Over the past few months we’ve seen several devaluations in the loyalty program industry, which is hardly surprising for several reasons.
For one, the economy is recovering, causing the number of empty airplane seats and empty hotel rooms to decrease drastically. As a result, the cost of providing rewards has gone up substantially. At the same time, more and more miles and points are being issued to consumers by the day, so you have more people competing for fewer seats and rooms. Given all that, we really shouldn’t be surprised by the devaluations we’re seeing.
So the logical question is whether it’s even worth playing the mileage game anymore. Is it worth collecting miles and points when you could instead be earning cash back?
For example, it’s tough to argue with the value proposition of the Barclaycard Arrival Plus™ World Elite MasterCard®, which is one of the most rewarding travel cash back credit cards out there. The card essentially offers the equivalent of 2.2 cents cash back towards travel per dollar spent, and has a very reasonable annual fee which is waived the first year.
Purely from a valuation perspective, I think the “return” per dollar spent on the card is similar to that offered by the Starwood Preferred Guest® Credit Card from American Express, since I value Starpoints at roughly 2.2 cents each as well (which is the highest value I give to any “points” currency).
Given the choice between 2.2 cents “cash” and a point valued at 2.2 cents, I think most would argue you’re better off taking the “sure thing” (cash) over a point that could go up or (most likely) down in value.
But to me this raises an interesting question — is the value of miles and points absolute or relative?
Let me explain.
In March of 2013 I valued airline miles across various programs, and said that United miles were worth 1.8 cents each while US Airways miles were worth 1.6 cents each. United has a huge devaluation happening on February 1, so assuming nothing changes with the valuation of US Airways miles by then (admittedly they’re leaving Star Alliance two months later, but lets forget that for a minute), would their value go up?
Surely the valuation of United miles would go down, since the number of miles required for most partner awards will go up drastically. But does it also change the value of US Airways miles, given that US Airways miles will become the best points currency to use for many types of Star Alliance awards?
I’d probably argue yes. I guess it comes down to the elasticity of demand for premium cabin travel. Let’s say I value a business class ticket to Asia at $2,000. Why? Because I don’t have to value it any higher. If I can redeem 90,000 US Airways miles for business class to Asia with amazing availability, why would I value it at more than that?
EVA Air’s Royal Laurel Business class offers flat-bed seats and Dom Perignon, and is readily available with miles.
But if next week the cheapest business class award offered to Asia by any airline required 150,000 miles, would I still ultimately “only” be willing to pay $2,000 “worth” of miles for the ticket?
To be clear, I don’t have an answer here, I’m just trying to start a conversation. Ultimately I don’t think we’re much worse off than we were before, since at the end of the day this is a “game” that stays in equilibrium for those that stay ahead of the curve. The airlines and hotels raise award costs, it becomes easier to earn miles and points, they raise award costs again, etc.
But this also isn’t the “good old days” where Lufthansa and Swiss first class award space was easier to snag, and we’re no doubt being pushed to our limits in terms of our willingness to pay.
Going back a few years the concept of paying a fuel surcharge on an award ticket issued by a US airline seemed almost unthinkable. And while it’s still not common (and I don’t think it will become the “norm” anytime soon), burning miles plus paying fuel surcharges for a first class award ticket doesn’t seem like that horrible of a value anymore.
For example, on United’s new devalued partner award chart, roundtrip first class to Europe will cost 220,000 miles. By comparison, does paying 120,000 British Airways Avios plus $800 in fuel surcharges seem like that bad of a value?
Sorry for rambling, but I guess my point comes down to this — cash back cards can make a lot of sense and can be an amazing value, but miles can be used to purchase a luxury good that most of us could never afford.
A transatlantic first class ticket can retail for ~$20,000, so whether you’re redeeming 120,000 or 220,000 miles for that ticket, you’re getting well more than 2.2 cents of value “at retail.” The question is what you value that ~$20,000 ticket at.
I’d be curious to hear what you guys think. Have we been valuing miles so low simply because we’ve had it so good, or are you close to your maximum willingness to pay (in miles) for premium cabin international tickets and more interested in cash back cards at this point?
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