Your Miles Aren’t Safe: Devaluations Create the Need for Even More Devaluations

When I first started traveling on business 20 years ago, and signing up for all of the loyalty programs of the airlines I was flying, people used to talk about saving their miles up over a lifetime.

It was common to think of miles as a retirement fund. Some people would travel for work and tell an annual vacation with their family on points. But others just wouldn’t have the time, such is the way Americans think of work and leisure. So they’d accumulate miles over many years with a plan to use those miles ‘some day’. And some day was often thought of as retirement, when there’d be nothing but time.

Devaluations changed all of that. It’s clear that the miles you earn now will never be worth more in the future than they are worth today. In fact pretty much any stash that you sit on for more than a couple of years will become worth less.

While there are no doubt still people who earn miles and do not spend them, the conventional wisdom has shifted completely: earn and burn more or less in the same period, and then earn some more. Saving miles is a fool’s game.

That’s a lesson consumers have learned over and over and very much the hard way. Programs work to convince members their points have value, but then reduce the value of those points. That’s true pretty much across the board, whether activity or spend-based, whether airline or hotel or rental car program.

Bank programs — other than Citi ThankYou Rewards — have often tinkered with future points earning, and less with redemptions, although they certainly change and lose mileage transfer partners. That’s one reason I like focusing my earning with bank programs. Another is flexibility. I try to diversity my earnings across bank programs, too, as a further hedge.

When members earned without redeeming miles, redemption costs to programs were limited and they were pushed out into the future (making those costs lower on a net present value basis).

When members earned without redeeming miles, redemptions were easier because there was less competition for award seats. (There were also fewer members, fewer members with enough miles, and planes weren’t as full — so the speed at which members want to redeem their miles is hardly the only factor here.)

Now that there are more members with more miles who do not trust programs to preserve the value of their points they want to redeem points as soon as possible.

  1. That increases competition for seats

  2. And increases redemption costs to programs

  3. Putting pressure on the ability of the program to deliver promised benefits (manage redemption relative to capacity)

  4. And driving up costs

Which of course provides the impetus for programs to devalue further, to manage their costs and to manage the requests for miles compared to available seats.

Devaluations, ironically, create the need for future devaluations. Although it shouldn’t be surprising as it’s consistent with a currency model of inflation: devaluations change altered consumer expectations so the speed at which miles are redeemed (velocity) grows.

Usually devaluations don’t follow on devaluations right away (except at Delta). But they do follow. We’re usually safe for a couple of years after a big devaluation, but don’t ever expect devaluations to be a one-time event.

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. Yup, you pretty succinctly explained it. It’s not hard to see the ongoing inflation that’s debasing the artificial fiat currency that is airline miles. I’m glad my wife and I were able to redeem award miles for what will be our first (and possibly last, given current devaluation trends) booking in international first class (to Australia). Even once in a lifetime is more than a lot of people get to enjoy, right?

  2. Perfectly stated, Gary. It’s why I’m blowing through my retirement savings now, after all, you can’t take it with you, right? 😉

  3. Same with fiat currency the scum in Washington keeps printing. They have taken control of the ability of the family to save. You can save but the value will be determined by the jokers in Washington.

  4. @joelfreak I don’t think regulation would make things better from a purely consequentialist standpoint, but i have no fundamental moral objection in a world where the government has taken away your ability to seek redress through torts.

  5. @garyleff when someone is allowed to make a currency, and fully controk that currency, as well as the availability of what you can buy with it, that needs to be regulated. Otherwise we will see this get ALOT worse… Rules need to be set for when devaluation can be allowed, as well as for a minimum amount of inventory avaliable (ie you cant claim awards for 5k miles and NEVER have them, ever). Programs will still be able to invoate, but not to completely rip off customers when they feel like it. They promote saving up miles, its about time they are forced to deal with the consequences.

  6. @joelfreak ‘needs to be regulated’ only if regulation is going to make it better-functioning, which i have little confidence in. it’s not enough to criticize something and wish it better with a magic wand of regulation.

  7. Except it isn’t a currency. It is a rewards system. There is no need for regulation unless you want the government to also regulate how many coupons companies can print etc.., heck why not just have price controls, wage controls and, oh wait, we DO live in a (reasonably) free society with (reasonably) free enterprise. Nobody is saying you have to participate in the points scheme airlines provide. you could, in fact, just pay cash for the (ever cheaper) fares. Cry baby much?

  8. Gary, I do not think that this is the true problem, that we are all rushing the gate at the same time having learnt our lesson than the points issuers devalue as a matter of course.

    Even today most if not all issuers are printing significantly more miles and points than they are allowing to be redeemed. I know you take issue with the description of your points world as a ponzu scheme, biut if it’s isn’t it certainly is a game of musical chairs with everything stacked against us.

    You , working full time on this, having no great fixed work or family commitments can usually find something that offers good value. Most of us lack the time to keep up, but more importantly, are locked into fixed periods of time when we can travel, and only once tor two places that we wish to travel to..

  9. Wanted to continue my comment. I do not worry very much about a new chart costing fifty percent more or a hundred percent more, my concern is whether I can get a seat going where I want to go. I have learned to live wit) 330 days out for each direction, two booking chaerges and two cancellation fees. With travelling only part of the way on the award, other part paid as different alliance partners issue space at different times. On not travelling my preferred airline or choice of cabin. But even that is working less and less . Having paid in effect a cent or two per most point or mile , while in theory I sometimes get a dime compared to its official price — a price that I would never pay, in practice I get or expect to get on average perhaps a cent — and then only if I can find the time to travel more.

    Except slightly in bonus categories — sign up bonuses and perhaps other benefits aside — almost none of the cards that you shall we say cover are worth putting any spend on, nor spending time learning about and managing.

    Delta is and has been saying that a mile is worth less than a penny, and now not even for flights, the other monopoly players copy and copy. Even at that, it is only worth say half a cent if one values ones time at zero, and is sufficiently evolved to be free of aggravation when one is misled and betrayed.

  10. Oh come on, anyone who’s taken one course in economics knows that all capitals depreciate. Miles and points are no exception, and duping less informed readers that you only learn it through the hard way is your way of filling another blog article with information-poor words.

    Just go with the very basic Gresham’s law. Bad money drives out good. And with miles, the good money was the butt-in-seats real miles. Bad money is all the credit card churning. It’s not even manufactured spending, which still has somewhat of an economic effect. It’s pure inflation, and every one of you is just afraid to use it like it’s some I-word.

  11. @Left Handed Passenger

    > Oh come on, anyone who’s taken one course in economics knows that all capitals depreciate

    Uh? What course have you taken? Assuming that you are talking about currencies (and not capitals), moist currencies can be invested in Treasury Notes or equivalent and earn 1% a year OVER inflation on average, so they appreciate.

    Gary is right. Congress and the DoT are squarely to blame about this. Airlines lied to us, and people’s retirement miles have evaporated because those two allowed it.

  12. They are really kinda killing the goose that lays the golden egg. As they continually devalue and erode their customer’s confidence in their loyalty programs they are 1) pushing people toward transferable programs run by the banks and away from their own sphere of influence, 2) diminishing the perceived reward of loyalty, making their customers become more price sensitive and more demanding of up front rebates as opposed to these back end rebates, and 3) all at the worst time to be making your customer shop around in an era of the internet and ease of price discovery. In the internet age, the airlines are doing the exact wrong thing, they need to be building the power of loyalty to make their customer forego their price sensitivity in an era where comparison shopping is easier and easier. The more price sensitive they force their customers to be the more they will lose all pricing power.

  13. @Arthur “You , working full time on this, having no great fixed work or family commitments can usually find something that offers good value.”

    I do not work full time on this. I have both family commitments and a full time job.

  14. No regulation please. History has proven and continues to prove that government regulation does not improve the situation.

  15. “…don’t ever expect devaluations to be a one-time event.”

    There is nothing earth-shattering about that since every company that runs a loyalty program does not even hide the fact that they WILL devalue. Here it is clearly stated in Hilton’s MANDATORY Form 10-K filing to the SEC:

    “The cost of the points to be redeemed includes further estimates of available room nights, occupancy rates, room rates and ANY DEVALUATION or appreciation of points BASED ON CHANGES IN REWARD PRICES or changes in points earned per stay.”

    There is no need to try to sound scholarly by liking to the long-winded and meaningless post on Milton Friedman & devaluation, when the whole thing it is quite trivial to grasp: companies that run loyalty programs MUST devalue to avoid sinking under the weight of the financial liability of having too many points in circulations that aren’t being redeemed or forfeited….

  16. DCS interestingly that statement was in 10-K filings UNTIL THE MOST RECENT ONE! They removed it from the Feb 2016 10-K.

    (Regardless it’s a meaningless statement prepared by lawyers as cya in case they should make such changes. Otherwise you have to acknowledge that Hilton’s explicit expectation of devaluation reduces the value of their points uniquely..)

    Hilton HHonors is a guest loyalty program provided to hotels and timeshare properties. Most of our owned, leased, managed and franchised hotels and timeshare properties participate in the Hilton HHonors program. Hilton HHonors members earn points based on their spending at our participating hotels and timeshare properties and through participation in affiliated partner programs. When points are earned by Hilton HHonors members, the property or affiliated partner pays Hilton HHonors based on an estimated cost per point for the costs of operating the program, which include marketing, promotion, communication, administration and the estimated cost of award redemptions. Hilton HHonors member points are accumulated and may be redeemed for certificates that entitle the holder to the right to stay at participating properties, as well as other opportunities with third parties, including, but not limited to, airlines, car rentals, cruises, vacation packages, shopping and dining. We provide Hilton HHonors as a marketing program to participating hotels and timeshare properties, with the objective of operating the program on a break-even basis to us.

    Hilton HHonors defers revenue received from participating hotels and program partners in an amount equal to the estimated cost per point of the future redemption obligation. We engage outside actuaries to assist in determining the fair value of the future award redemption obligation using statistical formulas that project future point redemptions based on factors that include historical experience, an estimate of “breakage” (points that will never be redeemed), an estimate of the points that will eventually be redeemed and the cost of reimbursing hotels and other third parties in respect to other redemption opportunities available to members. Revenue is recognized by participating hotels and resorts only when points that have been redeemed for hotel stay certificates are used by members or their designees at the respective properties. Additionally, when members of the Hilton HHonors loyalty program redeem award certificates at our owned and leased hotels, we recognize room revenue, included in owned and leased hotels revenues in our consolidated statements of operations.

  17. I have no idea why government is so quite with it any more. It should not be called a loyalty program any longer. Miles are no longer earned as part of travelling alone. Airlines have started selling miles to banks, businesses and to the individuals. They made it like another currency. You cannot sell something for 3.5 cents + tax and the next devalue the currency(aka miles) one cent.

    If I start a business and do the same. I will be behind bars. Why should airlines or hotel or any other program for that matter be allowed to get away with it?

    I know many bloggers and travel hackers won’t like it but you cannot charge for something and take away the value very next minute. That just does not should right at all..

  18. @Gary: “Otherwise you have to acknowledge that Hilton’s explicit expectation of devaluation reduces the value of their points uniquely.”

    You do realize how that statement is directly in conflict with the one you made earlier that ““…don’t ever expect devaluations to be a one-time event? If what you said is true and my point was precisely to agree with you that it was not only true, but loyalty programs do say it is true, then it really does not matter whether or not Hilton explicitly lets us know to expect devaluations because, as you put it boldly, it is foolish to expect devaluations to be a one-time event! How does acknowledging something that we expect anyway reduce the value of points? On the contrary, it would make them more valuable because we would be wiser and redeem every chance we get with the expectation that they may be devalued without warning! 😉

  19. Long ago I went to cash back credit cards, having seen my miles evaporate before my eyes with each devaluation. When I first joined a certain ‘loyalty’ plan, I could get an upgrade to 1st class for 5000 miles. Then it went to 10,000 shortly after I joined. Now it’s even higher

    Thankfully, I had enough sense to never purchase miles even at big ‘discounts’. That said, I still accumulate and use miles, I just don’t depend on them or use them as a factor in deciding what airline I fly and where I go. Sure, I could have flown 1st class to Europe on Emerates last year, but at the cost of a much longer flight with a stopover. Instead I flew non stop, cut my travel time in 1/2 (adding what amounts to two extra days to my vacation) and paid a bit extra for more legroom in coach. Works for me.

  20. Be careful what you wish for as far as regulation goes. Taxation of points has risen it’s ugly head again . . .

  21. Give me a break with its a rewards program for flying. I quote from this very blog

    For example, the opinion points out something regular readers of View from the Wing know: airline miles earned by flying are now in the minority, and that most miles come from non-flying activities. This is a big change from 1995, the last time the Supreme Court addressed a similar issue. Although this development in the industry could bear on whether a frequent flyer program is related to the price or service of an airline, the Supreme Court reserved that issue for “a future case.” In this case Ginsberg did not allege that he earned or redeemed his miles for anything other than flights or upgrades. It might be a different case if someone earns all miles through credit card bonuses and redeems miles only for magazines (the horror!), or if it involved a program such as Aeroplan, which was spun off from Air Canada.

    Miles are in affect, currency. You can buy almost anything with them (want a soda at the airport concession? Use miles! Want to buy dinner at California Pizza Kitchen, WHILE YOU ARE SITTING THERE? Miles again! Need an Ipod? Yep., Miles!!) and they were used to finance the airlines getting out of chapter 11. Simple regulation would be good for the industry.
    1) Award charts MUST be published.
    2) Before the charts are changed, notice of at least 60 (or something close) days must be given, to all members.
    3) If an award level is listed, seats must be available in it at some point during the published schedule. This would prevent an airline from saying “Domestic RT’s available for 1000 miles!” and NEVER, EVER having that award available.
    4) In the case of fraud, miles can be reinstated if the points scheme (remember, some FF programs are NOT owned by airlines any more) is notified within 30 days, just like credit cards.
    5) Expiration dates of miles must be published.

    I am sure I am missing some, but none of these rules are very hard to put in place, if you are an honest points system.

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