Beginners Guide To Miles and Points: How Loyalty Programs Work

Beginners Guide To Miles & Points
What’s The Point?
How Loyalty Programs Work
Credit Cards and Credit Scores
Types of Miles & Points
Identifying Your Travel Goals
How Alliances Work
Credit Card Strategy For Beginners
Earning Miles & Points
Hotels Matter Too
What’s Next?

Do you have a punchcard for your local coffee shop?
Participate in the rewards program at your nearby supermarket?
Receive coupons via email?

Why?

For most of us, the answer is “to save money, of course.”

We offer our loyalty and consistent patronage to a business, and in exchange they reward us with better prices, discounts, special offers, and other things that make us feel like a valued customer. And when we feel valued, we’re incentivized to spend more with that company, continuing the cycle.

That’s the point of loyalty programs in general, and the airline industry is no different.

For the airlines, at least in the US, their ideal customer is the business traveler.

They know that companies are willing to spend more on tickets in order to have flexibility, but they’ve also learned that individual travelers can be encouraged to stay loyal to a single airline if they’re provided with the right incentives. They might even be willing to spend more on a ticket in order to fly with the airline they perceive to offer the best benefits.

So you see airlines offering “elite status perks” to people who fly tens or hundreds of thousands a mile each year, with the benefits increasing the more you fly. The business traveler feels rewarded when they get their free drink or complimentary upgrade, and the airline retains more of that person’s business travel (and maybe some of their personal travel as well).

Everyone wins.

With that premise as the foundation, airline loyalty programs have expanded dramatically over the years. It’s important to keep in mind that the frequent flyer programs themselves are profit centers for the airlines, independently of airline operations.

Why does that matter?

Because airline loyalty programs are essentially their own businesses – and what they are selling, ultimately, is a promise. The idea being that in exchange for your business and actions now, you will receive “free” flights in future. This is brilliant, in that in many cases it costs them nothing.

Nowadays you can earn miles for almost anything, from spending money on a credit card, to joining a mileage dining program, to getting a hair loss consultation or car insurance quote, to taking out a mortgage. There’s not a single transaction I make where I don’t think about the potential implications for earning miles.

There are literally trillions of unredeemed airline miles, and while they ultimately become a liability on the airline accounts, the day-to-day cost is negligible. Afterall, around 85% of travelers redeem their miles for domestic economy tickets, which aren’t that expensive for the airline to begin with.

Furthermore, the economic realities in the United States, especially, have created a landscape where airlines and financial institutions have partnered in a way that can be obscenely lucrative for the savvy consumer.

The banks and credit card companies purchase billions of miles from the airlines, and offer those miles to their customers as a rebate on their purchases.

Some cards offer airline miles right away, others offer points in a currency that can be transferred to airline miles in future. We’ll get into all of those later, but the key takeaway is that the credit card companies are purchasing miles and points for a fraction of a cent.

This provides the airline with better cash flow, so they’re able to expand their route networks, or undertake fleet refurbishments, or even just engage in a costly media campaign. The bank profits as well, because they receive a fee from the merchant every time their credit card is swiped.

And you, as the consumer, receive a rebate on all your purchases – one that can be incredibly rewarding if you know the right tricks.

Lufthansa-New-First-Class
Amazing products like Lufthansa First Class are not only available with miles, but realistic.

This is an important concept, and one I can’t stress enough.

At present (and this will no doubt change over time), the most lucrative way to accrue airline miles is through specific, leveraged, spend on the right credit cards. By strategizing how you pay for your everyday purchases you can really maximize the rewards you’re earning, and the miles you’re accruing.

You don’t have to spend hundreds of thousands of dollars a year, or fly every week.

You’ll certainly accrue miles faster if you’re doing those things, but most families should be able to generate enough miles for one great trip per year just by maximizing the dollars they’re already spending.

Really.

Next: Credit Cards and Credit Scores

Comments

  1. Hey Ben.
    Looking through this super guide. Is there any advice for UK based people? I have a master card / amex dual account that pays Avios – is this the best way to get started? Thanks. Julian

  2. @ Julian — Thanks! Unfortunately the credit card “game” isn’t nearly as lucrative in the UK. I’d focus more on strategically buying points when they’re on sale, as that can be a great value.

  3. Yes. I’m now putting all of my annual spend through my Avios credit card, so that should add up to quote a lot of points by next summer. Cheers

  4. Ben / Lucky –
    What’s the secret for using BA’s Avios website?
    Everytime I try to book a ticket it says, “no flight available”.

  5. Hi Lucky,

    Love what you’re doing for people here.
    Any advice for someone located in Singapore?

    Appreciate your time!

  6. Any advice for Canada? I have an Airmiles card but it’s pretty hard to accumulate points with it.

  7. Hey Lucky, a new and loyal follower now. I’m in Australia, have a young family I want to take to Disneyland in the next say 2 years. Anyone have any information on which cards to look at here in Australia that will start me off in the right direction?
    Thanks and happy flying
    Drew

  8. Hi just found your blog. You are doing an amazing job. Husband and I have to go to Germany for daughter’s wedding next June. Have been trying to get info from Qantas and Malaysian Airlines without any success….do you know if you can combine both flier points i.e. fly with Emirates from Sydney to Frankfurt? Using 161,677 qantas points and 115,824 Malaysian and want to fly business class will pay difference. Kind regards Vivienne

  9. @ Vivienne — You typically can’t combine miles from two airlines, though you may be able to use Qantas in one direction, and Malaysian in the other though!

  10. Hi Lucky,

    Any recommendations on good apps to manage all of these CC and miles balances?

    Cheers!
    Greg

  11. Hello Lucky, Im from Santiago, Chile, South america, i need know if i can use this methods in my country. Thanks! Best regards!!

    Max

  12. I am living in HK, is purchasing miles the only way to accumulate miles (other than HK credit card spends)? Will I be able to make use of US credit card offers?

  13. Hi Lucky,

    also interested about the situation in Singapore.
    There are a lot of Credit Card programs here…

    Thanks a lot!

    Greets
    HP

  14. I have 170,000 Avios points and would like fly First Class from the UK to Toronto WITHOUT PAYING BA’s EXHORBITANT CHARGES.
    Can you recommend/suggest a solution?

  15. How do I leverage Amex rewards for hotels in London seems like a lot of rewards for a room from july 17th to july 22nd

    Also am booking business class Delta doing the dame thing again seems like a lot of points..

  16. I am currently Diamond on Cathay but I am relocating to Tokyo from HK. Is it worth asking United to give me 1K status for a year on Mileage Plus before I earn it to get me to switch back to using them? I am a million miler on UA. UA/ANA makes more sense out of Tokyo and I don’t particularly like JAL as in the past I have found the flight attendants sexist and arrogant.

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