Whether the frequent flyer miles game seems to be historically rewarding, or in dire straits, depends on your perspective and – I think – your time horizon.
If you got into the game any time in the last 6 years, the current state of affairs must frustrate indeed. You got in at one of the most generous times in history.
As a result of the Great Recession, the worst economic times in 70 years, hotels leveraged their loyalty programs to put heads in beds. It’s hard to even fathom the generosity of Hyatt’s Faster Free Nights promotions (2 stays at any hotel yielded a free night at any hotel) stackable with thousands of United miles alongside.
Airlines were printing miles and so were credit card companies, to lure customers and economic activity.
Airlines that were facing bankruptcy used their mileage programs to keep customers from jumping ship.
And at the same time award seats were everywhere — with travel generally, and premium cabin travel in particular, at a standstill there were empty seats on planes and airlines could make those seats available as awards.
With the economy regaining steam there are fewer empty rooms needing bonuses to fill and fewer empty airline seats so members have to scrounge to find availability. Airlines and hotels both are compensating for the number of points they printed by raising the points prices of awards.
It can seem like dark times indeed.
- Delta double-devalued its award chart and announced revenue-based earning for new next year along with a new five-tier redemption chart.
- American eliminated distance-based oneworld awards and international gateway stopvoers, and gutted the double miles award
- United raised the cost of international premium cabin partner awards to mind numbing levels.
- Hilton gutted its award chart and even eliminated the points and fixed miles earning style (this was the program which used to market as its distinguishing feature that you could double dip points and miles and now you have fewer options to do that).
- Marriott keeps devaluing their hotel award category assignments.
.. Among many, many other changes (feel free to share your least-favorites in the comments).
But if your perspective is a bit longer, then things may not seem nearly as bad. Compared to 15 years ago, when mileage programs had a long and rewarding run in front of them…
Earning is faster and easier than it used to be.
When I started 15,000 was the top-end credit card signup bonus. I had not seen a 20,000 mile credit card bonus until April 2003. And 20,000 points was still noteworthy two years later.
Credit cards didn’t used to have spending category bonuses. The Delta American Express was really the only one bonusing ‘everyday’ spend. Airline cards didn’t generally offer double miles on ticket purchases with their affiliated airline, even.
There weren’t as many opportunities for big bonuses. While you did get partner bonus offerings, like American offering 20,000 bonus points for making 20 transactions with their partners for the program’s 20th anniversary back at the beginning of the last decade, and there were savings bonds and money orders from AAA once upon a time, the explosion of prepaid card offerings is a newer phenomenon which accelerated as the cost of traditional banking has been driven up by legislation like the Durbin Amendment.
Redemption is more flexible than it used to be.
Alliance awards are a phenomenon only as old as the alliances, when I redeemed a United Mileage Plus award for business class to Australia I could have flown United’s partner Air New Zealand across the Pacific — but I would have had to fly United Washington Dulles – Los Angeles in coach. United offered transportation to the partner airline’s gateway city only “as a courtesy.”
As a result of one-partner award, awards that were roundtrip only, there weren’t opportunities for exploiting stopovers. (Flying United metal only, where are you going to stop over internationally? They had limited tag flight service.)
The Quality of Products Has Gotten Better
International business class has, for the most part, true lie flat as a standard.
In the ultimate of first world problems, I dread American’s old angled business class seats and Air France’s angled seats. Now the question amongst top carriers is four-across or six across? How much real estate on the aircraft does a business class suite take up?
Less than 10 years ago United was flying recliner-style seats across the Atlantic and Pacific as their only business product.
And 20 years ago lie flat was not even the standard for international first class.
I’m not generally sympathetic with the argument that mileage prices for better products should be higher, but it’s undeniable that the comfort we can get with our miles has improved substantially.
The price of awards has gone up
It’s not all sunshine and unicorns. Before October 2006 a United business class award to Australia was 90,000 miles and United offered last seat availability in business to all members for 150,000 miles.
After the February massacre, a United saver award is 140,000 miles (only up 5000 miles) and a partner saver award is 160,000 (more than United used to charge for last seat). United’s last seat availability in business class is now 350,000 miles!
For ten years I’ve been writing that more miles outstanding means higher award prices to come. That’s a prediction that has sadly but not unsurprisingly held.
I’ve also talked about reversion to the mean, that the best values at the outer edges of programs are the things we can expect are most likely not to last.
A United 150,000 last seat availability business class Australia award wasn’t going to last when Delta and Northwest were charging 150,000 miles for saver. American offering last seat availability for double the miles of MilesAAver wasn’t going to last with their primary competitors charging triple the saver level.
Programs have gotten smarter
As bad as tech is in the airline space (and it never ceases to amaze me how bad that is), it has certainly gotten better. When I started flying United and earning status in the late 1990s you weren’t supposed to earn class of service bonuses when you upgraded… but you did. A confirmed upgrade was 10,000 miles, but you earned some of that back with extra miles for flying in a premium cabin. That’s long been fixed.
Airlines have learned to support more inventory buckets, until 2002 Alaska Airlines didn’t even have separate upgrade inventory. Confirmed at booking upgrades were 5000 miles and those came out of revenue first class space.
There are fewer opportunities along the edges, like submitting award tickets to british midland’s Diamond Club for mileage credit (their IT — as well as human IT — wasn’t very good…even though the boarding passes would identify award booking classes they still uniformly credited these miles).
While programs overly fetishize high revenue flyers nowadays, they have learned to stop rewarding some of their least profitable customers. Delta even won at the Supreme Court defending its right to do whatever it wished to its customers.
Then again, the end seemed near 11 years ago when United started offering confirmed international upgrades to top tier elites only on nearly full fare tickets and considered awarding those upgrades based on ticket spend instead of miles flown. At the same time Delta had been awarding status miles only on full fare tickets. They backed off of those changes because the economy didn’t support it at the time, but current revenue-based strategies have been a long time in coming.
Credit card companies for the most part no longer just reward you for getting their card, they first want you to get into the habit of using it before awarding an outsized number of miles. When I got started that wasn’t a thing, and then it began with $250 and $750 minimum spend requirements. The idea of $10,000 or even $25,000 spend to achieve a full bonus was unheard of.
What you think of where the programs are going depends on…
Your time horizon matters a lot to what you think of programs, and where they’re at.
The overall cycle of the economy matters a lot. When airlines have empty seats awards are easier to get. When they need to fill seats they bonus purchases. Unquestionably we’re at a point in the cycle where consumers aren’t doing as well as they were just a few years ago, or as well as they were doing 12 years ago (again in bad economic times).
Programs have gotten smarter, and loopholes close. That’s frustrating. But on the whole they haven’t gotten simpler, so outsized opportunities remain.
Ultimately the programs are like the casino house — they set the rules, so over time and across the majority of their customers they’re the ones who should win. But there’s still a value proposition there which lets us reap benefits — to my preference, premium cabin international travel – that we wouldn’t otherwise be able to afford.
- You can join the 40,000+ people who see these deals and analysis every day — sign up to receive posts by email (just one e-mail per day) or subscribe to the RSS feed. It’s free. You can also follow me on Twitter for the latest deals. Don’t miss out!
excellent post!
you have a great way of giving perspective to all of this.
I can remember a time when you could only use your miles on your airline. I remember how excited I/we were when we could use miles on a ‘partner’ airline. That really opened up the world to travel.
Would be interesting to come up with a “market basket” type approach to comparing earning and redemption value over time. Something along the lines of “A typical family that flies X paid miles and spends Y dollars per year on a credit card can expect to earn 2.7 domestic economy or .8 international business class award tickets a year.”
Of course, you’d probably need a couple of different “typical” earning situations to allow everyone to find a comparison relevant to their own situation, but at least it would provide a simple measurement of whether we’re better off than we were ten years ago.
Good analysis, Gary, including your reminding us of the ways in which the picture has improved (e.g., lie-flat seats, bigger credit card bonuses). But you left out the biggest single factor affecting the medium-term and long-term value of the frequent flyer programs: decreased competition…or really, a domestic oligopoly.
Less competition means that the reason these frequent flyer programs were established to begin with – to generate loyalty – is no longer as salient. Once US Air and it’s “show me the money” (and forget whatever can’t be quantified) leadership completes the digestion of American, that airline’s program will be significantly diminished. With Delta’s lousy program and redemption options on the one hand (though the airline’s product and management seem decent) and United’s deteriorating program and product on the other, it will unfortunately make business sense for American to take its own program on a rather steep downhill slide.
I remember 2005 as when you could buy 64 sodas (or find cups) at Wendy’s and have a free domestic AirTran round trip.
And the days of a round trip on American for doing MCI long distance for a year.
Similar to dhammer53, I remember the time when you could only redeem the miles on that one airline. For me that was Northwest back in the 90s. Loyalty meant something different back then too.
I think the focus on CC miles has been unquestionably negative to frequent *flyers*. I think long-term, we will see the last 5-10 years as a bubble period of hyperinflationary growth in the money supply of miles in the system.
Although I know it’s very unlikely to happen, as somebody who earns miles by flying and doesn’t play the CC churn game, etc., I wish a Paul Volcker-type would come in and impose some “tight money” on miles in the system. Maybe DL is doing just that.
Greg
A timely reminder on how collecting miles is a loser’s game. All of your accumulated unspent miles, all of your stranded miles, they are all going to be worthless. In 2003 20,000 miles meant a lot. Now, not so much.
I too remember the 90’s and only flew NWA. But they only had 1 level 25k for FF tickets. I also remember 90’s for getting 25k Continental points for changing land line from or to AT&T and it was a free ticket you just had to reserve it 6-9 months in advance. I think we switched carriers 3 or 4 times 1 year. Now DL is going to have 5 levels? Try finding a 25k ticket NOT going to find anything.
Overall more points now and you need them for the same results.
Ah…the gold old days when you could redeem on NZ trans-pacific. 🙂
Hotel promo generosity was way better well before 2008. Airline promo generosity was also way better well before 2008. I say this because the notion of the decline in program value for customers being most pronounced for those customers who came in during or after the “Great Recession” is just not in alignment with what I’ve observed.
I think that for those few of us who know how to play the game and are willing to spend time on it, the situation is still good. We’ll have to do more MS to get miles, use more foreign programs, and use more tricks, but the opportunities are still abundant. Regular flyers will probably find that the devaluations have made their miles pretty useless, unless they are business travelers who do a lot of paid travel in premium cabins or full-fare economy.
I’m with Steve in principle – I think the “New American” is off to a very poor start from the loyalty program perspective with its major unannounced changes. I think that one thing preventing a free fall, though, is the fact that these programs remain a cash cow to the airlines and it would be really stupid to devalue them to the point that people no longer care about them. The legacy airlines’ competition with each other may be diminishing, but there are still other competitors – other airlines for travel, and cashback cards for credit card customers. I assume, for example, that American finds its relationship with Citi very beneficial. But if AAdvantage miles decrease in value too much, that not only affects us; it also affects Citi’s business strategies, and not to American’s benefit.
Nice article Gary. I pretty much agree. But remember when an award on United came with a free Hertz car rental day and 50% off a Westin hotel? That was nice too!!
I think where one stands depends upon where one sits. The proliferation of miles earning techniques and miles redemption options makes winners of people who put some thought into the game.
As for the tension between programs and participants, these are not the worst of times, but, no doubt, programs are better positioned to squeeze participants than in the past. This is not 2009, when airlines were yet to rationalize capacity and hotels were in disarray.
But over the long term, I cannot imagine that programs will be able to survive providing nothing of value to participants, nor can participants consistently count on sweet deals.
It all comes down to basic economics. Airlines inflated the money supply (miles) by selling miles and promotions to increase revenue. Now prices are inflating to reflect increased money supply and decreased inventory (award seats). I’m sure the cycle will repeat. Award seats will get cheaper (relatively speaking) the next time airlines need to goose their revenue.
In the meantime a small minority of individuals will complain and a similar minority of individuals will use information asymmetries to extract maximum value from award programmes.
When I started my project in 1998, the biggie bonuses came from switching long distance between the big three carriers every 6 months. Max bonus was 20K miles, as I remember it (but my memory fails too often these days). Then, before the current mega credit card offers, we had bonuses for transferring assets between stock and bond brokers (50K each), buying coins, buying savings bonds, etc. We did have credit card offers, but they were not particularly impressive then. The current mega credit card offers are relatively recent.
My impression from long experience is that the balance between getting miles and getting a ticket has much tipped in our favor over the years. And, of course, the comfort level in any but cattle class is much improved.
1st quarter you got triple miles. 1st class to Hong Kong was 90,000 miles on United and you could get it.
I just got 120,000 UR points by flipping my Chase Ink Bold and Plus from MC’s into VISA’s. The game is changing, folks, but it’s still going to be great!
Spot on post……..It is definitely getting more “brutal” for the infrequent flyer who doesn’t pay attention to miles which is exactly what should happen in a revenue based FF world………but I would also argue that we have evolved into an information based FF world where Boarding Area sits at the top of the world and dispenses knowledge and 5X, 10X etc for anyone willing to do a a bit of thinking and work………Boarding Area gives you an information toolbox for manufactured miles, portal multipliers, award sweet spots and mistake fares. It is downright silly to think about how much an advantage a BA reader has on the general public……..I read Randy Petersen in 1984 and I loved him then but where he has taken us today is one hell of a better place. Life is much better today!
The day credit cards started earning miles was the day FF programs went into a nose dive! No longer were the majority of miles earned by flying (with very generous route promos like triple miles quite common) or renting cars or staying in hotels. Now everyone could earn them, and churn through cards for the ridiculous bonuses that further debased the currency. And while the premium product certainly has improved over the past 30 years+ that FF programs have been operating (and thus meriting increased miles) the actual value of awards has declined. Used to be 150K earned-by-flying/traveling miles got you two tickets in F anywhere your airline or its partners flew, plus a week’s car rental and a week in a hotel suite! Today 150K barely gets you an F seat from NAmerica to Asia! Give me the good old days where miles had to be earned by travelling and awards got you flights, cars and rooms.
Just as they tanked the world economy in 208 the banks ruined the FF programs!
I didn’t get into the game until last year, but I did enjoy Priceline during the recession. Those were the days.
I recently got into the game in late 2012. And don’t think I could have picked a better time. 18 months later I’m pushing ~6MM miles/points (after redeeming ~4MM). 99% from MS.
I could care less about massacres or devaluations – I can’t burn miles fast enough (a lot are redeemed for cash). All I care about is availability – and perversely devaluations are helpful – they make scarce award space more available.
Any handwringing seems unjustified and from my perspective, it’s a Golden Age for cheap/comfortable travel.
And if people wonder how you can generate ~10MM (at negative net cost), they are reading the wrong blogs. Hint: if a blog has more than a couple of mentions of CC links a week, you need to look for those who offer real content – no more than half a dozen mostly smaller blogs worth your time – the rest are mainly CC shills that offer tired content teaching you tricks of limited utility. Learning how to scale is more important than learning how to save.
Great piece Gary.
One thing to add is that as business class has gotten better a true lie flat on American versus their old slanted seat, economy has gotten much worse. I remember flying AA coach from JFK-LHR as my system wide didn’t clear last year. Fortunately I was flying an older 777-200. I forgot just how squished coach is with 9 across. NOW American has squished in another seat with 10 across. I can’t even imagine how much I would hate that.
Although business class seats have more space with the lie flat, I actually prefer when not sleeping the older slanted seats as it is easier to have a conversation with your neighbour. So I would argue that a business class redemption is well worth the money, I am not so convinced that I would pay more, let alone the huge increases that I believe are coming for the new business class.
I am very worried at the printing of miles that we have recently seen in the credit card world. At your FTU, there were many many people manufacturing spending and earning in the millions of miles for pennies. This I believe is evidence that the miles value MUST depreciate if the airlines and credit card companies are giving away such drastic amounts.
I think this is the good times. Personally I am on your “Plan B”? approach. Burn the miles, and earn and look at foreign programs.
Anyhow good food for thought Gary. I wonder in a few years when the loyalty followers will notice the airlines false loyalty in return for flying, and new loyalty with credit card companies.
Some other relatively recent improvements:
It wasn’t long ago that multiple carrier travel on alliances required two separate awards (for example, on Star, flying UA to a European gateway, then LH to your final destination, required two separate round trip awards). In the last 5-7 years or so, multiple carrier Star Alliance travel on a single award has become much more flexible and seamless.
Also, post-merger UA allows partner Saver segments on a single Standard Award (for example, SFO-FRA on UA, FRA-IST on Lufthansa can be booked on a single Standard Award so long as Standard inventory is available on the UA segment and Saver inventory is available on the LH segment). Previously, this required two separate awards.
Everyone is talking economics terms here but this is not a true economy. The price is not allowed to float to match what the market is willing to bear and to meet demand. If that were the case then you would probably have AA transatlantic tickets, for example, usually going somewhere between the SAAver level that doesn’t exist and the AAnytime level that is available every day but few people willing to pay. Economics are not really at play here because the supply side and the demand side operate independently – CC issuers can buy and give out points however they want, but the airlines set the prices and more importantly the award inventory.
In some ways, the changes are just life. When I started commuting across the Atlantic in 1972 on a 707, I knew nothing about FF programs. By the 80s I had figured it out and we entered the era of triple and quadruple mile bonuses.
In the early 90s, Delta had a promotion where you could get a First Class ticket anywhere in the world if you flew 30 legs in a 13 week period. (Today I typically fly 40 legs in 13 weeks.
In the 80s was able to use AA miles to get my parents to RT from LHR to JFK, and order special meals for them for just 25,000 miles a ticket.
But the world has changed. My home phone no longer has a cord. I have a smart phone that has more power than my Radio Sack TRS 80. Oh yes, and I am a damn sight older.
Unless you are a CC churner the programs have gotten far worse for the average flyer who doesn’t do an app-o-rama every quarter. Saver award inventory has been slashed over the last 20 (even 10) years, low level status is almost worthless (particularly on UA domestic where upgrade rate is low) and award rates at both hotels and airlines are 2x higher while # of miles earned by flying is the same. The sweet spots for airlines (upgrading cheap economy with miles + $0 copay) and hotels (SPG C&P) are long gone. So yes, it depends on your perspective – do you earn as a flyer or a spender?