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.
Nonetheless…
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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Yawn
I’m going to add to your list of negative, all of which were given me by a good friend who prefers a “cash back card” and sneers at mileage earning.
1) Most people have jobs with very limited vacation time and trying to schedule available seats around available time–or vice versa–is all but impossible, especially for a family or couple.
2) Trying to figure out “the system ” takes far too much time that your average working person leading a rushed, stressed, and chaotic life just doesn’t have. Chasing down an available seat here and there is frustrating. Airlines make things elusive and confusing on purpose!
3) The amount of money spent needed to earn points is more than the average working person has available.
4) Credit card offers for points sound good in theory. However, it takes a lot of time and energy to manage all those credit cards, and again, free time is not something abundant among working Americans.
5)All those applications for credit cards really make a hit on one’s credit score, and who knows when one might need to take out a loan from the credit union, finance a new car, or buy a home?
6) Most people travel within the US to visit friends and family, on many occasions during holidays (when flights are not available). Also, many people don’t need to fly, especially if they need to drive less than a day to reach their destination.
6)And the idea of purchasing reload cards, money orders, opening new bank accounts….and then spending additional time and energy driving around…life is far too short for that craziness!
However, she admitted that the mileage game is great for retirees and those persons who have an (office) assistant to manage all these details for them.
The game is very difficult to be profitable unless you travel by yourself AND work kicks in at least 30% of your travel, or you never ever pay for a ticket and are willing to make it all on credit card spend in a business venture (including MS) with high volumes, and thus willing to accept triple redemption rates once in a while.
1) Finding two business class tickets on a particular US-Europe flight is more than twice as difficult as finding one; I know there have been several times where I got the last J or F seat at 3-5 months out.
2) Earning some miles at $0.00 cost makes earning more miles on your own at $0.03 a lot more palatable. Plus if you’re trying to retain status, at some point you have to buy the seats. That’s the real reason why upgrade costs have gone up to almost the cost of an award.
3) The hotel game isn’t nearly as bad, even with the devaluations. There are programs such as IHG where it’s easy enough to acquire points at $0.03 with just a little bit of business travel mixed in with mattress running.
I think you hit the nail on the head in the non-tongue-in-cheek part of the post:
“Some might even say that there’s a cross-subsidy or redistribution from the passive miles collector to the attentive hobbyist.”
You write for the attentive hobbyist and you and they feel the mileage game is a great thing.
Those on the redistributed-from side of the equation, and those who write for *them* reasonably feel otherwise.
awesome post. more please
Hilarious, I guess. IMO, FF programs are a PITA, yet modestly profitable programs for most airlines. They operate them because they have to, to remain competitive, yet probably wish that such programs were not necessary. I also believe that they are nearly impossible to navigate effectively buy all but the most experienced hobby fan, as evidenced by bloggers and readers of sites like this. Amusing reading at time, to be sure and often valuable information. Sadly, this collection of blogs seems to have migrated over time from reporting the finer points of Frequent Flyer programs to marketing credit cards and other plastic money products. Of course, with so many bonus miles and points in play during the experts’ annual churn, some mention is necessary. I must say that it has gotten out of hand and become the principal focus of Boarding Area. Some blogs still post great trip reviews and relevant travel tips; I enjoy reading some of those. Others have become almost exclusively credit card marketing portals and yes, I SKIP those.
Please note that this brief rant is NOT directed toward VFTW, but to ALL BA’s participating bloggers. IMO, a number of you guys and gals have lost your focus.
I think Brussels space IS on united.com?
I agree with Gary on many points, and the same with kimmiea who makes valid points. I have flexibility of when I travel and try to go as off peak as possible to popular tourist cities and attractions. I have some cashback cards and some mileage/points cards. Having no kids means I can go on short notice to Europe or something (although I usually plan these longer out) For me premium class at least once per year for vacation makes this worth it for me. Everyone is different. I think the public at large could score a nice vacation here and there with a little card strategy. A friend told me this week that he has been traveling for years worldwide and more than likely has ZERO miles to account for it. He doent reemeber signing up for any program or crediting miles/points. For business he has traveled to Europe and throughout the US as well. I am trying to help him possibly get some mileage credit for those airlines he can show proof and some card strategy to t least get hi a few tix etc. To a certain degree I should be happy some people cant try or don’t try for the premium international seats. That may guarantee some availability, again with flexibility.
@No Fly Zone
Your assumptions about “modestly profitable” and everything else around that premise have been addressed in this blog and others and is incorrect.
The point about revenue-based frequent flyer model undermining the credit card/bank partnerships is very interesting. Either these banks will need to come up with more lucrative ways to provide the miles or offer cashback cards and just throttle down their mileage partnerships.
No Fly Zone. American Aadvantage is a Very successful program. I am sure far more profitable Or at least profit margin, than the airline itself. If the airlines destroy these programs they lose all customer loyalty and the money they make on the airline credit cards. American Express has huge blowback right now on the Delta cards. Read the Card review of the Delta cards on
the amex website. Customers have taken note of the changes
Time and energy to manage card accounts for me is minimal. I run a business and have far more cards/accounts than most. With the internet and auto pays it is not difficult at all.
Per credit scores. I have very high scores and have no problem whatsoever getting top tier rates on my car leases etc. Credit score hits for the most part a complete myth. With some common sense this is a non factor. What I find is that people will drive all over town to save 5 cents on gas but wont pick up the phone to cancel a credit card with annual feee (75.00) when the card company more than likely will waive that fee. Are people that busy?
Living in France with no access to huge sign up bonuses or manufactured spending, there is little appeal for my friends to join FF programs unless they do a lot of business travel. There are no cashback credit cards either, so travel usually comes down to price or quality instead. In return we have much more vacation time and can just hop around europe for the weekend…
@kowla – it has been there in the past
Yeah, the FF programs are not worth it for all the reasons mentioned above. Sure they are worth it for the real road warriors, but for the majority, they are a scam.
There is another reason: the large number of miles required for an award means most people always leave a lot of miles on the table. E.g.- it takes someone two years to earn 30000 miles. They use 25000 on a ticket. The remaining 5000 are worthless because by the time they earn enough miles to buy another ticket, there will have been another devaluation.
The airlines are now completely beholden to the CC companies, and the deluge of miles has not led to more award seats, it has led to more devaluations. AAdvantage told CNBC they only expect 1/3rd of AA miles to ever be redeemed.
With the hotels, the points are essentially a coupon. I simply figure the points are like a 10% discount on the room. However, I can usually get a better discount by using Priceline instead, so I’ll happily forego those points.
Nope. For the majority of readers, a cash back card is going to be a better value.
Very timely post for me. I’m writing from the Giotto lounge at FCO waiting for my nonstop to LA in business after spending a week on the Amalfi Coast, where I actually had to pay “cash” for many things (albeit heavily subsidized by my friends at Barclays, Amex, CVS, Incomm and Walmart). Sitting in my suite at the St Regis in Rome this morning, I told my wife how I’m being taken by these airline and hotel programs. I have vowed to give up on the whole thing…but not until after my First Class family vacation to Thailand in August.
I feel ravished by the duplicitous airlines. ( Family of 4 going to hawaii on low level awards next month)
Following up on my earlier point, there isn’t one travel currency which I value at more than the 2% cash back I get from William Shatner and Barclays, and certainly not the 4.75% cash back I get back from Citi for restaurants or 5% for Chase for gasoline. I used to value SPG a little higher that 2% because of their flexibility, but their devaluations and my own diversification of airline miles has rendered that moot and now I just collect enough for my one Cat 2 stay per year with friends.
I also set a threshold for each program where I decrease the marginal value of the points above that point. For example, I value AA at $0.0175 for the first 270k, but at just $0.012 after that because by the time I have enough vacation time to get two trips to Asia in CX F, the remaining points will devalue by at least 30%.
Right now, I’m above my threshold for three airline programs and four hotel programs. So I’m burning aggressively, and after finishing up my one card bonus for the year next month will be switching back to 2%/5% cash back for a while for my card spending, and burning for everything except what I need to purchase revenue tickets/hotels for status in my primary airline and hotel program.
Great and timely post. Last year, I spent ~ $100K on all my cards including MS. On a 2% card (even if you bump it to 2.5% with some category bonuses) that would be $2,500 back. But because that $100K was spent wisely across a number of point/miles earning cards with sign-up bonuses, I earned (yes there were some annual fee cards) over 1.5M points and miles. Enough to “pay” for my two big trips to Asia this year. It is a personal choice but the miles/points still provide more “value” to me than the $2,500 cash.
I have two evaluations for my miles and points decisions – an “acquisition value” – at what price point would I be willing to exchange cash for them; and a “use value”- the value at which I would spend them rather than cash. The gap between the two values is rather large. For most programs the acquisition value is less than a penny, because I can get what I need in other ways, so why spend more? For some programs the use value is two cents or higher, because there are plenty of good redemptions for which I can get at least that, so why give them up more cheaply?
Obviously for anyone the acquisition value and use value vary depending on how easily they can acquire points on the one hand, and how quickly and on what products they prefer to burn them. And the spread will vary considerably too from person to person and time to time – acquisition value, for example, goes way up when you need to redeem for a specific reward, way down when you have a couple of million points on hand.
When I saw the title I thought you had invited Elliott to do a guest column, but it turned out pretty interesting as a thought experiment.
@DaveS, yes, re: the 2 different values, i.e “acquisition value” and “use value”. For those of us consumers who are FF hobbyists/commandos, we see the values for what they are: points for travel.
However, most people who accrue points won’t make the effort to amass an amount worthy of “use value” for travel. The average person may have several credit cards loaded with high debt, but without manufactured spend (MS) and carefully calculated bonuses, an actual acquisition value–meaning, how many $$ the person actually charged –may amount to only $15K or $20K–not a number that’s going to generate a lot of enthusiasm.
I’ve spoken with a lot of friends and family, at length and ad nauseum, about FF points and travel. They understand the concept, they know how to earn the points, they like to travel. But the (perceived) amount of time and energy required to make those points into something special–turning a single domestic coach award tix into two J class seats for a dream trip to Europe–is simply, “too much work”.
Which brings us back to acquisition value: as my retired father pointed out, it takes about 1-2 hours every week for me to manage my accounts for optimum FF point accrual. This includes such things as shopping through portals to arrange for local store pickup, opening and closing accounts, purchasing money orders/VR/Bluebird cards….
“All that expended energy, just to spend 10 hours in a better airplane seat, simply isn’t worth it, ” my dad concluded. “I’d rather spend my money on coach tickets, endure the uncomfortable ride with a couple of drinks, and use my points for gift cards to give as Christmas gifts.”
And there I think you have the sentiment of the majority of average Americans.
@kimmiea Ihave heard all the gripes you do, and I believe they are valid. When I was retired/semi-retired, and there was still a lot of low-hanging fruit, it was fine to chase miles. But now miles and points have so little value, and less flexibility, that it doesn’t make much sense, since I find it much easier to just go out there and participate in activities that pay in good old-fashioned cash. At the end of the day, there is no law that you can never accept work again just because you were once retired…Some people apparently are completely focused on credit card/rewards/promotional ways to earn the extra they need for travel. But if my experience is any guide, many of those people would make far more closing the book on miles-earning time-wasters and focusing on completely different opportunities.
As for those family members who have all the money they could ever need and still want to endure coach with the help of alcohol, well…what do you do? A million miles wouldn’t fix those people. They would still fly in coach and kid themselves that “one day” they’ll do something with the rest. Devaluation and/or expiration dates gets those miles. I’ve seen it happen and it’s sad…
Yeap…suffering a lot. Haven’t paid for an airline ticket since 1996….been a few years our family of 7 travels for free to the old country back in europe on vacation…Saving at least $11k per annual trip we take in mid-July sure is a bad deal and my bank account is hurting….
Let me get this straight. You are opening and closing card after card and getting hundreds of thousands of free miles and the trips that come along with them and complaining that you are required to pay a few more miles from you (free) stash for those trips?
Sounds like a ripoff.
TL;DR
Mile Cards vs Cashback
There is no reason to choose one approach over another.
1. Credit card miles and points sign up bonuses cannot be replicated by cashback cards. There are no good cashback cards with decent sign up bonuses.
2. Manufactured Spend (aside from meeting the spend) is better be done with cashback cards. There is no doubt in my mind about it.
I don’t know about anyone else, but I’m not going to stop my app-o-Ramas any time soon.
Miles and points can still make a lot of sense if we are willing to change our behavior. By changing behavior, I mean not getting terrified of flying in coach, sometimes.
I know, that’s very controvercial for folks who’d rather not go at all, than go in the back of the bus. Tougher times are ahead.
Airline devaluations have been sending us a subliminal message to stop using miles in first and business. In all these years, they have barely touched coach. Considering how badly and foolishly they try to outdo each other (flat-beds are not enough anymore, you gotta fly in a freaking apartment for 7 hours!), I kinda can appreciate their reluctance and lack of economic sense to give up those goodies for free.
Agree that it’s only going to get worse for “aspiration” enthusiasts. When AA (US) and BA devalue, that’s lights out for CX.
I understand that bona-fide business travelers might feel very bitter about it, but this is the reality. They want us to pay cash for those flatbeds and that caviar and what’s not.
“When AA (US) and BA devalue, that’s lights out for CX.”
Check out the JL program, it’s fantastic. 😉
@kimmea It is interesting that unless you drop something in their laps, most people claim lifting a finger is too much work. For everyone there are things they deem worth it, and not worth it. I have some excellent cash back cards and utilize them well. I also use some of the programs to create even greater value as have others here. I have always felt the idea of an airline credit card to generate points for tickets doesnt make sense exactly as mentioned paying annual fees, earning one ticket a year or every few years for the average person. The airline cards work for the sign up bonuses and an help some people with baggage fees. Also the person that saves the miles to now cash in on their ticket to Hawaii might find they need more points for the trip or not be able to use it when they want. That person is the one that thinks the whole thing is a scam.
I think we (the savvy frequent flyer “elite”) under-estimate how freakin’ complex and difficult it is to play the frequent flyer game. Honestly, I’m somewhat amazed that “ordinary folk” bother to play. That said, most of them seem happy enough when they can redeem double points to fly to Orlando on a Tuesday, so perhaps I need not worry about them.