Mike FriedmanPoints and Miles – Basics
Note: This post is going to be a bit longer than usual, but I hope that you’ll be able to use it as a resource and guide to points and miles.
It doesn’t matter whether you are just getting started in the points and miles game, or if you have been working the system for decades. It’s important to understand what’s out there and what works best for you.
For the novices: Loyalty programs are a relatively simple concept. You purchase something from a merchant and, in return, they give you a rebate or reward. They’re not doing it out of the goodness of their hearts, of course. These programs exist to influence your future purchases, not reward you for past ones. But hey, free is free.*
In our world, loyalty currency comes in several different forms, but here is a very general overview of the most common.
The Beginning – Frequent Flyer Miles
Frequent flyer miles are among the best-known loyalty (points and miles) schemes in existence. Launched shortly after airline deregulation in 1978, the first programs were user-friendly. Each time you flew, the airline counted the number of miles that you traveled and put them in your “bank.” Once you had accumulated a certain amount (generally around 20,000), you could redeem them for a free flight.
“A nice little extra” – Becomes Much More
The airlines had assumed that miles would be a nice little extra of only moderate consequence. They were wrong. Interest in miles exploded beyond their wildest imaginations, to the point where the frequent flyer programs became businesses in and of themselves. Airlines even began to sell miles to other companies, so that those merchants could give them out for their own loyalty programs.
Miles became so popular that inflation kicked in. There were simply more miles in existence than the carriers could ever afford to redeem. Airlines raised the amount required for free trips. They put limits on when you could use your miles. They established high and low seasons. Then, they raised prices again. Nothing seemed to slow down the consumers’ desire to earn the currency. And the airlines were happy to generate a profit by selling them.
Spend versus Distance – Miles Earning Changes
Over time, the airlines changed the way that they issued miles. Now, almost every carrier issues your miles based on how much you spend, not how far you flew. For years, the person who paid for an expensive, last-minute ticket had earned the same amount as the one who had bought an inexpensive fare six months ago. One of the key topics that we will explore in this forum is how to earn miles for the minimum amount of spending. They built a better mousetrap, so we’ll have to build a better mouse.
They’ve also changed the way that you redeem. Mileage prices are higher than they ever have before, and prices vary widely based on where you’re flying, when you’re flying and in what class of service you want to travel. One of the keys to maximizing mileage value is flexibility, but that doesn’t mean that you have to fly coach on a Tuesday to use them. But that’s a topic for another day…
Hotel Points – Earn While You Stay
Easy enough. Hotel points are the lodging version of the frequent flyer mile, and are a direct result of the popularity of the mileage programs. They operate similarly to how the airline programs do, although the various hotel programs are much more consistent with each other than the airlines are.
Earn from Spend
Since the airlines’ loyalty schemes came first, the hotels didn’t repeat the mistakes that the airlines made (That didn’t stop them from making entirely new ones, of course.). From day one, you always earned points on how much you spent, rather than a manufactured number. Because the lodging companies knew how much these programs were costing them, they were able to offer better availability at more consistent prices than their airline brethren.
Likewise, hotel points tend to be worth more than miles. Given the way that airline networks are set up, you likely only have a few choices of carriers for any given destination. Not so for hotels. Once you are in the city, you can choose your brand. They have to make it worth your while.
Hotel Points – Airline Mile Transfer Options
Hotel points are also easily transferrable into miles. Since frequent flyer miles are often seen as the “base” currency, the hotel companies want to make it as easy as possible to use the programs. Note: There’s a penalty for exchanging points into miles. One hotel point is worth far more if you use it at the hotel, rather than exchange it. They’d much rather that you use the currency “in-house.”
Proprietary Bank Points – A Points Currency
Most credit cards have their own rewards programs linked to some of their cards. For example, you may have heard of Citibank ThankYou points, American Express Membership Rewards or Discover It Miles, among others. These points are actually among the most valuable and, in a future post, I’m going to attempt to convince you why.
Why “A Points Currency?”
Banks who offer credit cards started their own rewards systems because they got tired of buying miles and points from other merchants. If Citibank is buying miles from American, for example, that’s a bit of profit for American and a bit of cost to Citi. It also means that they can’t offer the consumer as much value. Therefore, they decided to create their own currency. Of course, the option still exists to exchange into hotel point or miles, and one of the advantages is that you often have your choice of which travel program to transfer them into. For example, a Citibank AAdvantage card only gets you American miles, whereas general Citibank ThankYou points can go to one of 15 different airlines (and, for some reason, Sears Shop Your Way points).
Points Currency – “Advantage Play”
The “advantage play” is if you use your points as a statement credit or to book travel through the bank’s travel links. Because it doesn’t involve an outlay to another company, they’ll often give you a bonus to do so.
The flexibility and value of proprietary bank points make them highly useful, and they’re among the most valuable to earn.
Other Rewards (Points and Miles) Programs
Everybody from AMC Theaters to Zappos seems to have a rewards program these days. It has almost become mandatory in a world of keeping up with the Joneses. We won’t be spending as much time on those, but it’s still worth it to sign up for those programs when you use them. The worst case scenario is that you wasted two minutes signing up, while the best case is that you pick up discounted or free products. Remember Rule #1 of points and miles:
Always sign up for every free program, no matter how infrequently you use it. You never know when it will come in handy for you.
Worried about spam? Don’t be. Just create an alternative email address that you use only for rewards programs. You can check it as (in)frequently as you like.
Next post? A very general overview of the four major US airline points and miles programs.
*One of the most common questions that we get on our individual blogs is whether miles are taxable. The answer is almost always no. Currently, the IRS views miles and points as a rebate, not earned income. But please remember: We are not accountants. Consult with your tax advisor for any questions you have regarding tax questions. If your plan is to rely on advice that you read at a travel forum on the internet, it’s probably time to find a new plan.
