards.
    They changed the terms of the cards, subjected me to an endless stream of reviews in which they cancelled cards, lowered credit lines and raised rates without advance notice – screwing up my carefully managed credit utilization ratios, trashing my account aging profile – and made it harder to obtain credit from its competitors.
    I have 2 chase cards left with a combined credit line of less than 10 grand. I use cards from other banks less likely to bully and abuse their customers.

  18. My card just renewed at the old rate, so I guess I’ll keep it for the year, but don’t see it being worth it going forward. Agree with the poster above who was upset that cruise lines were not included in the 4x travel. Fortunately, I have several BofA CCR cards to get 5.25% on travel, and the PR card at 3.5% for the rest. I’m also going to have to change my E-Zpass to bill to a different card, since it will no longer be 3x.

  19. Did I miss something? I don’t care for the new changes either, but where’s the “greed” in this article? The article states that Chase loss over 2 BILLION DOLLARS on the reserve. So clearly they weren’t gaining. And if they weren’t gaining, then who was?

    If those stats are true, I’m surprised this didn’t happened sooner. No company is going to lose Billions of dollars so us little people can be happy. Chase isn’t Amex. Amex is like Apple. They can raise their AF to $2000 and ppl will say they’re the best card.

  20. What a bunch of nonsense. Worst analysis I’ve read yet.

    Here are the problems with what you’re saying:

    1. Only the most affluent customers are seeing outsized value from transferring to partners. Most of us who travel economy, which remains a majority of Reserve customers, had the card in large part due to the 1.5 CPP redemption rate. And if we are now transferring to partners too, we can do that with a Preferred card. We don’t need this high AF card.

    2. For most people, this Reserve coupon book is FAR inferior to the Amex Platinum one. And the Platinum comes with much better lounge access with more cities, among other worthwhile benefits.

    3. The Reserve’s 1.5 CPP rate was it’s most unique selling point. It allowed us to book economy flights, car rentals, and cheaper hotels with points without getting a terrible redemption rate. They’ve taken away the primary reason many people had this card as part of their strategy in the first place.

    Once I can no longer redeem any points at that rate, I, like a lot of customers, will be downgrading my Reserve. Going forward I’ll just transfer to partners. Aside from very slightly better travel insurance vs other credit cards, there’s really zero reason to keep it.

    People who fly business class regularly might opt to keep it. There will also be a handful of customers for whom the coupon book aligns with the spending they already do. Good for them. They’re in the minority. I strongly, strongly suspect Chase is going to see their market share drop. Time will tell whether the overall impact on revenue is positive or negative, and whether they regret or reverse this decision.

  21. I know these writers aren’t going to exactly bite the hand that feeds, but I’ve never seen them garble the bank’s knob this hard.

  22. Forgot to mention, your claim that it wasn’t profitable is based on no evidence. I’m sure it wasn’t profitable at launch, but equally I very much doubt it wasn’t profitable over the last few years. Still, even if it isn’t profitable, there are many ways to fix that which don’t involve making the card useless to most customers.

  23. No, CSR. We are done. Im not going to spend more to keep the card just to only be rewarded at places where you want to guide us to. I got the card because it matched my habits. Now, its not even close. Come Jan, I am out! Too high with less rewards for what I use the card for. Those sapphire lounges are about to be empty in the next 2 years. Also, Southwest is not where I where I would guide my “high end” customers.

    It was a good run.

  24. CSR geared toward young and rich who paid in full! How do we change that?

    Let’s make it more expensive!

    Make it make sense. The propaganda is getting juvenile.

  25. @chris — I guess we’re all getting older. Was nice while it lasted.

    @frank — Yup, that’s why we’re upset. Chase is removing our gravy train. We should be pissed. I know I am. I spend tens of thousands of dollars on the 3x Travel, most of which would b 1x after October. BofA (3.5x, but cash-out) Wells Fargo (via BILT, 2x, similar high quality transfers like Hyatt, UA), or CapOne (2x, weaker transfers) is gonna get my spend after this.

  26. I’m a heavy 1.5c redemption person, as it’s the best use when flying a family in economy with out a lot of date flexibility. The increase in the AF and the removal of 1.5 (lol at boost or whatever trash experiences they’ll push) mean I’ll stay CSP until chase destroys that cards value.

  27. Always good to get a sense of the bank’s incentive / motivation when marketing a card. Nice article.

  28. We live between NY and Paris so this card has worked out well for us but now the card cost will be $990 for my spouse and myself, which seems pretty high. Amex is not really accepted here in Paris so that’s not an option. Last summer I was wondering what the point was for Chase to rent out one of the large party barges on the river and have the entire boat redone for the Paris Olympics. We loved it. free drinks and food and every day they gave you a gift that was worth at least $20 each day. Only open to card members (the card isn’t available in France), what was the purpose of what must have been an incredible expense for 2 weeks for people who already have your product?

  29. Can you point me towards the 8-K for the report on losses? Searches aren’t turning up anything, Chase files hundreds of these a year and I don’t really want to read them one by one.

  30. @DaveM 100% agree, we have very similar spend with cruises losing the 3x kills it for me. I’ll have to go a different route for travel insurance.

  31. How did they not foresee that people would spend more in the bonus categories, and that people with excellent credit would pay off their balances every month?

    Also, how is Chase the #3 travel booking platform? It’s terrible–hard to use, limited options and always more expensive than competitors.

    Also, are people really going to pay $800 a year for a card that only gives you access to Prioritypass lounges?

  32. I have high income and spend a significant amount of annually on timeshare maintenance fees and property exchange services. I couldn’t give a crap about the extra “bonuses”. I already have Marriott status and nothing about the coupon books thrills me. I will give it one month to see if my timeshares that work like a hotel get the increased spend. If not, I’m downgrading. I’m not wasting my precious time trying to offset the fee with garbage selections

  33. Sorry Gary, you’re really missing the mark with this post. Everything I have researched with the new benefits seems for me, a big no, not gonna use. Luckily for me, my renewal is in April. So I get to try the new benefits. But I’m not holding my breath.

  34. The only thing you didn’t address fully which made it felt like a promo on behalf of chase – the chase portal.

    You talked about why you avoided it but then brought up now you’ll book through it and get 8x. But their portal is still horrible and yet to be addressed by Chase.

  35. One thing no one is talking about is Chase has the best credit card travel insurance out there. 10K per person / 20K per trip. That is why I put all my travel on it at 3x, esp for expensive trips.
    This is a huge loss.

  36. I had this card to use for the 3x travel points, specifically because it included car rentals which I get every week (which no other card seemed to do, unless booked through a portal, which I can’t use for work) and for the 3x food. Now that the rental car segment is not bonused I don’t see much reason to keep this one, especially after that rate increase.

  37. Sorry but this doesn’t pass the smell test. Chase had RECORD PROFITS just last year! They made $56.8 BILLION dollars! Thats more than double the $22 billion they made the year this card came out. Even if they “lost” 2 billion on this card specifically—which I doubt—they sure as heck weren’t hurting. More likely they had a lot of good will from people like me who use this card to fly myself and family on economy flights using the 1.5x option, and as a result we got more chase cards because of the pleasant experience we had with CSR. Now a lot of that goodwill is squandered. Devaluing points that much is a breach of contract as far as I’m concerned.

  38. I understand now. It is better to pay more and get less. Because that is exactly what it is.

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