My evil twin brother Gerald seized control of my WordPress account. And he decided to force me to make a case against frequent flyer miles. He tells me that he’s also gotten hold of my Awardwallet password and will drain all of my accounts if I don’t comply.
So I’m going to do the best I can to stake out the opposite of the position I usually take. Instead of defending frequent flyer miles from their detractors, I’m going to lay out some of what’s wrong with mileage programs. (See also The State of Frequent Flyer Programs: is it the Best of Times or the Worst of Times?),
And ultimately, I think, we’ll see that unsavvy consumers (or at least consumers who aren’t guided by shrewd frequent flyers) don’t do as well as they could. But that the complexities of the programs create real opportunities for those who are paying attention. Some might even say that the there’s a cross-subsidy or redistribution from the passive miles collector to the attentive hobbyist.
Please take some of what I’m saying with a grain of salt, as it’s being written under duress. Nonetheless, like a confession from an accused American spy in Iran, it serves at least some propaganda value…
Miles have done amazing things for me.
There’s no question that I’m a huge cheerleader for miles. I’m writing this post onboard a Cathay Pacific 777 with lie flat business class seats, configured 4-across so each seat has direct aisle access. And that’s just for a 3.5 hour flight before a long haul first class flight to the US on which I’ll be served caviar and Krug champagne, given pajamas, and will have more personal space than in any other current first class seat (that also turns into a bed).
I redeemed miles for this — 67,500 American AAdvantage miles for the one way. There’s no question I do well with my miles and they give me fantastic experiences.
- I’ve been able to see the world.
- I’ve been able to experience new things, new tastes, new cultures
- I’ve been able to travel in a style that would have been out of reach, for years while just working for a non-profit.
I never even imagined that my life would shrink the globe, that it would be as rich and textured as it has been, and that I could travel so frequently and comfortably without spending relatively that much money.
Miles are a rigged game.
Airlines only give you a limited number of seats that they want you to have. They get to decide which flights on which days. Most airlines no longer have blackout days but in some ways blackout dates were more transparent — you knew when your miles wouldn’t be useful, no false expectations.
Now they tell you which flight at what time in what class of service and with how many connections.
You used to be able to just buy out of capacity controls using double miles — or less. When I flew business class to Australia in 2000 it cost me 90,000 miles roundtrip on United. That price held until October 2006. At the time it was just 150,000 miles roundtrip for a ‘standard’ (last seat availability for all members — any seat for sale on any flight could be had for 150,000 miles roundtrip in business class).
Now roughly speaking standard pricing for last seat availability is 3 times the miles of a saver award — or more. And some airlines, like United, do not even make last seat available at that exorbitant price to all members (to get last seat availability you either need to be an elite or hold their co-brand credit card).
The value of miles is a con — an illusion
Airlines change the value of their miles whenever they wish, often with no notice whatsoever. Delta has increased the prices on their award chart twice in the past year with no notice whatsoever. US Airways tweaked theirs last month with no notice as well. (And that’s before they even announced going revenue-based.) American gave no notice when it made changes to the structure of its Anytime awards and to the types of awards on offer.
Up until the beginning of 2002, Alaska Airlines offered domestic upgrades at 5000 miles. Those weren’t capacity controlled, they came out of revenue inventory. Unquestionably that wasn’t sustainable as they printed more miles and also started flying more cross country flights. Now a mileage upgrade costs three times as much and has a minimum fare class requirement. They’re charging substantially more and not giving more.
When I started flying United in the mid- to late-1990s a domestic mileage upgrade confirmed at booking was 10,000 miles. Most of the time you would earn a class of service bonus for the miles flown, because United’s IT didn’t properly distinguish between upgrades and revenue tickets.
In late 2002 United increased this price to 15,000 miles — a 50% jump — and it occurred to me that paying cash and 30,000 miles roundtrip probably wasn’t better than just snagging an award for 40,000 miles roundtrip. So if I didn’t need the miles for elite status, it made relative sense to burn miles for domestic first class.
Now the mileage upgrade can be twice the miles as a dozen years ago and there’s a cash co-pay on top if you are not a MileagePlus elite member.
And what do you get for this big increase in cash and miles? Less than you used to.
United used to fly widebodies hub-to-hub with great frequency. I’d take the afternoon 747 between Washington Dulles and Los Angeles. Or I’d take an internationally-configured 777. Meals were served in courses. My first upgrade netted me a shrimp appetizer dusted with almonds I believe, followed by a steak, and then dessert. That was lunch. And it was for business — not first — class.
Full (double miles) awards used to get you economy plus on United, and also let you avoid change fees. They were effectively full fare tickets.
Sure, international premium cabin seats have gotten better so you can get a better product at the same time you’re spending more miles. But most members don’t spend their miles that way. It’s just another example of how mileage programs are getting better (if you consider having to spend more miles getting better) for only a small portion of members.
Miles are easier to earn than they used to be, but it takes more miles to redeem than it used to be. Sometimes you get less in exchange. And miles are harder to use.
You have to save up miles, for many people over quite some time, in order to have enough points for an award. But like Lucy, Charlie Brown, and the football — that savings in the past is no guarantee that the football is going to be there when you get close. An airline can pull it away at the last second. And just like Charlie Brown, each time they do it we keep coming back for more.
Getting Taken to the Cleaners? Airline Broke Its Promises? You can’t sue
Terms and conditions say, for the most part, that US airlines can change the rules whenever they wish and with no notice. They can pretty much do what they wish. (This isn’t universally true for non-US programs.)
And the Supreme Court has ruled that pretty much the only agreement between you and the program is that adhesion contract. If you want to sue, it has to be under the terms spelled out in that contract. No state contract law enforcing a principle of fair dealing can be made to apply to a frequent flyer program, because the Airline Deregulation Act says that states can’t regulate the airlines. The Court has rules that an implied covenant of good faith imposed by a state as a duty in contracting would be precisely the kind of state regulation that the Deregulation Act pre-empts.
Now, I think that the Supreme Court is wrong with respect to modern frequent flyer programs. They’re basically marketing firms which buy airline distressed inventory at a deep discount. They aren’t themselves a part of the airline. And they aren’t even really in the airline business. Miles are earned for online shopping, hotel stays, rental cars, credit card purchases, investing, and myriad other activities. Miles are redeemed for toasters, cars, electronics, fashion accessories. The mere fact that an airline owns a separate non-travel business doesn’t exempt that business from normal state laws governing its conduct. I think the Supreme Court’s ruling will eventually be amended when a case is brought by someone who earned and redeemed their miles largely in the non-flight space.
But until then, we have almost no legal recourse. We are at their mercy, and must take only what is given not what is fair or just.
You May Need to Actually Pay a Consultant Just to Help You Get What’s Been Promised to You
In any reasonable world you should be able to go to your mileage program’s website, type in where you’re starting from and where you want to go, and see the available flights and the cost of each.
Instead, Delta and American offer very few of their partners online. Most members believe that the results presented to them online are what’s available, when that’s clearly not the case.
United has taken steps to take away some of the online functionality to see award seats. Not only won’t you find Brussels Airlines or LOT, for instance, at United.com but they used to allow you to see Singapore Airlines space and made a business decision no longer to do so.
All but the savviest consumers find themselves at a severe disadvantage, in a confusing world of partners, where not only website but poorly trained agents may not know an airline’s partners or how to book those seats.
The programs have become so convoluted, and with such consumer unfriendly technology, that many people offer services to help navigate the terrain. (Full disclosure: I offer an award booking service.)
That shouldn’t be necessary.
Revenue-based isn’t the answer.
At a half cent a point or even penny a point in value, it makes no sense to accumulate miles through non-flight activity. You’d get a 2% cash back card instead of an airline card earning 1 mile per dollar — or even 2 miles per dollar on all spend (because 2% cash is better than 2% restricted towards use on airfare). You wouldn’t go through a mileage shopping portal, you’d go through a cash back portal for your online purchases.
And these sales to banks and other partners are too darned lucrative to the airlines, totaling in the billions of dollars. And they provide too little value to consumers, failing to offer the leverage and access to dream trips that have made mileage programs the most successful marketing vehicles in history.
Revenue-based may give you access to every seat but it won’t do it at a price that makes collecting miles that are profitable to airlines worth it to you. And it won’t, in its purest form, let you leverage the value of your miles to get an outsized return.
What path forward?
There are legitimate reasons for programs to make changes. For instance,
- Programs offer benefits that are little used but expensive to maintain. They need to allocate their marketing budget better to benefit most members as much as possible.
- Cost to fulfill awards rise, with planes full it costs more to acquire limited inventory.
Just as prices can rise in dollars they can rise in miles. But with dollars we have a Federal Reserve charged with currency stability and can vote out poor policymakers, no matter how flawed democracy. You can’t vote out Tom O’toole or Jeff Robertson or Suzanne Rubin if you’re a dissatisfied member.
And if you believe your program is performing badly, it isn’t like money where you can take refuge in another (foreign) currency. You can’t sell your Delta or American miles, that’s against the terms of the program. Your only option is to consume all your miles quickly (wasting them perhaps) or eat the coming devaluation.
As a result miles are very different from a currency where inflation occurs. You have no meaningful exit option (Points.com doesn’t count). You have no institutional (Fed) or democratic (elections) check on inflation. That’s why it is incumbent on programs not to abuse their power which was just reinforced by the Supreme Court.
I’m waiting for a program to credibly commit not to make material changes without notice. That would be a trustworthy program. That would earn my business and would be a program that I would evangelize for.
A credible commitment would be a clear statement in their terms and conditions, not trumped by exit language, that members could seek to enforce.
If They Game is Rigged, Should We Still Play?
It’s fair to say that mileage programs are far from perfect. My evil twin Gerald has some real points in his favor. But I’ll keep collecting miles, redeeming them to travel around the world, even knowing that the game is rigged — the well-run mileage program always wins. At least in the long run.
That’s why I try to earn miles and then spend them in roughly the same period, or at least under the same award chart. I’ll get the most value out of them that way, and I won’t be undercut by award chart inflation.
And when I acquire miles I’ll try to do it as cheaply as possible. When miles are costing me less than a penny apiece I know I’m likely to make out ok even under reasonably likely devaluation scenarios. I won’t get hurt.
A very different story from a world where program heads are working hard to deliver the most value they can for their members — a story they really do tell themselves, by the way. The romantic part of me wants to trust, but you can’t play this game for as many years as I have without also developing a cynical streak. And the cynic wants a credible commitment. The airlines need to move first.
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