Scott Mayerowitz is considering walking away from points-earning credit cards because awards have gotten more expensive and harder to redeem (“[T]he mileage credit card frenzy? It isn’t worth it anymore.”).
I think he’s making some analytical mistakes and losing perspective. Here’s his argument:
- The price of awards is going up.
- There are too many miles chasing too few seats (and rooms).
- The economy is getting better, so there’s no reason to be as generous.
- Getting awards is tougher than it used to be.
There’s some truth here, but the claim that things are worse than they used to be isn’t right (or at least depends on the time horizon you’re considering) and the conclusion doesn’t follow that you’re better off with a cash back card.
2013 Was a Bad Year for Mileage Devaluations
Delta devalued its award chart, and then decided they didn’t want to wait for changes to go into effect so they imposed an interim devaluation.
Southwest devalued its points, underscoring just how arbitrary such changes can be — there’s no fundamental reason to devalue a revenue-based frequent flyer program, higher ticket prices automatically make an award cost more already. Here they just decided to make their points worth less.
American and US Airways haven’t devalued. They’re merging and there’s always a honeymoon period. I do expect some of the best values of each program to get synchronized away, but I don’t expect change on the scale of United’s premium cabin award gutting — American’s awards to Europe are already expensive (awards with primary transatlantic partner British Airways incur fuel surcharges) and there’ll be a merger honeymoon period in any case.
Hilton devalued the most among hotels, such that I am no longer inclined to stay with them when I can avoid it. I didn’t re-up my Diamond status.
But others devalued as well – Marriott with big award category shifts, IHG Rewards with new higher award categories, Hyatt with a new more expensive award category 7 and other changes.
2014 Won’t Be as Bad
Airlines don’t devalue every year. And if American holds the line on its chart that will impose some competitive discipline on just how bad the Skymiles and MileagePlus redemption programs can become.
Hotels remain full, and rates are rising, but structural program changes like we saw in 2013 shouldn’t be repeated to the same extent in 2014.
In Many Ways Award Redemption is Easier Than It Used to Be
Hotel award nights are far easier to get than even five years ago. Starwood Preferred Guest offered a unique selling proposition at the outset of its program, any standard room available at the hotel could be had for points. They were alone in that for years, and with other chains it could be downright tough to use points at peak times. Marriott incentivized hotels to offer more rooms on points by paying them more per night for redeeming more total nights in a year. But reward nights were capacity controlled determined by each individual property.
Now the industry standard is what was once unique to Starwood. Hilton and Hyatt have last standard room availability for points. Marriott almost does. You can now use your points whenever you wish.
Sure, there was no category 5 let alone new category 7 with Hyatt back in 2006. But people used to let each other know when an award room because possible at top properties like the Park Hyatt Tokyo — it was actually that rare.
Meanwhile, a dozen years ago there were no such things as alliance awards, you couldn’t generally combine airline partners on a single award. When I redeemed United miles to Australia I could fly Air New Zealand… but if I did that, I would only be able to fly United coach to Los Angeles “as a courtesy” even on my business class award.
Availability is tougher than it was in 2008, 2009, and 2010 of course. The Great Recession was a unique time, people weren’t buying airline tickets let alone premium cabin tickets. Airlines were flying those seats, so they opened them up as awards. It’s a mistake to think of that time as ‘normal.’ It is true availability isn’t what it was back then, but with better award routing rules and easier combinations of partners it can be easier to use miles to many destinations than it once was.
Awards Are More Expensive But Miles are Easier to Get
The first 20,000 mile credit card signup bonus I remember was April 2003. The top-end standard at the time was 15,000 miles.
There weren’t category bonuses with most card products either, outside of the Delta American Express. Now there’s double points for gas, groceries, travel, dining, quintuple points even for telecommunications and office supplies.
The bonuses are bigger, the earning is faster. And there are more things you can do for points, too.
So more miles out there, higher cost, that doesn’t mean things are worse than before — it’s inflation, and the price of awards hasn’t obviously gone up faster than the money supply rate at which points are being earned.
Cash Back Makes Sense for the Same Things It Did Before
It never made sense to spend money on a mileage-earning credit card and redeem the points for domestic coach travel (a few cases notwithstanding, like true last minute purchsaes and redemption deals like British Airways offers for non-stop short haul flights).
That’s because you were never going to get outsized value for the points. If you got a good 2% cash back card you could do just as well, use the points to buy your tickets (they’ll earn miles too, count towards elite status, and you pick whatever flight you wish not just what is available at the saver level).
And that still makes sense today.
But changes in award pricing don’t tip the scale any further really. Getting a cash back card doesn’t help you with international premium cabin tickets.
You shouldn’t have been spending cash for points that get used domestically before, you still shouldn’t. So when Mayerowitz says he wants to do cash back instead of miles for his redemptions, that’s conflating the value proposition of domestic coach versus international premium seats.
We’re seeing some adjustments, we shouldn’t see nearly as many in the coming year (other than the harmonizaton of US Airways and American), and that’s a natural process as much as I hate it. It doesn’t change the fundamental strategies of the game.
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The ONE thing i’m really hoping the new AA/US program to have would be allow more flexible routing rules (e.g. US-Europe-Asia or US-ME-Asia) but impose MPM+X% constraints (to prevent unnecessary abuse).
I’d love to check out QR or EY, but it’s nearly worthless to me since I have no plans or desire to visit Bahrain or Mumbai
The unfair thing is that most of these generous bonuses are only available in the US. Consequently, the rest of us (who largely have to earn miles the old fashioned way) are disproportionately affected by the devaluations.
I’m convinced that’s why foreign airlines seem to be cracking down on redemptions from US programs (e.g. LH with US miles, SQ medium-haul, new UA levels for partner awards). They’ve trying to level the playing field for their own members.
@Arcanum
i fully agreed. in fact, within the US, i think it’s always been Chase that leads the sign-up bonus inflation
This may leave people’s jaws agape but I don’t really care about flying in business. The ho hum food and lie-flat-if-you’re-a-short-person seats long ago lost their appeal. I sleep on planes and could care less what cabin it’s in. But regardless of your interest level, economy award tickets have many uses over a 2% cash earning stream.
– A variety of more off the beaten path international and domestic destinations are prohibitively expensive to fly to without buying tickets on sale far in advance. With awards, it’s often the same number of miles as a mainstream city and easy to book with partner airlines where you get status perks.
– Many friends and girlfriends don’t collect miles or fly enough so buying them a cash ticket on a legacy airline offers no advantage to an award.
– Friends may balk at you buying them a ticket to come with you on a business trip to their home country. But when you have a war chest of miles you need to burn through every year before they accumulate to ridiculous proportions, it’s an easier sell.
Also if you’re a 1K on United, award economy tickets are often as flexible and useful as a full-fare Y ticket. It makes their value far exceed what you would get for the same ticket bought with even double the cash value.
“2014 Won’t Be as Bad”
How can it be when we’ve already been gutted!? Really?…this from a credit card monger. 2014 will be worse when there is no First availability on five Star airlines because the seats were all taken prior to February. The ridiculous new mileage requirements for First will also be useless.
Gary, if I see hyatt revenue rooms available, shouldn’t I be able to use GP points for a stay? If so, why would the website show GP as being unavailable (in addition to phone reps)?
@De – if standard rooms are available you should be able to book a reward stay with points. If premium rooms are all that are available then you may not be able to.
Gary –
The ‘if’ in your statement is the biggest if ever!
“And if American holds the line on its chart that will impose some competitive discipline on just how bad the Skymiles and MileagePlus redemption programs can become.”
The only reason I see AA ‘holding the line’ in 2014 is if their system integration and other back end processes are not completed to the point where a devaluation is feasible and executable. Perhaps, to maintain some good will through the long and painful integration process to come, they will also throw customers a bone by not devaluing.
If AA does not devalue in 2014, I have to believe they will in 2015. PQD’s will probably be implemented for the 2016 qualifying year (2015) as well.
Hopefully, I am wrong, and AA decides to continue to differentiate themselves through better benefits and a more rewarding Award Miles program.
This would, as you say, have the effect of moderating further devaluations by DL or UA.
I am just not confident that this is the road AA will take.
You can’t automatically separate out premium cabin redemptions versus coach. While it’s true that your best strategy for coach redemption was and still is cash back cards, and your strategy for premium cabin redemption is and still is miles earning cards….. the big question is “should you still be pursuing premium cabins”
There are many people out there, myself included, who in the past would be a mileage card person when premium travel was often 1.5-2x as much as coach with no YQ, but when the costs start getting 3x+ as much or 2x as much with ridiculous YQ, is it still worth pursuing F redemptions
Which is what I think is what the point Scott Mayerowitz is making. The strategy for how to attain a particular cabin in the aircraft hasn’t changed – it’s which cabin you should be targeting that has changed
@Ken
“no First availability on five Star airlines because the seats were all taken prior to February.”
I don’t know about this. If anything, many people have been speculating that United and its partners have been withholding availability until after February 1. It makes sense too. Why would United and partners release all availability for 2014 now, when they can wait until after February 1 and claw back a lot more miles?
Availability on Star Alliance will be fine later this year. The painful thing is just how much more it’s going to cost to book these flights so if you have a war chest, it is obviously in your interest to burn them this month.
The vast majority of consumers have always been better off with cash back. Recent devaluations have made the small minority of consumers that were better off with points/miles even smaller.
@D – You need better friends.
I will gladly accompany you on your business trips if you’re buying me the ticket. Not only that, I’ll let you buy me a coach ticket and then trade you my seat for your ho-hum food and lie-flat-if-you’re-a-short-person seat in business!
It’s generous of me, I know, but I’m a giver.
Awards Are More Expensive But Miles are Easier to Get!
I find that today miles are so easy to get and very inexpensive. With Manufactured spend, you can generate hundred of thousand miles per year. Sign up bonuses at 50-100K, massive promos that get you 100K, etc, etc.
I remember when I churned the citi aa mc for 25K, 2-3 times per year. Getting 2 tickets to europe in coach was the yearly goal.
Certain awards area more expensive, but the bulk of awards are still affordable, some are ridiculously cheap like avios shorthaul, pointsbreaker, Carlson last night free, 5th night free, free nigt certitifcates, etc, etc
Retention offers are better, waive annual fee, hand out 5-50K on retention, etc
The game evolves, the users must evolve
No doubt the rewards are dynamic and not as static as some commentators presume. F and C cabins are fundamentally better than before, integration of alliances has permitted for higher and better uses of miles (although the number involved may increase). Changes to availability has enhanced the utility of many hotel awards. Simply, the awards are as much a moving target as the award charts.
But in an improving economy, getting stuff for free is even better, as getting that same stuff in an improving economy is otherwise more expensive.
Mayerowitz notes:
“You see, I’ve built up some very cushy balances with just about every major airline and hotel program—enough points to fly two people business class anywhere in the world and stay a week at some of the most luxurious hotels.”
Aha, he is miles rich and, perhaps, cash poor, although many folks have far greater miles/points wealth than he reports. His attitude is unremarkable. Unless he sells his miles/points, which is a no no, HE might be positioned to concentrate his efforts on earning money.
I’ve done somewhat the same – for example, I’ve abandoned idine mileage programs in favor of the one which awards cash. I often opt for top cash back or Mr. Rebates when no mileage mall is offering enough goodies. So I suppose my preferences have moved slightly in favor of cash. But outright abandonment of mileage cards? No.
to be fair, the airlines should keep the value of the miles for the time they were earned.
but the way it works is not in favor of the members of the programs .
This makes it sound better than it is, IMHO.
The main reason we aren’t about to see massive devaluations this year is because so many of “last year’s” devaluations are just kicking in now. Hyatt’s has just gone into effect, UA and Delta next month, with S/W just a few months away. Swiss is no longer allowing FC awards with partner miles, and Air France just increased the point for FC.
So of course, we aren’t going to see new devaluations at the very moment the previously announced ones are taking effect. In what way is this is good news? These devaluations are in fact 2014 devaluations, we just had some advanced notice that they were coming.
And I don’t want to hear about AA “not devaluing”, because they surely have. Just instead of altering the award chart, they have virtually eliminated 2 award seats per flight on AA metal premium cabins. So for any two people who want to fly together, those 2 award seats now cost 50% more, since one of them has to fly AAny Time. Or of course, you can pay $1K per person to use AA miles with BA. Either of those options is a major stealth devaluation. 🙁
Spend $100,000 on a 2% cash back card, and your net is $2000, enough to purchase a sale-priced business class TATL RT (and potentially earning 15-20k miles + EQM). Or enough to purchase 4-5 nights at a top city hotel, also earning points.
The same $100k spend on an airline card earns 100k (UA or AA), or 125k (on BA or via SPG Amex). That may also get you a business class TATL ticket … or not depending on award inventory. Near impossible for peak season. And you may still pay “surcharges” of $600-1000 per ticket! And no RDM or EQM. The only plus is that you can change/cancel with minimal fees v. nonrefundable sale ticket.
Putting aside signup bonuses, I would argue Scott is right w/r/t credit card spend – airline cards are for the dogs. Miles offer greater cancellation flexibility, but cash offers a better choice of dates.
Sorry, but I just don’t buy “redemption is easier” than it used to be. Au contraire, I used to have no trouble redeeming UA miles for summer and holiday travel (ditto for AA) on UA, AA and their partners. Much tougher now and soon to be absurdly priced on partners. And with the exception of SPG, no hotel chain really offers last night availability. I can show you dozens of examples where rooms are available for cash but not points because Hyatt, Hilton and Marriott play games with re-classification of “standard” rooms as “premium.”
The only award cards that make sense for everyday spend are SPG Amex, and maybe Chase BA if you can use the 2-for-1 cert. The rest … not worth keeping unless the perks outweigh the annual fee.
Your blog suffers from big city bias. I’ve mentioned this before, but miles are often much better than paying cash form domestic coach in and out of regional airports while connecting. Our tickets are often over 400, so if earn rate is 1 to 1, a miles is often much better than a penny. Now, if you can earn 2 pennies, I hear you, but you are often able to earn 1.25-2 miles which is still better. (SPG or category bonus)
I think this can be summarized as follow:
* Earning miles without a need to spend them (i.e. “banking” them) = BAD AND GETTING WORSE
* Earning miles to cover travel where you can use them = GOOD USE
I agree with the above points
“Sorry, but I just don’t buy “redemption is easier” than it used to be”
It’s easier in Coach than it used to be. It’s tougher in business class than in the past, and damn near impossible for F on airlines that it’s worth redeeming miles for unless you want to pay extortionate fees and/or YQ
Except for rare occasions with Avianca, *A is out of the picture. SkyTeam is out of the picture. AA has a couple of great F products that you can redeem for without YQ, but that’s about it.
If CX or Etihad has availability in F to where you want to go, great. Otherwise, it’s just not worth redeeming for F
> ” Airlines don’t devalue every year. And
> if American holds the line on its chart
> that will impose some competitive discipline
> on … ”
Doug Parker implemented lots of fees on awards and he will have no qualms about soaking us at AA. AA is great when it comes to flexibility on making necessary changes to an award and I’m afraid Parker will screw with that too.
I consider these “devaluations” despite what you wrote.
Gary, do you think Scott should consider focusing on cards that offer points (vs airline miles) in bank programs like Chase Ultimate Rewards or Membership Rewards? That way he’d still earn points to redeem for award flights with no blackout dates and not be hit as hard by airline program devaluations. Plus he’d have more flexibility and choices re airline. Right?
On top of large city bias, your anti-Delta bias also shows, and living in a large city, you should know better. With creativity, you can fly three domestic coach trips on two Delta award tickets…..try doing that with cash.
“With creativity, you can fly three domestic coach trips on two Delta award tickets”
I wouldn’t wish having to search for Delta availability upon my worst enemy, let alone 3 round trips.
Club Carlson will devalue this year. They’ve stayed too classy for too long and their redemption rules for CC members are ridiculously generous. But of course, I’d like nothing better than to be wrong on this.
Hilton is at least a mixed bag. They much improved their “lesser” cat. redemptions, and you can still easily get your week in Bora Bora or Tokyo if you’re so inclined. Think of all the credit cards bonuses that can add to HHonors (US only, sorry world). No other hotel program has that.
I agree that this “sky is falling” attitude is downright silly. I’ve been doing it long enough too. I remember being extatic to get my first free ticket to Brazil from a credit card, and yes, that was in couch!
@chris m – i do because the points are transferrable to a variety of programs, not because he can use the points to pay for travel (since he’d get 1.25 cents per dollar with chase and if what he really wanted was cash towards tickets fidelity investment rewards amex is 2% cash back and barclay arrival is 2.2% towards travel).
@Rob
If you are willing to put in the time, and search segment, by segment, I usually have no problems finding 25K domestic coach seats on Delta.
Gary, do you have a post showing how to redeem AAdvantage miles to EU in Business class without fuel surcharges? We have a bunch of AA points but hardly any United points.