Lending Tree pitched research claiming that customers redeeming their frequent flyer miles for travel would use up all the seats on planes and there’d be nothing left for customers wanting to buy tickets with cash. That was a rather silly claim, but the underlying points are notable.

• Customers built up mileage balances during the pandemic. That’s because they kept earning miles, mostly on airline credit cards (albeit at a slightly reduced rate compared to the Before Times). However they didn’t redeem their miles for travel like usual.

• Now they have 10% more miles, and want to travel. There’s no discussion of why a 10% increase in miles is going to crowd out paying customers.

There are more miles outstanding than before, and fewer airline seats available than before. Domestic load factors are very high, comparable to the Before Times. ‘More miles chasing the same or fewer seats’ is a recipe for award price inflation. In fact it’s the basic reason that mileage programs devalue their currency.

The Lending Tree piece described mileage programs as a burden on the airlines, displacing the cash sales they really want and need. But that’s not right. The airlines have already gotten cash for these miles without having to spend to redeem them over the last year. Accumulating these balances without redemption pressure over the past year has been a windfall for airlines of sorts.

• A 10% buildup in points balances isn’t nearly the factor that redemption of travel credits for trips that were cancelled during the pandemic has been, as discussed in airline earnings calls. That’s cash they’d received in late 2019/early 2020 that is being used for travel today.

• These mileage buildups meant cash during the pandemic as banks continued the revenue streams. In fact, it’s precisely the resilience of these mileage programs that generated much of their liquidity. American Airlines raised $10 billion in debt against AAdvantage (after first pledging the program against its subsidized CARES Act loan from Treasury). Delta stopped around around $9 billion. And United’s debt raise against MileagePlus was closer to $6 billion. Between those 3 carriers alone the fact that customers kept using their cards was critical to $25 billion in liquidity.

• Airlines have been thrilled with the deal of cash up front and delivering travel later. Think of it like Wimpy in Popeye (I’d gladly pay you Tuesday for a hamburger today). Southwest pre-sold points to Chase for $600 million during the fourth quarter 2020. That’s taking in cash up front for points that will be redeemed for travel later. That move shows they viewed the ‘cash first, travel later, perhaps in lieu of paid tickets’ as a win.

• More broadly, airlines are flush with cash after $79 billion in subsidies ($25 billion of which was federal CARES Act loans). So the loss of ticketing revenue isn’t going to create a cash crunch.

On the other hand Dan Reed at Forbes makes the case that mileage programs are ripe for devaluation.

As a result, most airlines’ balance sheets, which thanks to all the borrowing they had to do just to stay afloat over the past 15 months of pandemic, and all the borrowing they were doing even before the pandemic to pay for new airplanes and other facilities, are now grossly overweighted to the debt side. And the cost of carrying all that debt – including frequent flier liabilities – means that the airlines costs, which are already high because operating even a discount airline ain’t cheep and oil prices are up significantly, are painfully high. And that will making a return to post-pandemic profitability even tougher for them.

So, what’s a poor, heavily indebted airline to do?

Devalue its frequent flier miles.

Reed makes the case that airlines can shrink their liabilities by raising the price of redemptions, so that outstanding mileage balances have them on the hook for less future travel. That’s not insane, but it’s also not the most likely scenario to play out (even the most likely one leading to award price inflation).

• The value of outstanding mileage balances are dwarfed by total debt taken on by the carriers

• Reed thinks doing this “will lower airlines’ financial costs some” but there’s no debt service to be paid on these balances (airlines don’t pay you interest on your unredeemed miles). They only need to pay off the balances as customers redeem. Devaluing does nothing to reduce their interest expense. It just pretties up the balance sheet a little bit, but doesn’t help the business.

Reed sees the risk in alienating frequent flyers with devaluation and says,

That’s why carriers will be reluctant to be the first to make frequent flier program changes that devalue their members’ miles. No carrier wants to lose even a few percentage points worth of its best customers because it made them angry by devaluing their points.

In fact, United and Delta both already devalued their miles multiple times during the pandemic – focusing on inflating the price of partner awards that they have to pay real money for (versus just moving money around on the balance sheet to fill seats on their own aircraft). Southwest did an across-the-board devaluation as well.

Now that airlines have moved towards more revenue-based redemption pricing, award price inflation is baked into the model. As demand rises and prices go up, so too do award prices for much of an airline’s inventory.

Ultimately it is never a great idea to save miles for the future. As I’ve recommended for 20 years, earn and burn miles in the same period so that you aren’t the victim of inflation. Your miles will almost never be worth more in the future than they are today. But if you earn them under one set of pricing and use them under the same set of pricing, you’ve lost nothing from such changes. And then go earn more again.