At What Point Do Airlines Devalue Their Miles Too Much And We All Decide They’re Just Magic Beans?

Frequent flyer miles have an amazing characteristic. They cost about three quarters of a cent to produce while people value them at twice that much. The more you produce, the more you profit, so you go around generating as many miles as you can.

  • This creates a problem of too many miles chasing too few seats
  • Since airlines don’t have that many empty seats to sell to their frequent flyer programs on the cheap, they way they used to when there were more airlines and too much capacity
  • So they keep raising prices to compensate for the need to displace revenue passengers in order to deliver awards
  • Because the alternative is just saying nothing is available when members look to spend their miles, turning those members off to the program
  • But at some point the higher prices could do the same!

Printing miles has been a pretty profitable business for airlines, in fact some airlines don’t make money flying planes from place to place at all – and the entirety of their profit can be explained from selling frequent flyer miles. Those miles wouldn’t seem valuable without the flying, but it’s the magic beans miles that actually make money.

None of this is new. Twenty years ago when United Airlines went through bankruptcy the only part of their business that was profitable was Mileage Plus, and it was said they continued to fly to support the underlying credit card business. As one Senior Vice President of the airline once put it to me, at the conclusion of each hearing in bankruptcy court their first call was to Jamie Dimon.

Now, though, airlines have securitized the magic beans. They’ve borrowed large sums of money with their frequent flyer programs as collateral, from $6.5 to $10 billion each for the three largest U.S. airlines.

Miles are valuable as a claim on future travel, but one of the selling points to mileage-backed debt investors was that airlines can set the price however they want in the future i.e. make them not so valuable for future travel.

Of course if an airline announces a pending devaluation that could cause a run on the bank (a ton of redemptions). Maybe that’s why Delta claimed it was illegal for them to tell customers in advance when devaluing miles back when they had an award chart (eliminating the award chart was a clever way not to tell customers they were devaluing).

Last April FTX’s Sam Bankman-Fried described securitizing magic beans. Cryptocurrency of course, tokens, are just currencies and they follow basic monetary rules.

The financial engineering only works if customers believe the miles have value. Delta’s FTT currency SkyMiles seems to work due to some mix of brand halo and captive hubs in Atlanta and the Upper Midwest. United and American, historically, have seen hits to credit card charge volume when they’ve devalued.

At what point does Delta’s TakeOff 15 change where anyone that doesn’t get a co-brand credit card sees their miles worth less have an effect on the financial engineering? What will American’s end of MileSAAver and AAnytime awards have? Neither Delta nor United saw their programs ultimately undermined when they canned award charts. Surely some amount of value is needed to keep customers on board though?

Banks have shown that customers will take their own proprietary travel cards. Membership Rewards and Ultimate Rewards and Capital One’s Venture portfolio have had staying power and growth. It rarely makes sense for the median traveler to put a majority of their card spend on an airline co-brand (since earning just 1 mile per dollar makes zero sense).

There is a magic beans in a box element to frequent flyer programs, but there’s truth to the argument that this is also true of U.S. currency, Euros, and other fiat money. They have value because we believe they do and we can exchange them for things of value as a result. But it’s that intermediary step – the value in exchange – which is ultimately the difference between Dinars and Dollars, and between MileagePlus miles and FlyCoin.

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, 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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  1. I know we talk about devaluation a ton, and have complained about devaluation for decades. That said, every site, including this one, values United, Delta and AA miles at all over 1 cent per mile. Were you valuing these currencies at 2, 3, 4, 5 cents per mile years ago? Are we really overestimating the amount of devaluation for the average customer?

    And remember – miles devalue, but so does the US Dollar, especially when it comes to purchasing power in travel.

  2. @gary, I certainly won’t argue that Delta has earned goodwill and is trustworthy when it comes to the Skymiles program. That being said, they are not the first program to tack on a rebate for CC holders when redeeming points. Jetblue offers 10% back. IHG offered 10% back on their old card not available anymore and now offers the 4th night free on the card that essentially has replaced the old one. I could certainly see Delta devaluing their currency and using this benefit as a way to push people to get the card and engage in the program despite its low return. That being said, you’ve never criticized IHG or Jetblue for penalizing people that don’t have their card, whereas you criticized Delta saying that they are penalizing non cardholders by adding this benefit. Would you say that the IHG & Jetblue card benefits effectively treat non cardholders unfairly? Is there a reason why this benefit has received significant negative coverage from you but the IHG and Jetblue benefit never resulted in any mention like this (at least not to my knowledge).

  3. This is the same argument as the Laffer curve-at what point to people stop trying to acquire miles.

    The problem is most people don’t put more than 30 seconds into thinking about the value they get from a mile vs cash-back vs transferable points; or they just don’t care.

    Airlines will just cut, cut, cut until they see it directly affecting the balance sheet. (I.E. Kirby’s fun WiFi experiment)

  4. This is beginning to vaguely sound like cryptocurrency. Fiat currency without even a country behind it (see Charles Ponzi). Or maybe hyperinflation is a better example. Something to consider, anyway.

  5. Thank you for covering these not so subtle ways to manipulate market supply & demand. I am ditching Delta even though I have their Delta Chase Reserve Rewards card, which I will also ditch at the end of this year. It’s usually over 200,000 miles for any international long-hauls. Sometimes 300,000 or more miles. I recently got the same route/class of service roundtrip on Air France for 30,000 miles with much better service.

  6. I found Asia to Europe on Delta in business for 90K for myself and my wife and have thus burned the last Delta miles I’ll ever collect. Everything is 300,000 miles or more now. A 70000 SUB means nothing.

  7. Gary-I would love to see an article
    detailing how much credit card benefits have been watered down while annual fees go up

    Amex is a HUGE offender. Outside of the Aspire card benefits across all cards have SIGNIFICANTLY dropped while AF’s have increased

    Marriott cards have eliminated 250 hotel credit to be replaced with restaurant credits
    AMEX Gold used to be a sweet spot card with some good benefits now they’ve eliminated points rebates, offer $10 Uber credits and benefits to deal with their overpriced Fine Hotels. Who’s paying 250 bucks a year for a 10 dollar Shake Shack credit?
    Amex Plat at 695 is worse. Trying to get value out of the card FORCES you to do business with the partners that PAY them referrals.
    The worst part is AMEX Travel is just Orvitz white labeled with crap service and selling lower class of tickets without full disclosure and often their tech limitations don’t allow you to add frequent flyer info

    That and now must of customer service sits in India where everyone reads from a script and isn’t empowered to help, gives bad information, hangs up or makes believe theiy can’t hear you but I can hear roosters crowing from their work from home location

  8. I am hoping that the Chinese airlines come back soon. I could rely on $400 one-way flights from NE Asia to Europe and get to check out a Chinese airport for a few hours (lots of PP lounges).
    Maybe after the upcoming engineered war. Who knows.

  9. Mile devaluation is a thing. But we ignore the earn side all too often. People used to be excited about earning 1x SPG and transferring to 1.25x airline mile. You can earn 2x-5x+ transferable on all spend these days, let alone SUBs.

    It’s folks who had huge stashes of points who are ultimately screwed. Unlike real money, there’s no way to “invest” banked points to keep up with mileage inflation.

  10. The conversation that I rarely see any blogger write about is how Amex and their willingness to print MR points and extend high offers on their co-branded cards have a hand in devaluations.

    Prior to the pandemic, we would occasionally see offers higher than 60-75k MR points on the Platinum. When one did see such, it was rare. Today, such is the norm. It’s not hard to capture 100-160k MR points on a regular basis. It’s equally not as rare to see NLL offer links of high amounts floating around the internet. The same can be said for their co-branded card. To see Delta and Marriott cards with 100k points subs was just as rare. It happened, just not as often as it is today.

    Does anyone think that if (or when, if ever) Amex stops printing MR points and return to pre-pandemic “business as usual” that some of these issues such as the devaluation of airline currency and to same tune, crowded lounges, will start subside?

    Devaluations will be amongst us always…but to the extent that we’re seeing how, I don’t know. Maybe, but maybe not.

  11. For me the lines crossed several years ago. All my credit cards are now immediate cash back. I no longer care for airline miles or hotel points.

  12. The Glory days are long over for the most part.I’d rather have a 2 to 5% cash back credit card s(and I do )than the ponzi schemes that the airline credit cards have become.
    I no longer earn BA miles Virgin Delta United etc Cash is king
    Th airlines are fooling few with their 500k to 1 million points one way redemptions on airline miles
    Except the biggest suckers in the universe that are clueless
    If I was an airline I would celebrate any customer foolish to bite their bait
    Let the buyer beware

  13. A year ago, I ditched my CSR and that ridiculous $550 fee and got a 1.5% cash back Freedom. I got a Venture X that breaks even when using the portal and the anniversary points. I have burned almost all points and Covid e-credits. My airline and hotel statuses expired last month. I am a happy economy flyer and Hotels/ sleeper. Life is much, much less stressful as a free agent

  14. I generally won’t touch airline or, lol, hotel cards for this reason unless I have immediate travel needs and a clear path to redemption.
    At least with the credit card programs I get some floors at redemption.
    I do think cc programs help keep the airlines a bit honest. The airlines can’t sell the magic beans through transfer if the math works out that the award redemption costs more than the cash price.
    The high end hotels are generally a bit more mystifying in their currency valuations. I guess there is simply more brand loyalty with hotels amongst the heavy users.

  15. It is important to separate the flight miles from the credit cards miles.

    Many people (hub captives, corp contracts) don’t have a choice on where they earn flight miles. However those who have a choice will typically want to maximize the value of miles earned (assuming product is similar) – which means nyet to skypesos. So the devaluations further serve to decrease whatever loyalty remains after accounting for the elite perks.

    For credit cards it no longer makes sense to use or pay AFs for credit cards tied to a specific airline (beyond the SUB). The sophisticated folks (readers of WFTW) have already dumped these cards & I expect we will see more people do so as they figure it out. The future is with transferrable bank currencies – Chase, Amex, Citi, Cap1. Or 2% cashback.

    I’m on a mission this year to dump all my high-AF cards unless they provide a perk that I can’t live without – there are just too many free or low-AF cards now that provide great earn on everyday spend.

  16. Ye got yer keeper cards that maximize return on ongoing spending. Whether points or cash back. And, they be a wee number. Aye?

    Den, ye got yer SUB cards, which ain’t yer keeper cards. D’ye ken? Arrr.

  17. Ask Delta, they lead the world in this area but the others are chasing them. Maybe an analysis of the inflation from say 10 years ago when you could book roundtrip to Europe for 60k most of the off season with mostly wide open availability on several mainline carriers.

  18. I quit the chase after spending an entire evening trying to final an international awards flight, even using multiple exit locations.

    Economy ONLY available from AA. Delta, ONE WAY in some cases, upwards of 800,000 sky pesos. Emirates truly frightening.

    So, anyone want to suggest a good CB card because looks like time to dump the branded ones. The only benefit I was getting was end checked bag free and I get that anyway since we only fly FC domestically.

    Now using my points to fly to my jump off destination or book hotels. Not a good value but that’s about all they are good for now.

    It was fun while it lasted.

  19. I get the devaluation and difficulty of finding a decent value on award flights, that’s why I’ve been using Chase points for Hyatt. I’ve still received great value from that. Question to the readers + GL, is Marriott or Hilton also a good value for point use? Which of those 2 are better overall?

  20. there is value to be had if you have currency across multiple platforms and somewhat flexible dates and destiantions. Even with Delta. Booked wife and I RT from RSW to ANC for 38k skypesos each in March. Air France miles on Virgin Atlantic in business for 65k to LHR in August. good value on Iberia direct flights MIA to MAD int he fall. is well worth the pennies if you are booking many trips and have multiple currencies to play with. other trips can be stupid numbe rof miles, not even sure why they offer the seats at those mileages as few will ever get filled

  21. @Anthony It’s true that the US dollar can devalue, but the difference is that the dollar devalues due to market forces. If the government suddenly announced that our money was, by decree, suddenly worth half of what it was worth yesterday there would be a violent revolution. But the airlines do this all the time while enticing people to spend real money (credit card fees, etc) getting these intentionally, constantly depreciating points. My FF strategy is to ignore them until I notice I can get a free something or another with my balance. I don’t consider them assets, don’t fly one airline exclusively to build them up, and certainly don’t get suckered into the high-fee miles cards. Sure, I therefore don’t get free lounge access, but the airlines are choking that off too, so it doesn’t really matter.

  22. @ Gary

    “Frequent flyer miles have an amazing characteristic. They cost about three quarters of a cent to produce while people value them at twice that much. The more you produce, the more you profit, so you go around generating as many miles as you can.”

    You haven’t explained what you mean by “cost to produce’ in the context of loyalty tokens in this or the previous cited article. Some readers may find that helpful.

    It could be the case that most loyalty members do not and cannot put a monetary value on their miles / points at all. Just because some travel bloggers decide to declare (most highly subjective and potentially very misleading) redemption values on different miles / points does not infer that most loyalty members would do likewise. You need to close that logical loop for your statement to hold.

    With no idea about the value derived from their loyal engagement, one could propose that many members are there because of the seduction marketing, lure of then game, in short for emotional / psychological reasons rather than the cold hard math of calculating value either actually derived or perceived baed on what they personally value.

    Ultimately, the whole gig depends upon program partners buying the miles / points (Amex, etc) to create the revenue for the loyalty program. The loyalty program must surely be held to a degree of accountability by the mile purchasing partner.

    Smart players vote with their feet and look elsewhere. But so long as the loyalty members are confused by the math, they will be lesser drive to stop the slide in the system.

  23. I guess the ironic thing is; I saved up all these miles and points during my younger years so that I could use them as I get older [think retirement and more PTO] but really needed to burn them in order to cut back on cash outflows when I was younger.

    Now that I’m older with more PTO, not far from calling a day [for good] at the office; I can afford to just pay for what I want up front, suites etc. All those points and miles are worth so much less as well. It was just a bad decision back in the day to not earn and burn.

  24. We’re way behind that point.

    You need 600,000 AAdvantage miles for a ticket on American’s sub-par business class to Europe this summer, i.e. the equivalent of credit card spending that would give you $12,000 in cash, with which you could buy the $4,000 business class trip — and fly on a much better airline.

    People who choose to get miles instead of cash back from their credit card should seek counseling.

  25. I agree with the author that airlines have devalued their miles to a point where it’s almost not worth it to collect them. I’m starting to think of them more as a way to get a few perks here and there, but not really a way to get free flights anymore. I think it’s time for airlines to start recognizing that loyalty should be rewarded more and that miles have more value.

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