Lockheed Martin Ads

My browsing history or IP address has something interesting associated with it.  Google Adwords gave me an ad for Lockheed Martin Skunk Works.

Lockheed Martin Ad

United Express Picture

Here's a different view of a United Express CRJ-200.

Fun Zoom

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.

Plane Crash Movie On My Flight

I watched a movie about airplane crashes on a recent flight.  A Yank in the R.A.F. was on TCM (free DirecTV in United first) and it was full of plane crashes and fires. In the old days when airlines picked their movies, they avoided ones with sensitive topics. It was a good propaganda film from 1941 (filmed in the UK with the Luftwaffe in the area), so I didn't notice it was about airplane failures until the end. 

United 737 with DirecTV

The funniest part of the movie was in the opening credits:
The Producers wish to express their appreciation to the officers and personnel of the Royal Air Force whose cooperation, under difficult conditions, made possible the filming of the aerial scenes in this production.

UPDATE: I also enjoyed North By Northwest and Von Ryan's Express on flights, so I guess prop plane crash movies are OK to watch on flights.

Minimum Credit Card Rewards Value

Note: I am NOT compensated for this post. I would like to be, but that's another discussion.

Do you receive more than 2% in award credit on your daily credit card spend?  If not, switch cards to the Fidelity Amex that gives 2% cash back on every purchase.  If your current credit card yields just 1 point per dollar, you would probably be better off with a 2% cash back card for daily spending. It may be advantageous to keep an airline card for free checked bags, double miles promotions, or to avoid foreign transaction fees, but only use it sparingly.  The Fidelity card is an Amex, so a Visa/Mastercard backup is good to carry.

Cash Back Works On Any Airline With No Black Out Dates

JetBlue Bags Made From Recycled Uniforms

JetBlue has partnered with Manhattan Portage to transform of crew uniforms into trendy new bags.  The bags look cool, but I don't like the JetBlue brand enough to spend about $100 on a bag I would rarely use.  They are running a contest to win a trip to New York too.

JetBlue A320's

Sensible Germans Use Fewer Titles

Ze sensible Germans at Lufthansa have a simple and practical list of titles for customers to select.  It's a funny cultural contrast to British Airways' title obsession.

Lufthansa A320 at Madrid

Lufthansa titles: Mr, MrDr, MrProf, Mrs, Mstr, MrsDr, MrsProf, Ms.