Tag Archives for devaluation.
Make the currency worth less, consumers chase it less at some margin. Reduced consumer interest is bad for the long run proposition of the currency, which is bad for the price of financial instruments derived from that currency. Now that airlines have issued upwards of $30 billion in debt backed by their loyalty programs, this is a new issue for them to manage.
The AAdvantage program is the annuity that’s been driving free cash at the airline for years. They’d be wise not to kill the goose, and the odds they’re good enough to extract even more value out of it for themselves without killing it seem less than 20%.
In the June 23 Airlines Confidential podcast, former Spirit Airlines CEO Ben Baldanza lays out his framework for the circumstances under which to expect airline frequent flyer programs to devalue. He sees strong airline credit card performance as working against devaluation, which I think is incorrect, and he sees the future of business travel doing a lot to determine the value of miles.
There are several scary stories out there about a coming frequent flyer apocalypse, but an underlying truth remains.
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. And travel has picked up.
Mary Schlangenstein who covers airlines for Bloomberg asked CEO Ed Bastian during Delta’s earnings call about Southwest’s no-notice 6.5% devaluation of Rapid Rewards points yesterday and whether they’d considering doing something similar.
Bastian offered SkyMiles as a contrast to Southwest, “we’re not considering that, and we’re very excited about the value [of the SkyMiles program].” Wait, wut?
If it’s true that we shouldn’t trust loyalty programs, and that ought to become our base case, then the way that information gets out to the public is precisely by shaming loyalty programs when they behave badly. Rather than shrugging our shoulders at no-notice devaluations, it is important to shout it from the rooftops so that members know to build lack of trust into their base case.
Effective immediately and without notice, Southwest Airlines has started requiring 6.5% more points for flight redemptions. The change comes as Southwest celebrates its 50th anniversary this week. Award tickets used to cost 78 points per dollar of base fare and now cost 83 points per dollar.
Earlier in the week IHG Rewards seemed to devalue their points raising the cost of many properties without notice. Indeed, 100,000 points was no longer the most you’d pay for an Intercontinental and it became possible to spend as much as 79,000 points for a single Holiday Inn room night.
Right now prices, in some cases, appear back to where they were before the devaluation.
Award prices in British Airways Avios have increased without notice for flights up to 2000 miles.
The British Airways Executive Club pricing system is based on flight distance. Flights in the first 3 distance bands (1-650 miles; 651 – 1150 miles; 1151 – 2000 miles) have gone up by 750 Avios each way (1500 roundtrip).
At the beginning of February Delta devalued SkyMiles partner award pricing for the second time during the pandemic, and in a big way. Since the start of Covid-19 one way business class between the US and Europe on Air France and KLM went from 75,000 to 95,000 miles and now starts at 120,000 SkyMiles – for a 60% increase in less than a year at a time when flights are empty and prices low. Because they can.
Delta says they have no award charts any longer, but that isn’t true. They just hide their award charts. Mexico is a separate region from the United States, and while they’ve massively increased their award chart pricing for partner travel to and from the U.S., they haven’t (yet) done so for travel to and from Mexico.
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 InsideFlyer.com, 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 »
