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.

Around the World with US Airways Dividend Miles – Award Booking Tips

US Airways will let you fly around the world for 120,000 miles in First, 90,000 in Business, and 60,000 in coach.  The award is just their basic North America to Northern Asia, but you are allowed to route via the Atlantic and the Pacific.  You also get a free stopover (stay longer than 24 hours) in a Star Alliance hub along the way, or somewhat out of the way.  Complete Dividend Miles rules are here.  I was able to book from Denver to Tokyo with a stopover in Helsinki with all segments in business class.

Star Alliance Air Canada Jet

The first step in booking is to find the flights.  I have some time off from class in summer, wanted to go somewhere new in Scandinavia, and see Japan.  Narrowing down the possible destinations will shorten the search process and focus your attention.  I found the list of Star Alliance hubs and started looking for flights. 

The two best search tools are United.com and fly-ana.com (you need to join Mileage Club to search).  I start with United and use ANA only if I’m stuck.  United has a much simpler interface and shows more routings.  When searching on United, make sure that you are only looking at Star Alliance airlines, Aer Lingus will show in United results, but can’t be booked through US Airways.  If Aer Lingus or other airlines outside the Star Alliance keep filling the search results, switch to ANA.

Lufthansa 747

The best way to build a trip is segment by segment; being too ambitious can overwhelm the search engine.  First open a spreadsheet to track all the available flights and see all the options in one place.  From there start searching for the beginning and ending flights, NRT-DEN and DEN-European gateway city.  Flying from Japan, I wanted a lay flat bed, ANA preferred over Asiana over United.  I found several options on ANA’s new 777-300s, a pair on Asiana, and a lot on United.  To Europe I preferred Swiss (flat bed) over Lufthansa (angled) over SAS (angled) over United (flat).  I’ve flown United business class, the seat is very good, but the service and food are awful.  There were a few Lufthansa and SAS flights available, so things are looking up.  Intra-Europe connections are plentiful and have great availability if going to capital cities.  The more out of the way, the harder it is to find flights (Berlin easy, Mehamn, Norway rather difficult).

Once the bookend flights are found, it is much simpler to find the middle flights (dates and connecting cities are limited).  Through sheer force of clicking, I found several options to stop in Geneva, Oslo, Stockholm, and Helsinki.  Getting from Europe to Japan had very limited availability.  I did not want to fly Edelweiss Air (Swiss’ low cost airline with poor seats and bad service) or Air China (subpar seats and an evening arrival).  Lufthansa had a few flights, Austrian had one, and Turkish Airways had a lot from IST-NRT (but almost no options from my stopover cities to IST).  The date and timing has me on Lufthansa; I would prefer Austrian or Swiss, but the availability didn’t permit it.

US Airways, Making This Trip Possible

I found the flights I wanted and then reran the searches segment by segment before I called US Airways.  This was important because my A380 seat from FRA disappeared, so I had to find a replacement.  Luckily an A340-600 out of MUC had space and I could find a flight from Helsinki to Munich.

The reservation I had planned, DEN-FRA-HEL-MUC-NRT-LAX-DEN, met the rules and the flights were available.  US Airways agents don’t consistently interpret the rules.  If the agent says NO, just apologize, say you need to reevaluate the trip, hang up, and try again later.  I called to make the reservation and things started well.  I reached an agent quickly, gave her the flights one at a time, all were found, and the agent thought the reservation looked good.  Next the agent has to contact the rate desk to validate and price.  I was on hold, so didn’t hear what was discussed.  The agent came back and said I had to spend less than 24 hours in Tokyo or I couldn’t book the ticket.  I said I would re-plan off the phone and call back later.  I thanked her for her time, asked to have the reservation placed on hold (she did, thereby saving my flights and making it easier the next call).  This was a clear misunderstanding of what a stopover is by the rate desk.  To avoid getting the same guy again, I waited 10 hours before calling back.

United Airlines 737 Collection

My next call lasted 75 minutes and at least 60 of those were spent on hold.  I still had a positive experience thanks to the very bubbly and excited agent I spoke with.  She was new, so the US Airways culture hasn’t sunk in yet.  She quickly found my reservation, I explained what I was trying to book, she validated that it looked right to her, and then got on the line with the rate desk where things got weird.

After a few minutes on hold, I was told I could not book my trip because I was backtracking.  To make a valid reservation, I had to keep going east (my original direction of travel).  After a quick check of Google Maps, Oslo was my only option between FRA and MUC.  I quickly found flights to OSL on United.com, keeping my long haul segments in place, and she tried the rate desk again.

When my agent came back on the line, she said the rate desk now said I had to stop in a hub.  I explained both OSL and HEL are hubs for SAS (Scandinavian Airlines System) according to StarAlliance.com.  She confirmed this and went back to play rate desk lotto.

She returned excited and told me that my original itinerary with a stop in Helsinki was validated and priced out to $130.  I jumped with joy, gave her my Amex number, she booked the ticket, gave me a confirmation number, and we parted ways.

The moral of this story is twofold; first find your flights before calling, second, be patient and persistent.  

Update 2/1/15:
US Airways' new oneworld award chart isn't as generous.  It's 110,000 miles to North Asia now and 100,000 to Europe.  Also oneworld carriers have fuel surcharges (British Airways is the worst) that are added to the price of the award.

Why You Should (Almost) Never Use Points.com

Points.com is one of the worst values for frequent flyer redemptions.  The premise is that you can trade points from one program into another.  Great, except the redemption ratio isn’t 1:1 but more like 13:2.  Check out the chart below showing what I can get for my 1300 Frontier EarlyReturns miles, terrible.  There is also a trading feature so members can trade with other members.  The ratios are around 1:1, but there are fees with the transaction that make it cheaper to just buy miles from the airline. 

Points.com Exchange Example

There are three possible uses for Points.com.

• Resetting expiration dates.  You can transfer as little as 1 mile into a program.  This 1 mile will reset your 18 month expiration clock so you don’t have to worry about any large expense to generate activity if you are at risk of expiration.  It just costs 3 or 4 miles from another program and posts within a day or two.  Some programs require a minimum balance of 1,000 before you can do a transfer out.
• It lets you keep track of a lot of balances in one place.  It’s nice to see a single view of what you have, especially if you are just starting to plan an award trip.  Not all programs participate, but it will give you enough data to get started.
• Cheap hit for the US Airways Dividend Miles Grand Slam promotion.  Transferring in a mile costs 3 or 4 miles and gets you an almost free hit in the annual Grand Slam Promotion. 

Unless you are working in very small numbers, Points.com should be avoided.