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In response to United’s devaluation of how they price awards, several readers want to know what can be done, what I can do about it.
Curtis asked,
@Gary – Considering the impact of this change, are you going to use your status with the FF community to lobby up the chain in UA and see what can be done?
Paul says,
Gary, you should press back at UA. What do they have to say for themselves?
Writing the blog post is raising the issue, but that’s not why United would reverse course.
First, I’d argue that the Supreme Court went too far in Northwest v Ginsburg, leaving consumers with almost no avenue of redress against airlines who break promises about the future value of miles.
The airlines though have taken things too far believing that there’s no limit to what they can do to consumers. American specifically says they have no duty of good faith or fair dealing towards members. Delta has already shown they believe they have no such duty.
The Supreme Court said your only avenue of complaint, more or less, is the Department of Transportation and not the courts. And DOT says it’s been a mistake for them to ignore frequent flyer complaints.
Much more importantly airlines are running up against more fundamental issues with their ability to profitably devalue their programs.
Banks are the biggest buyers of airline miles 60% to two-thirds of miles are earned for things other than flying, with co-brand credit cards being the largest source of points. All of the big US airlines have new co-brand credit card deals. American Airlines expects to get an extra $800 million a year starting in 2018 from their new co-brand credit card deal with Citi and Barclaycard. That’s not $800 million a year, it’s $800 million more each year than before. Banks will soon be paying US airlines nearly $10 billion a year for their frequent flyer co-brand credit card agreements.
Credit card rewards programs are getting better. And competition is good. If miles are worth only a penny apiece towards airfare, it makes a whole lot more sense to get a 2% cash back card. Meanwhile travel cards are offering 1.25 cents per mile or 1.5 cents per mile.
Stroopwafels won’t save them
The very simple reason that airlines can’t devalue more than they already have without significant negative consequences for their business — and likely have already gone too far for their own good — is that turning even a small percentage of customers off from earning miles with a co-brand credit card means a big hit to their bottom line. If American, Delta, or United sees a 10% drop in co-brand credit card revenue, that’s $200 million. Per year.
Consumers have more and more valuable options, and the value of miles from these products is falling. So whatever savings they’ll reap from devaluations will be dwarfed by their loss in frequent flyer revenue from banks over the next several years.
Does this mean that you will be pushing the 2% cash back cards more strongly in the future? Hard to devalue cash like we have seen on the airline mileage side over the years.
And FYI the latest united ‘devaluation’ had little impact on me. So far. As I rarely had to manually create itineraries – most of mine have been simple round trips that so far price at the same amount.
@Freqflyer On the contrary, cash can “devalue” easily if the airlines charge more for tickets, and we all know ticket prices are quite closely linked to oil prices. Do you think this record low oil price is going to last forever?
Obviously, I’m only talking about 1 side of the story, more specifically, air travel, you do have more flexibility using the cash on something else, but you have to remember. Cash depreciates automatically due to inflation.
JOE do you seriously think airlines can devalue real money more easily than miles?? What world are you on? The dollar value is dependent on the economy of the nation and the world. The airline miles are dependent on… well, nothing, they do as they please.
If some airlines rise prices some others will have more clients with lower prices. See what is happening in Europe with the low cost carriers. And IF IF IF they all put stupidly high prices you can still use cash for… anything else! Try to do that with skypesos.
Something so serious and you had to include a referral, come on man…
Of course money can devalue. But very unlike the USD will see any level of devaluation as we have seen on some of the airline programs. Or availability issue (e.g. Flexibility and availability of saver awards) . Just a safer bet. Of course you generally can’t get the value of aspirational awards with cash (except with mistake fares) as you can with miles.
If you want to stop an airline from devaluing its miles, first complain to DOT…and then stop using their miles and stop flying that airline as much as possible. Only when enough people do that will an airline be force to consider changes. It’s that simple.
Of course, if not enough people act in concert with you, you’re screwed.
Bill,
That’s exactly right. I’m no million miler but I can tell you I was putting all of my flying on AA metal as much as possible, multiple trips to South America each year, Asia here, Australia there. But since the devaluation all my South America trips have been on LATAM, Qantas, as much as possible crediting them to AS.
Relatively small fish here but I hope they notice
Gary is right on the money (pun intended).
In fact – as far as American goes – If customer apathy toward the program results in the growth in mileage sales slowing by a mere 1.26% — the entire savings from recent program changes will be wiped out.
I’ve stopped using my co-branded AA and United cards this past year. Been going with Barclaycard and AmEx.
I think all 3 will continue to devalue as long as they’re filling planes. As soon as plane seats aren’t full again they’ll want to entice us to use our miles. The credit card deals provide great revenue for the airlines but they’re making more $$ nickel and diming us customers by stripping away basic amenities and moving towards a basic enomony fare structure.
The airlines have already gone too far. I flew RT Clt-Syd last summer and received about 8,000 miles for a 20,000 mile trip. Further, I want to book a simple flight months ahead from CLT to JFK. They will give me all kinds of crazy routings for 12.5k each way, but forget about doing it on one of the many non stops.
I have already scaled back my business with AA, the dominate airline in CLT. I now will take the cheapest fare. I have cashed in most of my miles for a Thanksgiving trip to Mexico. Next year’s flight to Asia has already been booked on SQ… premium economy. Refundable, changeable, cheap (1150) and I get 110 % of the miles! Thanks to Chase SPR I got 300$ off and can use the lounges.
The mileage game has been ruined by the cc churners. But I will do the best I can. No more loyalty.
>>>The mileage game has been ruined by the cc churners. But I will do the best I can. No more loyalty.<<<
You aren't "just whistling Dixie" with that point. All the FF programs have been flooded with miles. The programs probably have double the number of miles in members' accounts than what the airlines could ever redeem.
The credit card game seemed great at first: the airline made income but didn't provide tickets because few people had built up enough miles to redeem. Now the system is to the point that hordes of CC churners want their free tickets, and the airlines cannot afford to take that many seats away from revenue paying customers.
Will the airlines start charging the banks more, to try and slow down the miles game? I doubt it. I expect more offers to redeem miles for a new camera (yuck) and fewer options to redeem for actual flights.
This year I have been emptying my AA and Delta miles. UA next. I don’t intend to buy another ticket from them. Will only fly with them when I transfer miles from my credit cards and that will only happen if they have a good award seat. Will consolidate all my domestic travel with jetblue in the foreseeable future.
Devaluation can continue forever. The airlines merely need to change the credit card earning rate to 1.5 miles per dollar, then 2, then 3, then 5. As many as it takes for devalued miles to compete with cash rebates.
Gary, you have finally it upon the huge dilemma that the airlines have with miles. It really is a problem. The mileage programs are huge revenue streams, which for 30 years never had the demand for free seats like the demand that exists now. It really is a balancing act and not one of the major carriers realizes that it won’t take much to alienate frequent fliers. Everyone in the airline business looks at credit card miles as being the lifesaver of airlines. But in the end, the all those sign up bonuses are going to kill loyalty. BIS customers are loyal, customers earning miles from credit cards are not loyal and never were. I only really save the UR, TY, and MA from the 3 major card issuers and let them sit, until I plan something. Domestically I usually fly Delta as United and AA are such disasters to fly. Having millions of free agents will hurt the airlines as well. Devaluing will hurt them and the airlines are clueless as to what is happening.
I cut up my AA credit card & no longer retain exp status. I also have cancelled my United card. AA’s lack of availability on their own metal is nearly fraud. I currently fly the carrier that goes direct to where I want to go. Ignoring loyalty saves me tons of time 🙂
Today – I have a chase Reserve, Citi Prestige, and Amex Plat in my wallet.
The average Joe that has airline credit card uses the 25000miles that he earns in the year for a FREE $200 airline ticket. It is very profitable for the airlines as well as credit card companies.
For me most of the times it does not pay to use my Chase Sapphire reserve or Citi Prestige, I travel on economy so miles for me is always worth less than $0.02 which my Capital One Venture gives me, the only exception is the categories like travel, dining etc that has double or triple miles.
@JohnB – most credit card-generated miles do not come from signup bonuses
Gary I think it would be great if you and some of the other bloggers organize a one day protest to show our clout and displeasure. If no one flew united the same day i think united would get the message and it might discourage aa etc from folliwing suit. Just a thought.
We know from Darwin that complicating the redemption process may cull the herd over time. Eventually first-class will be filled with folks on award flights. They’ll be the ones using an ink pen to finish the New York Times Saturday crossword puzzle, while sharing amusing stories about bowling with Alex Trebek.
I wonder what percentage of flyers could fall into the travel hackers category . Those of us who read Gary and other blogs may not be of great enough numbers to wield much influence . Or .. maybe if we ALL moved our patronage away from the big three they would eventually notice .
The chances of a concerted effort seems remote .
It would be fun to make them cry ‘Uncle ‘
I am tempted to suggest starting with Delta since they are the real bastards (aren’t they ?) . It might work better to seek concessions from the financially weakest however , which might be United .
As our reservations are used up , let’s increasingly give our business to alternate airlines
There may also be some influence brought to bear with the co brand credit card companies . ” Hey . why am I getting such a rotten deal after I signed up for your Delta Gold Card ? “
We have been hearing that things will change since around 2011-2012. As Max said AA’s lack of availability on their own metal is nearly fraud. Living in Dallas I now just hunt for low fares. Often can get DFW-MIA or DFW -FLL for under $150.