Will Customers Redeeming Miles Create A Crisis For Those Trying To Pay Cash?

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.

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 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 »

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  1. Totally agree here. Miles redemptions are a huge boon to the airlines’ balance sheet. Obviously the people at Lending Tree know little or nothing about airline financing, redemptions etc. Mileage payments to airlines by partners like credit card companies have been keeping airlines financially afloat during the pandemic. The fact that people used those cards is win-win for everyone.

  2. Award inventory is controlled and managed … to your point, if anything only revenue-based redemptions may affect the seats available for purchase. Otherwise the airlines would much rather sell the seats for cash and max rev, right?

  3. Using miles over cash has definitely become more of a priority as we come out of the pandemic. Doesn’t mean that I won’t buy tickets – it will be a question for each flight, and if the price is low, I will pay cash – but I am interested in using up a lot of the miles I am sitting on, particularly those that are stranded in particular airlines where they may expire. That is also influenced by that bookings with miles are usually more flexible, and people will be skittish about making travel plans that do not allow flexibility until the pandemic is long gone.

  4. Lol. That article is beyond dumb.

    However, I also thought it was quite dumb when bloggers were writing about six months ago that people should collect MORE miles because they would be more valuable once the pandemic ends. No. Airlines and hotels are about to clawback as much revenue as they can. Devaluations are about to hit the roof to prevent people from using miles.

    We need to brace ourselves for sky high airfares.

  5. British Airways has no worries! They are saving all of their seats for paying customers. It is impossible for me to fly business class on our accumulated 300,000 miles to Europe. They are just not making seats available. Which is why I will be using up my miles on car rentals and anything else and then dump British Airways. I am sick and tired of paying for flights and never being able to redeem them in anything other than coach.

  6. Where does the article say miles could crowd out cash fares? I see this saying people redeeming miles suddenly might not be great for airlines, and that airlines want paying customers fast, but nothing about crowd out.

    “But LendingTree chief credit analyst Matt Schulz expects to see more travel this year. “I think we’re going to see a whole lot of people burning through a whole lot of miles pretty darn soon,” Schulz says. “That may not be the best news for the airline industry, which is desperate to get as many paying customers as possible onto planes as soon as possible, but it is the reality.””

    Reads to me more like people with the newly higher unused balances might want to use miles over cash, which on net isn’t as helpful to airlines as cash fares.

  7. “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).”

    If they really are indifferent, airlines should award elite status credit for points redemption trips..

  8. They don’t understand that airlines and hotels control the release of award space. I’m doing the opposite. I cashed out all my points and miles, including my 100K platinum I just got in April.

    I don’t need miles and points on my balance sheet. I could use the cash now for Bitcoin and ethereum as well as buying some stock. When I travel next year, it won’t be on my dime. When I travel in 2023, I may pay cash if I haven’t gotten new airline subs. The shutdown has thought us we can’t be jumping around just to catch an award deal, find space, or take advantage of a special first class redemption. It’s best to go direct and go when it is convenient and when the schedule allows it.

  9. It is more the opposite – cheap cash fares for F and Y will crowd out award travel.

    Lending Tree is a gutter scraping lender so not really a shocker their analysis is faulty.

  10. @Jackson Waterson – you forgot to mention the superiority of the white race and inferiority of POC (and how they commit all the crimes) in your post, you’re slipping what’s gotten into you

  11. @UA-NYC

    You seem to be offended at anyone who points out fact. If 13% of the population commits 52% of the unprovoked violent crime, rational people are going to take that into account when deciding immigration policy and what neighborhoods they want to live in and what streets they walk down. We both live in NYC and know the reality about who is making riding the subway or walking on 8th avenue by the port authority bus terminal unsafe. Your pride would let you admit it.

  12. Not quite sure what this discussion is doing here but I’m game. Personally I think some white people are utter snowflakes when it comes to POC’s. Come on you’re afraid of walking down 8th Avenue by the Port Authority. I’m a white guy who hangs out in black neighborhoods all the time have since my Dad and I went to bars in the black neighborhoods of Cleveland. People were friendly, nobody ever attacked us. You know where I was held up at gun point? In a wealthy shopping mall in Toronto by a white guy. I am much more nervous in the countryside with a bunch a crazy white guys with guns than I have ever been in black neighborhoods

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