If you think it’s a challenge trying to spend down points — and get the best value — there’s a reason for that.
The price of loyalty is on the rise.
Just last week, Delta Airlines became the largest carrier to switch to a frequent flyer programme that issues points primarily based on ticket price, not distance flown. Similar programmes are used most prominently in the United States by Southwest Airlines and JetBlue Airlines.
While such schemes have mainly been implemented by newer airlines and hotel networks around the world, Delta’s move is just another signal that the cheaper, ‘saver’ rewards — those more accessible to most of us — are moving further out of reach. And they may not continue for much longer.
“When you look beyond airlines, spend-based programmes are the industry standard,” said Tim Winship, editor and publisher of FrequentFlier.com.
Delta’s move should prompt even casual members of loyalty programmes to reconsider how they react to incentives and rewards that seem to regularly decline in value. Unlike cash at the bank, which at least has the chance to earn some interest, earned miles are only worth less over time.
And the decline of the “mile” as a valuable currency has been in the offing for several years. For frequent flyers, even miles have become icing on top of the more valuable tiered membership cake, where levels of service are earned annually for flight distance and frequency. Even some of those hard-earned benefits — access to a passenger lounge, expedited through security, even more points — can be paid for and often are for sale in advance or at check-in.
Indeed, over the last few years, as airlines have consolidated and maximized capacity through a combination of changing flight schedules and cutting departures, they’ve been shifting their reward programmes to favour customers who are necessarily more loyal to the company’s bottom line: those who spend the most on tickets.
To some extent, rising reward rates are a consequence of loyalty’s ubiquity and ease of implementation. The first airline miles programme, was launched by American Airlines in 1981. It was a triumph of technology and competition. Now, points and miles themselves are a meta-currency, typified by aeroplan, the Canadian multi-participant programme spun out of Air Canada, or Membership Rewards, from American Express. Crucially these are available to be spent on almost anything, even New York City cabs.
But unlike most currencies, for which value is modulated by market factors, loyalty programmes are controlled purely by marketing factors.
Taking the global temperature of frequent flyer programmes, however, is tricky. The International Air Transport Association does not track them, and public reporting companies only offer glimpses into their balances and use in annual reports. As of 2012, according to an IATA report, there were at least 130 airline loyalty programmes globally with more than 150 million members.
Credit card companies, banks and other partners send billions of dollars annually to airlines and hotels, buying points wholesale to entice brand-loyalists to open a new brokerage account (Get 25,000 miles when you deposit $10,000!) or charge up a storm (20 bonus miles per dollar spent on Valentine’s Day!). Our once meagre points balance supercharge on the backs of bananas and dry cleaning. But when we’ve finally accumulated enough miles for a ‘free’ flight, those ‘saver’ awards are long gone or only available to remote locations, in the off-season, or at 5 AM.
At the same time, the truly frequent fliers are separating from the rest of us and getting the best end of the deal. Many airlines operate tiered programmes that reward status and benefits for miles and flights flown in a given year. It’s telling that this is the part of its SkyMiles program that Delta isn’t changing.
Show them the money
The reason is probably obvious. Money.
Southwest Airlines, the archetype for the customer-friendly skies, couldn’t describe the motivation of its Rapid Rewards scheme more plainly: [the] program has been designed to drive more revenue, the company says in a regulatory filing. And its enumerated three-pronged approach is typical (and logical) for almost all loyalty schemes these days: to bring in more members and credit card customers, increase business from current participants, and build partnerships with hotels, rental cars, retail stores and more.
It’s paying off, but not necessarily for you.
If you think it’s a challenge trying to spend down points — and get the best value — there’s a reason for that. Because it is. While you’re accumulating and planning for a points splurge, the airlines and hotels are very focused on eliminating your balance in the most efficient and profitable way (for them) possible. That’s because, like debt and other bills, customer miles and pre-sold points sit on company balance sheets as a liability yet to be paid.
But unlike most liabilities owed to third parties and with legal obligations to repay, miles value and program rules can be nullified or changed at a moment’s notice. Many reward points programmes now expire if not used or the account is dormant for 18 months. As holders of points, we have very little say. And Delta’s shift could simply be a precursor to more to come, according to FrequentFlier.com’s Winship, as American Airlines and US Airways continue their merger integration, and Delta’s shift is assessed by its global Skyteam partners.
“These programmes have become so tightly integrated with airline operations, that it’s very expensive to re-architect and almost amounts to an organizational redesign,” says Winship. “It took Delta three years.”
So, while you are waiting for the rest of the airlines to catch up (and they will), don’t sit on your accumulated miles. Use them for flights, products or day trips and experiences that have real value for you. Be creative. Don’t let them age.
Or be prepared to watch what little value they once had wither away with the coming change in programmes.
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