Frequent Flyer Program Points / Miles Inflation

Airline Award Price Inflation

Inflation is a great way for governments to take wealth and reduce their debt. It happens continuously, but no one really notices, so it's a low risk political move.  By creating more currency, the government receives the full value of the new money while everyone's existing money is worth slightly less.  It's something everyone endures, but no one enjoys. 

South American Style Currency

Recent Inflation Victim

Airlines also manage a currency and create inflation. Airlines created their own currency with points programs and have been adding more currency than is being redeemed.  This creates an over supply of currency against a static (more or less) supply of awards.  The unbalanced supply and demand creates an opportunity for point inflation. Airlines manage their currency like Venezuela or Argentina.  There is constant inflation by creating more currency with fixed award opportunities.  They also engage in large and sudden devaluations periodically.  Venezuela has inflation every day, but they will also suddenly change exchange rates.  Both destroy currency value, but the gradual devaluation stings less.  Airlines do the same when they change their award charts (British Airways most recently).  Awards that cost 80,000 miles yesterday can cost 100,000 points today when the award chart changes over.  These massive changes are usually, but not always, announced several months in advance.

More Miles Pursuing Same Seats

Hyper Inflation Airlines

Airlines create new currency, point or miles, at no cost to them.  They sell this currency to partners, like credit cards or hotels and receive real money for their proprietary money.  United Airlines sold $2.9 billion of frequent flyer miles in 2013 and has about $4.9 billion of frequent flyer miles outstanding.  They expect 20% these miles to expire, so the mileage expiration policy creates $1 billion in profit.  They did not disclose how they value a frequent flyer mile.   

“Five million and 4.7 million MileagePlus flight awards were used on United in 2013 and 2012, respectively. These awards represented 7.7% and 7.1% of United’s total revenue passenger miles in 2013 and 2012, respectively. Total miles redeemed for flights on United in 2013, including class-of-service upgrades, represented approximately 80% of the total miles redeemed.” (UAL annual report)  20% of mileage redeemed was used for partner flights, merchandise awards, and other ground based awards. That’s a massive amount of miles chasing relatively few awards and creates a great inflation opportunity.

Costs More and More To Sit Up Front

44% Inflation over 9 Years

When I started collecting United miles in earnest, a round trip to Europe in business class was 80,000 miles.  Then it became 100,000.  Now it's 115,000 on United or 140,000 on a partner.  1,000,000 United miles was worth 12.5 round trips, but is now worth 7 trips.  This is a massive currency devaluation of 44% over 9 years.  Frequent flyers should be marching and banging pots in front of United's corporate office, but I doubt many realize their miles are worth so much less.  Most customers measure their balance by the number of miles in it.  This is a poor indicator of value though.  Viewing it as the number of awards you want (business class tickets to Europe in my example) is a better indicator of value. 

Program Changes Can Reduce Award Balance Value

Reducing Inflation Risk

Collecting miles and points creates an inflation risk.  The more you collect, the larger the risk.  Inflation can't be eliminated, but the risk can be managed.  Here are a few tactics to help support an inflation hedge strategy:

• Collect Points in Multiple Programs – All programs have inflation, but at different rates and different times.  Diversification reduces your exposure to a single program's risk.  It also creates more reward opportunities.
• Spend Points Regularly - A smaller point balance lowers the potential loss of value to inflation.  Also, why bother collecting miles if they are never used?
• Be Aware of Pending Award Price Changes - Don't be taken by surprise, read emails from your programs.  If a change is coming, book at the lower prices if able.  I booked a round trip to Europe before British Airways changed their award chart this year.
• Change Programs if Required - Most airlines have partners and one partner may have a more rewarding and stable award structure.  Alaska miles seem more stable than Delta miles and you can earn either on a Delta flight.
• Set Award Based Goals - Don't set a balance number as a goal.  1,000,000 United miles has a nice ring to it, but it isn't an end in itself.  4 round trips to Europe in business class is a better goal because it has a fixed value while the miles could change value.  Redeem when you reach your goals.
• Create A Single View of Your Assets – Take a look at your award balances on one screen.  Copy and paste into Excel or Gmail if needed.  Looking at your assets on the same page will help you understand where your risks are.  It also may help you be more creative with your awards. 80,000 Delta miles and 62,500 American miles is a round trip to Australia in business class.

Tips for Reaching the Minimum Spend for a Credit Card Sign Up Bonus

The fastest way to boost your mileage balance is with credit card sign up bonuses.  I get three or more every year and it helps me travel as often as I do.  The problem here is that some cards have a minimum spend before the miles are awarded.  Hitting $500 in three months isn't a problem, but $5,000 in three months (Chase Ink) is a serious challenge.  Here are some tips to boost your credit card spending, without buying anything more than you would already purchase.

• Use your new card whenever possible.  The more you spend with it, the faster you reach the minimum spend mark.  Simple first step that may be all you need.
• Prepay your cell phone / internet / cable / etc. bills for a month or two.  AT&T et al won't mind if they get your money early.  This lets you move spending forward; you aren't spending more.
• Buy gift cards to places you shop regularly to move spending forward.  Grocery stores and other retailers with large gift card displays are great locations to pick up a bunch of cards in one stop.  Safeway lets you buy gift cards with Safeway gift cards, so you can retain some flexibility.
• Car insurance is an opportunity.  If you are up for renewal, pay the six month rate; it is usually cheaper and you bring all that spending forward.
• Buy American Express Gift Cards.  Accepted everywhere Amex is taken.  Some cards don't have a purchase fee.  It works out as and even trade, so you are just turning part of your savings account into Amex gift cards while earning points and moving closer to the minimum spend mark.
• Do your Christmas and birthday shopping early or treat yourself to that thing you want, but are waiting for.  If you were going to buy it anyway, it's not really an extra cost.
• Put dinner with friends on your card.  Lots of people just toss down cash for their part of the check, you can put the bill on your card and pocket the cash.  It also saves on trips to ATMs. (I also hate to see those potential points vanish)

Keep track of how close you are to the spending mark.  Returns are deducted from your total, so remember to subtract that from your tracking spreadsheet.  Remember, if you carry a balance on your credit cards, this game is not for you.  Rates on rewards cards are much higher than other cards.

Travel Tip – Good Day Trip Ideas

Sometimes you need a few more miles for the next status tier, other times you just want a mini-vacation, day trips are great solutions.  Instead of going on a two day cross country trek for miles, a little hop somewhere can do the job just as well; you can’t claim to experience a city just by their airport. Here are a few cities that make great day trip material.

United Airlines 757 at SFO

San Jose (SJC) – I really like San Jose, the airport is short cab ride to downtown, walkable once you get there.  While in town, I recommend the Technology Museum; it has really interesting stuff like a robot that draws your picture and computer chip making equipment.  There are also a few good places to grab a bite in the area too.  The weather is usually outstanding too.

San Jose Tech Museum

San Antonio (SAT) – San Antonio usually has cheap fares and is a very easy city to tour.  The airport is about 15 minutes by cab from the Alamo (free tours).  From there, take a stroll on the river walk and grab a bite at one of the many restaurants along the river.  The boat rides are cheap and fun too.  It can get hot in the summer, but you don’t feel it that much by the river.

San Francisco (SFO) – San Francisco has a lot to offer, Alcatraz tours (book in advance), great sea food, In-N-Out, sights, the water front, and the trollies.  All of this is a (expensive for public transit) BART ride from the airport.  Very easy to day trip, but the BART is a little long, so allow extra time.  SFO isn't the most predictable airport, inconsistent security wait times and fog regularly causes delays.  There are usually cheap transcon flights, so it's worth a shot.

San Francisco Sights

Boston (BOS) – Take the T (subway) into town for $2.  It’s maybe a 20 minute ride to get to Boston Common.  Boston has a few sights all within a short stroll, like the capital building, old cemeteries, and other historic buildings.  There is also a lovely park along the Charles River for a stroll.  Another quick hop on the T and you are back at the airport.  BOS is also a nice airport to chill in if you have a connection, free (and fast) wifi, good views, and a nice terminal for Continental, US Airways, and Delta.  The United, jetBlue, and American terminals are difficult to spend time in.

Massachusetts State House, Kodak B&W Film + Fisheye

Thoughts on Around the World Travel

I was discussing around the world travel with my friend Mary at Pies Etc. the other night and an interesting contrast came up.  Mary sees round the world travel as a month long journey to explore several continents, make 8-12 stops, and fulfill romantic travel dreams.  I see it as a way to follow in the footsteps of aviation pioneers.

Mary views RTW travel as one Atlantic crossing, one Pacific crossing, and many stops along the way.  Something like New York to Africa to Europe to India to Southern Asia to New Zealand to Polynesia, then back home.  Airline alliances sell tickets for these travels (Star Alliance, oneworld, Sky Team) that give you a certain number of segments and miles flown for a fixed price.  They can be a very good value, especially if you are going on some expensive flights.  The websites are also a fun way to play at work.  Airlines also offer RTW tickets with miles, but they offer far less.  United for example allows 5 stops (but unlimited segments) and 24,000 miles flown on their RTW ticket.  The pricing is also steep, 200,000 miles in coach, 300,000 in business, and 400,000 in first.  There are award seat limitations like a normal round trip.  Depending on your trip, it may be cheaper to assemble a collection of one way award tickets.  The ease, flight availability, and value provided from the Star Alliance RTW ticket makes paying cash look very tempting. 

My view of RTW travel is based on the International Air Sports Federation, FAI, the final authority on setting aviation records.  They define Round the World as a course beginning and ending in the same location, the course must be a minimum distance of 27,000 kilometers (16,778 miles), and the course must cross all meridians.  I can accomplish that in a few days using a few airline miles, 90,000 US Airways Dividend Miles for business class actually.  Mary decided she would not want to travel in my style and lost interest in my idea, but not before laughing after thinking of me as an aviation pioneer, wearing goggles flying over a corn field.

US Airways charges 90,000 miles to fly business class from North America to North Asia (Japan, China, Korea, and some -stan countries).  They will let you fly via the Atlantic on one leg and Pacific on the other.  You also get a free stopover at a Star Alliance hub.  This award will meet the FAI requirements, be a fun way to see two cities, and a chance to experience different business class products.

I’m thinking of Tokyo and Warsaw can be my stops.  I was booked to go to Tokyo last year, but my trip was to start the morning after the earthquake, so I took United’s refund offer (the ticket was only $700 round trip from Denver through ORD, unmatched since).  My second stop has to be a Star Alliance hub and I’d like it to be in Europe (Star’s Europe hubs are Ljubljana, Athens, Thessaloniki, Heraklion, Rhodes, Larnaca, Vienna, Helsinki, London Heathrow, Brussels, Zagreb, Warsaw, Frankfurt, Munich, Duesseldorf, Copenhagen, Oslo, Stockholm, Zurich, Geneva, Basel, Lisbon, Porto, Istanbul, Ankara).  I’ve already seen a few of the cities listed and want to go somewhere new.  Warsaw works well because LOT has quite a few flights into North America with outstanding business class availability.  Austrian Airlines has good availability from Japan and to North America, but I’ve already been to Vienna (It’s amazing and I recommend it to all).  Istanbul is tempting too with almost 100% business class availability from NRT to IST, but almost nothing onward to North America (United announced a new EWR-IST flight, but no business awards yet). 

I’m using Continental’s website to find availability and piece this trip together.  Once I find the flights, I’ll need to call up US Airways to book it.  I’ve heard that I should allot an hour for that call.  I’ll let you know how it goes.

Routine Flying in 2012

I’d like to think that I frequently fly foreign carries to far away destinations, but over 95% of my flights are domestic hops.  Also, thanks to the glut of elite flyers trying for upgrades, I’ve sat in coach on over 90% of my flights this year.  This is routine flying.  The basic Denver to Chicago for work type flights that generate the miles needed for grand adventures. 

US Airways Jets at Boston Logan

So how do I do I fly 22,000 miles in coach in two months?  Business trips are the foundation.  Denver to Chicago, White Plains, Newark, and White Planes again help build miles at no cost to me.  Also I booked two weekend trips just for the miles.  I found some cheap fares (about 2c a redeemable mile) and booked the flights to build my mileage balance, for a little vacation, and get a head start on elite status. 

United 757 Night Landing at EWR

The United and Continental merger has also made upgrades much more difficult to obtain.  There is the same number of first class seats on each plane, but now an entire extra airline worth of customers trying to grab the seats.  It used to be easy to clear upgrades a few days out on bigger planes like 767s and 757s, but now they are clearing at the gate if at all.  It is also taking some of the fun out of flying; airline food is quite decent these days.  At least the lounges have plenty of space (thank you JP Morgan Palladium card).

US Airways Lounge in Charlotte 

So how do you make the best of a suboptimal situation?  Relax.  That is the most important key to traveling.  Calm down and go with the flow.  My next key is to grab a window seat.  I feel like they have more space and as long as I think that; they will (I also believe in the power of extra strength placebos).  Some good reading material helps, so does a pillow, blanket, and eye mask for overnight flights.  Stay hydrated; the air in planes is very dry and you should be actively counteracting that.  Lastly, try to enjoy the magic of flight.  100 years ago, a nonstop flight from coast to coast was just a dream.  

Points Inflation Strikes Again

It’s been a rough few months for points inflation. British Airways killed their zone based reward charts that had some great values and moved to a segment mileage pricing model.  Now My Coke Rewards has raised the price of a free soda from 30 points (24 points when I joined) to 40 points, a 33% increase.  Luckily I didn’t have a large balance in either program so I did not lose very much. 

It was 30 points last week

This does serve as a warning against sitting on large balances in programs because the prices can change without warning.  I have a diversified mileage collection with several carries, several hotel chains, and credit card points holdings.  Once you have enough for two round trips in first to anywhere you would want to go (or about 300,000 miles), you should think about diversifying your holdings.