Lending Tree is pitching a report that begins with some anodyne claims about customer behavior towards frequent flyer miles and jumps to the unsupported conclusion that mileage redemptions this year are going to crowd out paying customers, who won’t be able to find seats for sale. This is literally insane.
- 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.
To be sure, leisure travelers spend their miles and the travel recovery has been led by leisure travelers. Travel’s recovery has been uneven, focusing on domestic leisure destinations that are fully or largely open and close-in international destinations like Mexico.
Travel volumes remain less than 70% of 2019 levels, while summer air schedules look to return to close to 90% of domestic flights. Again, this is uneven, with even more flights to Florida than ever before.
However award travel is not going to ‘crowd out’ paid travel.
- Saver award travel comes last. Airlines make saver awards available generally only for seats they do not expect to fill with paying customers. It can’t be the case that people redeeming their miles at the saver level will crowd out customers trying to buy tickets with cash.
- If mileage redemption competes with paid travel, it’s when miles are being used as a currency like cash for revenue-based redemptions, where the mileage cost is more or less determined by the price of a paid ticket (and the airline is mostly indifferent to the form of payment).
But if it’s increased spending power because of built up mileage balances that’s at issue competing for seats, which still are not scarce, then that’s really just saying ‘consumers have too much money’ with miles as a form of money on their balance sheet. At that point you might as well blame stimmie checks for giving consumers disposable income with which to travel and compete for seats (or higher stock market valuations, real estate or crypto prices for that matter).
It’s this demand that’s supporting the return of airline capacity, of course. And it isn’t manifesting itself in lack of seats but rather higher prices. The incredible deals that were available in March are largely no longer available. American Airlines explained during its first quarter earnings call, and reinforced at the Goldman Sachs conference this week, that they aren’t making cheap seats abundantly available for the holidays – they don’t want to fill up planes now for holiday travel at too low a price.
Higher airfares may or may not be related to inflation – that’s a question of whether it’s one price that’s gone up or the general price level, though the news on the inflation front this week is not good. Larry Summers is looking better by the minute.
Miles are a currency, and more miles and dollars chasing a fixed quantity of goods in the economy (or quantity that is not rising as fast as currency) will lead to inflation, holding the rate at which people are trying to spend those currencies constant.
There’s no question: more people want to travel now, especially as they become vaccinated. Many have traded off less travel over the past year and want to travel more in the coming year to make up for it (“intertemporal substitution”). There’s a lot more excitement around travel after not having done it which will lead to far fewer inhibitions on the road.
But the suggestion that an incremental buildup in the number of miles available will make it tough to buy revenue seats (“Billions of Unused Miles May Wreak Havoc on Air Travel for Paying Customers”) is a rather silly notion.