In a previous newsletter we highlighted 5 Things NOT TO DO with your Credit Card Miles & Points and included the aspect of not holding on to your credit card miles for too long. Before we explain why you shouldn’t do this, it’s important to understand the relationship between airline miles and credit card points. Equally important is understanding the rewards industry is becoming increasingly more competitive, bringing with it new opportunities to make money and travel the world (whatever your preference for earning miles and points) but also bringing with it new challenges as well.
We will first explain the relationship between the credit card points like American Express, and Airline Miles like American Airlines Advantage Miles, and the association between the two.
The airlines offer frequent flyers the opportunity to earn miles based on the number of miles flown or the price of the airline ticket. They also sell these miles to partners like credit card companies, e-commerce sites, florists and rental car companies among others. Credit card companies in turn, buy these miles from the airlines so that they can incentivize the public to use their specific credit card. And as we know, credit card companies make money by charging vendors a percentage of every sale. Why this is relevant is understanding that the airlines who sell miles are also the ones who control how the public uses their miles (and in turn how many credit card points are needed for tickets), which makes the rewards industry a very profitable enterprise for them.
Imagine if you were in the manufacturing business and your product was manufacturing shoes, and not only do you manufacture shoes and sell them to retail shoe vendors (in our example airlines selling miles to the credit card companies) and individuals (in our example frequent flyers) but as part of your terms and conditions when selling your shoes, you leave yourself the ability to determine what and when they could be used for. And that if later down the road you decide you hadn’t made enough money when you sold the shoes originally, you can change the price of the shoes so that it affects people retroactively, (in our case, changing how many miles are required for a certain tickets, after people have already accrued those miles).
If this isn’t a sweet business model, we don’t know what is.
In fact, a study by IdeaWorks, a company that analyzes the airline industry, estimates that more than %55 of airlines revenues results from the sale of frequent flyer miles. So the airlines make the bulk of their money just from selling the miles and make even more money by restricting how they can be used, including limiting how many seats can be purchased with miles, leaving themselves blackout dates for using miles, and charging fees for mileage tickets. Additionally, what this means for the consumer is that since it’s in the best interest for the airlines to control and limit the value value frequent flyer holders receive when they redeem their airline miles, the redemption process the airlines make you go through to redeem miles for travel is quite difficult for the average consumer, thereby eliminating a large percentage of people who would otherwise use their miles for flights.
Let’s take some examples, including one that hits close to home.
El Al Airlines had two great partnerships that the Jewish consumers enjoyed including their partnership with the HAS Advantage credit card, so that cardholders could earn points for tickets redeemable on El Al. Additionally, customers who wished to fly ELAL could do so using American Airlines miles. In October of last year, the partnership with AA ended suddenly. And due to a dispute with HAS, customers who earned HAS points for the sole purpose of transferring them into flights on ELAL were suddenly left unable to do so. That dispute is ongoing but in the interim, El Al increased the number of miles and points needed for tickets, in some cases requiring %30 more points to book tickets from NY and Toronto to Tel Aviv (besides for the $350 in fuel charges they charge as well).
Another example highlighting consumer frustration is British Airways (BA) partnership with other airlines, which offered flyers the option to travel in the domestic US using BA miles, and which required far less miles than other airlines. And BA offered a credit card with a bonus promotion of 50,000 miles which many people signed up for.
But early this year, BA implemented drastic changes to the new British Airways redemption program, increasing mileage ticket prices by as much as 150% on flights from New York to Los Angeles and London, with tickets from Miami and Berlin increasing significantly as well.
And if you think all of the above is unfair and unethical and perhaps illegal, a FL congressman agrees with you, and has placed the airlines habit of devaluing miles under investigation.
This leads us to our final point, eloquently summarized by one savvy travel blogger. Whichever kind of card you have, “redeem early and redeem often…at least once a year.” “Minimize the amount of miles you have sitting around.”
Because holding on to your airline miles and credit card points are a bad idea and bad investment!
Eli Schreiber is a partner and director of marketing at Get PEYD and PEYD Travel llc