When will airlines devalue their award charts?

This past year has been really interesting on the loyalty program front. As the economy has started to recover and hotel occupancy and flight loads are back to pre-recession levels, the economics of loyalty programs have changed a bit.

Early this year we saw a huge devaluation on the hotel loyalty program front, while airline programs haven’t actually been devalued much over the past year. That’s because the economics of the programs work differently. During the recession most hotel loyalty programs introduced “no blackout dates” as a selling point of their programs, and that worked great at the time since hotel occupancy was extremely low during the recession, and the marginal cost of filling an extra room was very low.

But keep in mind that hotel chains run the hotel loyalty programs, while the individual hotels are typically franchises, and both have their own best interests in mind. Hotel loyalty programs want to make their loyalty programs as profitable as possible, while the hotels themselves want to make their individual properties as profitable as possible.

As a result, the arrangement that most hotels have with their loyalty programs is that if hotel occupancy is above a certain number (usually 90-95%) then the loyalty program has to reimburse the hotel at the average daily rate for an award reservation, while if it’s below that “magic number” they reimburse the hotel just slightly above the marginal cost.

As such, during the recession the hotel loyalty programs were typically only paying slightly above the marginal cost for award redemptions, while post-recession they’re often reimbursing the hotel at the exponentially more expensive average daily rate.

While it’s frustrating as a consumer, I think that explains why this year was so bad on the hotel loyalty program front.

That brings us to airlines. Interestingly we haven’t seen any huge airline award chart devaluations among legacy carriers in a while. That’s probably because even though the economy has recovered and airlines are turning a profit, for the most part airline award tickets are capacity controlled, so it really doesn’t matter how full the flights are, because the airlines have direct control over how many miles consumers can redeem. And we’ve noticed that lately, as award space is more or less at an all time low.

Delta SkyMiles Delta SkyMiles Award Chart Increasesled the pack a couple of months ago by announcing they’d be increasing international business class award costs as of next June, with award prices going up pretty substantially in many markets. For example, business class from the US to Europe goes from 100,000 miles roundtrip in business class to 125,000 miles roundtrip in business class.

But we haven’t heard a peep from American, United, or US Airways, and it has been a couple of years since they’ve made any major changes to their award charts. So my prediction is that in the next year all three airlines will announce award chart devaluations, though timing depends on a few factors.

With American AAdvantage and US Airways Dividend Miles it depends on whether the merger falls through or not. There’s no way they’ll devalue their award charts ahead of a merger decision, for a couple of reasons:

  • During a merger they have bigger fish to fry than making adjustments to an award chart, so if the merger does go through I’d expect to see a combined chart with higher pricing, though that probably won’t be for a while.
  • Right now the merger is still in limbo, though, and one reason they won’t do anything is because the Department of Justice already thinks the airlines have it too good, and raising award costs will only further strengthen the DOJ argument.
  • If the merger does go through, I suspect we still have a while before any devaluation, since it’ll probably only happen once the frequent flyer programs combine.
  • If the merger does not go through I’d expect both airlines to announce devaluations shortly after merger negotiations break down.

As far as United MileagePlus is concerned, my guess is that they’ll announce a mild devaluation late this year or early next year, mostly matching Delta’s award costs. I expect domestic and most coach award redemption costs to remain the same (this way they can claim that changes only impact a small percentage of those redeeming miles).

But for all three carriers – American, United, and US Airways – I expect that any award chart changes will more or less just be the carriers matching one another at their highest redemption costs in a given market. For example, Delta will charge 125,000 miles to Europe in business class and 160,000 miles to Australia in business class as of next June, so I expect the other carriers to have similar pricing.

I’ve said it before and I’ll say it again – miles are amazingly useful but are horrible investments. It’s like having a frequently inflated currency sitting in a bank account not accruing any interest. Always earn and burn, and make sure to diversify your miles and points!

What do you guys think about potential devaluations? Think they’re coming or not?

Comments

  1. “If the merger does go through, I suspect we still have a while before any devaluation, since it’ll probably only happen once the frequent flyer programs combine.”

    Why do think they’ll continue to wait? Have other pending mergers precluded program changes for years at a time? What’s the longest any program has gone between devaluations?

    “If the merger does not go through I’d expect both airlines to announce devaluations shortly after merger negotiations break down.”

    Do you have examples of sudden devaluations being implemented immediately after previous mergers were abandoned? Has the DOJ commented specifically on award charts?

    My guess is that the DOJ and the DOT are more interested in which fees and restrictions will be impacting revenue customers rather than new devaluations being handed down in the much smaller loyalty market.

  2. I dont like this type of blog entry as I always imagine the Airlines reading your blog and saying ” yup, its time to increase the charts. Lucky says were overdue!!” LOL

    Yes it will happen but hopefully not till fall 2014.

  3. Hotel devaluation partially make since to me since as room rates go up over time you are basically getting a free day for less paid days.

    With most airline programs being bases on miles rather than dollars spent I don’t really see it as the same.

  4. @ Dax — If the merger does go through I think they’ll wait till they create a new, combined program. There’s no point in devaluing the individual award charts of the respective airlines if a merger is imminent, so when they release a combined program I think they’d change award costs.

    If the merger doesn’t go through I don’t think the devaluation would be specifically because of that, but rather because it’s “time” for a devaluation as far as the airlines are concerned.

  5. @ Carl P — Though airfare is going up substantially as well, so the more expensive airfare is, theoretically the more value you’re getting out of the miles you redeem.

  6. I kind of think the merger is putting all of the majors into a holding pattern in terms of their award pricing. I think United will hold steady until after the merger is through to see what the competitive landscape looks like post-merger (or post trial, if the merger does not go through).

    I, for one, have always thought that this is one of the biggest arguments in favor of booking as close to ~330 days out as possible. If you have “just enough” miles today, you may be 25k short tomorrow!

  7. most of you bloggers are publicly promoting devaluations and when this happens you whine & complain but do nothing about it.
    either shut up or fight to stop it when & if this happens. The only blogger I like is GREG of FM. He is not like any of you. He doesn’t keep imploring to apply for cards and doesn’t post nonsense stuffs like most of you. This is why we have been applying for cards from his site only.

  8. Air Canada has devalued some awards to Asia, the Middle East, northern Africa, New Zealand and Australia by 25,000 miles.

  9. @ jim — To be clear, my biggest issues with airlines devaluing award charts is when they’re not giving sufficient advance notice or when the changes are radical.

    Moderate devaluations are a fact of life in this industry so while I’m of course not happy about them, I accept them and wouldn’t “whine” about them. That’s why I earn and burn points.

  10. Devaluation will come just like deflation and inflation – nothing you can do about it. But to sit there and ponder it seems like a waste of time.

  11. United has to devalue soon IMO. Chase is flooding the market with tons of miles and UR are simply so easy to earn that something has to give…

  12. If an award devaluation does not happen next year, can’t airlines do other money-saving tactics like adding fuel surcharges in award redemptions or severely limiting the number of award seats per flight?

  13. Lucky,

    Can you point to examples of airlines withholding devaluations for years while pursuing a merger? Likewise, can you point to examples of airlines suddenly releasing devaluations after abandoning mergers? What evidence do you have that the DOJ is concerned about award charts or that AA/US genuinely believe this to be the case?

  14. Right now I am earning more than I can burn. But I always tell myself, “Even if they devalue, it is always better to have some than have none!”

  15. @ Joey — Well they’ve already greatly reduced the number of available award seats.

    I’m sure the US airlines would love to add fuel surcharges, though something tells me it wouldn’t fly with the credit card companies. It’s one thing to raise costs in miles, but for the most part award tickets are marketed as being “free,” so I doubt fuel surcharges would fly.

  16. @ Dax — Nobody is talking about withholding devaluations for years, but rather a few months. For that matter I can’t link to any previous cases like this because this is the first major airline merger in the past decade that has been blocked by the DOJ.

  17. I will UNLIKE you in facebook so I won’t see your devaluation crap and any more of your such nonsense crap! So happy with FM

  18. horrible post and great disservice to frequent flyers……….why not just go see a movie and yell fire halfway thru it………..

  19. Ben, can you please write a post about how you earn your miles? Not in theory, but simply how you do it. You advise to earn and burn which means constant earning. With your travels, you easily go through 500,000 miles a month or more, how do you earn them?
    I consider myself quite smart about it, but I’m nowhere near what you are able to earn and I would love to learn about it. A very limited number of credit cards, most of them not repeatable can not be an answer. What’s your secret? MS? Charging tons of spending on your cards? MRs?
    I’m wrapping up my 3 weeks in Bora Bora where I spent tons of miles and points, also earned a lot. For example on my St Regis stay I was able to get 11x SPG points which is my personal record and I was very proud until I see your scores… Thanks!

  20. I’m thinking the recent extreme tightening of award availability with AA has something to do with an upcoming planned devaluation.

  21. @ Andrew @ LenticularTravel – I earn well over a million miles a year, which I don’t think is really unattainable for most, but I’m certainly not burning anywhere near 500,000 a month! Rough math is about 800,000 for this entire year, and I’ve done more award travel this year than usual.

    I can certainly go into more detail on a future post, but I probably fly about 200,000 miles per year on American, and as an Executive Platinum member I get a 100% bonus on miles, so that’s 400,000 miles right there. I earn another 500,000 or so miles per year from credit card churning. And then I try to maximize miles on everyday spend, which can add up to another couple of hundred thousand miles per year if done properly. Lastly, I strategically purchase miles when it’s a good value.

  22. Lucky – I guess I was saying as prices rise for both that you pay more to get a FF mile (unless revenue based rather than lines flown), while you pay the same for a hotel point. Granted that’s just a part of the equation.

    Of course the greater number of points and miles from credit cards, promotions, etc. is a greater issue (which the airline and hotels profit from and brought it on themselves).

    The bottom line is everybody will devalue as long as they cen get away with it without harming their programs too much (regardless of any calculations, prices, or whatever).

  23. So the “old school” flying, I like it, nobody considers it anymore LOL. You’re lucky you are flexible enough to select one airline and stick to it… With my job it’s impossible.
    I agree LifeMiles and US Air miles deals are too good to pass, I was able to book our upcoming Asia trip with EVA and SQ thanks to LifeMiles bought a couple of miles ago…
    Also I guess I need to be more careful with my daily purchases, I recently bought a fridge and it gave me almost 20,000 miles (home depot, 5x etc), so I guess I have some room for improvement in this department. Thanks!

  24. Lucky, so you’re paying for 200K miles of travel a year? What does that cost you? I’d be interested in the economics of how blogging lets you afford that.

    Most of us read blogs to learn how not to pay for travel, but you seem to get half your miles by purchasing flights. I guess that’s why we are constantly bombarded with affiliate links?

    @jim – Get off your high horse about FM’s less in your face pimping style. The mere fact that you click on anyone’s affiliate links at all makes you part of the problem. People just need to stop using affiliate links, period. That’s the only way to slownthe incessant onslaught of pimping, and the zillions of “expert” bloggers who continually pop up (“I just started churning in Dec 2012 and I’ve racked up hundreds of thousands of miles and want to show others how to travel for free – just click here, here and here!”

  25. @Paul – Boardingarea’s traffic is over 500,000 unique visitors and 2.5 million pageviews per month. Assuming Ben gets around 20-30% of this traffic (if not more), he gets around 150,000 people going through his site per month. Now assume 0.01% of his readership decides to pick up a card through his links (that’s 1 out of every 1000 people). With each approved application paying around $100 (and some quite a bit more), I’m sure he’s earning quite enough to do whatever he wants and to treat people however he pleases, which includes bombarding with affiliate links. That improves clicks and profit though.

    (This information may be incorrect, no suing me for that)

  26. Well over here in Europe, LH has done it. Again. Didn´t actually devalue the spending side, but made earning a lot harder, which ultimately has the same effect.

  27. I would rephrase what Carl P. said (#3, #23).

    Hotel programs are revenue based. With higher room prices, it is easier to earn points than before and the programs have build-in inflation. Hotel programs must devalue with the room rates increasing. Most airline programs are distance based. Earth is not gaining its circumference and you get constant rebate on the future travel (the miles are more rewarding dolarwise to spend but more expensive to earn). Of course airline programs will devalue if they can get away with it but there is no built-in pressure in the programs themselves.

  28. Delta already devalued and did so while hiding it even after the renaming of the three-tier award pricing for any given class of service.

    AA has sort of done it by pushing people into a pickle of a situation on TATL routes.

  29. I really hope you are right, that coach awards will not be devalued. I’m not so sure, but we’ll see. Completely agree that hoarding miles is not advisable.

  30. Might the devaluations come in tandem with somewhat increased availability?

    Delta raising transatlantic business to 125 from 100 for is of no consequence to me since I almost never see low level space on their chart for when I want to fly.

  31. “most of you bloggers are publicly promoting devaluations and when this happens you whine & complain but do nothing about it.
    either shut up or fight to stop it when & if this happens”

    How exactly does one “fight to stop it”? The airlines own the airplanes. The airline makes the rules for the loyalty program. If they wanted to tomorrow any airline could shut down their frequent flyer program (go look at your favorite program’s rules; you may think they are “your miles”, but, actually, it specifically says they are the AIRLINE’S miles, not your property) and leave you with nothing.

    Are you suggesting an airline isn’t free to do what they’d like with their property? And before you say “they owe me…”- the airline already flew you on the plane. That’s the extent of what they “owe” you. They didn’t give you any miles (remember: miles are theirs, not yours; if they were actually yours and had cash value you’d be getting 1099s from airlines to report income to the IRS).

    Fighting airlines for devaluing miles is like fighting a casino for making their slot machines pay out less- the only “fight” is not to play the game.

  32. lucky said,
    @ Dax — “Nobody is talking about withholding devaluations for years, but rather a few months.”

    How long ago did AA devalue their award chart prior to now? Was it really just a few months ago or are we talking years yet? If we’re talking about a variation of a few months from best case to worst case then I guess I fail to see the significance for those who work in a conventional job where vacations are planned months to a year in advance anyhow.

    “For that matter I can’t link to any previous cases like this because this is the first major airline merger in the past decade that has been blocked by the DOJ.”

    Although I do appreciate some aspects of the new media revolution I do miss the loss of traditional journalism, at least when it was based on more than hunches and assumptions. I’m not going to blame you for promoting a devaluation like some folks have, but I do find your lack of research, even when prodded, to be rather unfortunate. Somewhere out there a serious story exists about this merger and how it will likely affect the relevant airline loyalty programs, but I don’t think this shot from the hip qualifies.

  33. Well, I guess you weren’t wrong that it was coming for UA, but OUCH! As a 2x a year award traveler who prefers going to Europe on business awards, this is going to hurt.

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