Mike FriedmanPoints and miles currency, something to ponder. I got an email from Delta this morning telling me about a partnership that they are launching with Ticketmaster. Between now and August 31, they’ll give you three Delta miles for every ticket that you buy, with the number dropping to one mile per dollar spent at Ticketmaster after that.
These partnerships are not unusual. Forget partnerships with restaurants or survey companies. I’ve seen promotions that give you miles for everything from test driving a Cadillac to buying crates of pudding.
Buying, Redeeming And Everything Else
When frequent flyer miles first came into existence many moons ago, the airlines assumed they would be a nice little add-on. They wouldn’t have considered thought of selling them as incentives to restaurants, banks or anyone else. Earning billions of dollars from partnerships? Ludicrous.
But that’s what they have done. Miles are now high-margin products to sell whose value the airlines control, since they’re the ones who determine how many miles a ticket costs. And now, the airlines have sold so many miles that they’ve come up with all kinds of other opportunities to use them. Check out this page from the Delta Airlines 2016 Investor Day Presentation:
Yup, they’ve come up with “solutions” to let you use miles to pay for a ticket outright, with SkyMiles worth a penny each. And while Delta has led the charge on different outlets for miles, the other airlines have followed.
Here’s What To Watch Out For… – Points and Miles Currency
Of course, points and miles aren’t about being nice. They’re about getting you to buy their products. The public’s obsession with them is why they’ve become a universal currency, to be earned or used at any number of merchants. But, like fiat currency, miles come with their own Econ 101. The problems are particularly acute with airlines, who have been more guilty of flooding the market with points than hotels. Here are some points and miles currency issues to watch out for:
According to American Airlines’ 2018 annual report, the company generated an estimated $3.2 billion in loyalty revenue, while redeeming over 13 million miles, which represented 7.6% of the passenger miles that they flew.
Inflation – Points and Miles Currency
I use our Eight Rules Of Points And Miles as a guide for playing the travel game well, and Rule #4 (Don’t hoard points.) is the one that I see getting broken most often, including in my own house. Why? Because miles are collectibles and we’re used to a bigger number being better than a smaller number.
$3.2 billion in Loyalty Revenue
The problem is, airlines have made so much money selling miles that they have become a crutch. For example, according to American Airlines’ 2018 annual report, the company generated an estimated $3.2 billion in loyalty revenue, while redeeming over 13 million miles, which represented 7.6% of the passenger miles that they flew.
When you sell and redeem that many miles, either the supply or the demand has to adjust. And since airlines are only growing a couple of percent per year, the only way to drive demand is to raise the price. You used to be able to get a round-trip domestic ticket for 20,000 miles. Good luck with that now. We have high-season, low-season, fixed pricing, variable pricing, and about a million other ways of determining redemption prices. Figuring out if you are getting a good deal now takes an advance degree in calculus.
Some Redemptions Offer Better Value Than Others
Hotels, airlines and other point providers have given out so many points that they couldn’t possibly redeem them all. They’d go out of business. So now, you have other options for your points, including converting them to another currency, just as if you were converting dollars to euros.
There’s a problem, though: Just as a third party takes a fraction in the currency conversion, you’ll also lose a bit of value if you transfer 10,000 Marriott points into American miles, you’ll only receive 3,333 miles. In other words, you’re trading approximately $600 of value in Marriott points for only about $500 of American miles. That’s obviously not a great deal. It’s not the worst return in the world if you have points that you are never going to use, it’s an option.
The Final Points
Enjoy your points and miles currency and make the most of it. After all, if you’re going to shop at Ticketmaster, you might as well pick up a few miles while doing so. But remember that the value of your points is only as solid as the system that issues them.
