Showing posts with label Star Alliance. Show all posts
Showing posts with label Star Alliance. Show all posts

Monday, May 18, 2015

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.

Monday, May 19, 2014

Star Alliance Cut Round The World Ticket Prices

The Star Alliance Round the World booking tool is one of the best day dream distractions on the internet.  I haven't booked a ticket yet, but now I am tempted because Star Alliance just lowered the fare prices and added a new short business class route. The ticket requires circling the globe and making 3 to 15 stops.  There are some tricks to maximizing value, like starting your trip at a major US gateway (positioning flights in the US are cheap) and you just have to start and end in the same country to save distance (start in LA and end in New York).  Also the Cook Islands are hardly out of the way when going from LA to New Zealand.
SWISS AVRO100 in Star Alliance Colors
I did book the Star Alliance Europe Airpass a few years ago and bounced around the continent for two weeks,  It is priced per segment, so I avoided connections and kept the costs very low.  It's a flat rate based on segment length, an outstanding value verses buying the flights at market rates.

Saturday, September 14, 2013

Good Travel Day

Good travel day so far.  Star Alliance Gold members can use the Lufthansa lounge at IAD or DTW even if they aren't flying Lufthansa.
Lufthansa Lounge IAD - LH Likes Roses

Thursday, June 6, 2013

United Still Doesn't Understand The Power of Brands

United is still missing the mark with their Star Alliance promotions. As discussed earlier, United seems to have a difficult time finding images of their aircraft in Star Alliance colors.  The example below is from the home page and has the Star Alliance logo backwards (they took a mirror of the original image) and on an airplane that is not United's.  There is a beautiful United 747 in Star Alliance colors and several other examples they can use.  Another miss by United.
The Star Alliance Logo Is Backwards & That Is Not A United Airlines Aircraft
SWISS Star Alliance Avro RJ100

Thursday, November 1, 2012

Happy Birthday Blog

Frequent Flyer Guy is 1 year old.  I've enjoyed writing the blog and I hope you enjoy reading it.  I can't wait to find what adventures next year holds.  Happy travels!
My Favorite Picture from the Past Year

Saturday, September 15, 2012

Star Alliance Round the World Planner

Looking for a great way to kill time at work?  Want to plan that dream trip?  Try out the Star Alliance Round the World Trip Planner.  This web app lets you build, price, and buy RTW fares on Star Alliance carriers.  It's great fun too.  
United's Star Alliance Livery 757
The Round the Word fare includes up to 29,000, 34,000 or 39,000 miles. Your journey has to start and end in the same country, but not necessarily in the same city. You have to include 3 to 15 stopovers (stops greater than 24 hours). The prices are based on distance and home country (full terms and conditions).  Enjoy!

Thursday, June 28, 2012

US Airways Star Alliance Award Blocking

I just got off the phone with US Airways reservations and am furious.  I found a flight on Swiss in business class with availability, confirmed on and ANA, that I wanted to book.  The US Airways agent found the connecting flight fine, but the Swiss long haul flight came back empty.  US Airways must be blocking Star Alliance awards from their reservation system to save cash.  This is frustrating and devalues their award miles.  I'll have to call back on the first of the month and try again in Q3.
US Airways is heading backwards

Sunday, May 27, 2012

Star Alliance Transfer Passenger Survey at EWR

The Star Alliance wants to know about your international transfer experience.  They are not interested in anything else (at least at the moment).  The Star Alliance has been trying to simplify global travel for passengers on member airlines for the last 15 years and they have become very good at it (long queues at LHR aside).  It’s a good sign that they are collecting passenger feedback about the process.  The questions were all multiple choice for international transit customers.  An interesting find at EWR; way better than the Met store clearance table.

Star Alliance Survey Machine

Star Alliance Survey Display