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
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.