Showing posts with label Status. Show all posts
Showing posts with label Status. 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.

Tuesday, November 27, 2012

Time to Start Planning 2013 Adventures

Now that I made 1K for 2012, I am able to relax about status (SPG stays #24 and #25 are booked, so I’m safe).  It feels great not to worry.  The problem is 2013 is just around the corner and my business travel won’t get me close to 1K in 2013.  I’m looking for cheap United flights early in 2013 to get a status head start and maybe find some cheap deals to new places.
Sunset at Denver Airport on United 737
Denver isn’t the cheapest airport and there isn’t a close alternative (COS is 2 hours drive, but the fares aren’t great there either).  There are a few flights to Oslo or Stockholm for about 6.5c per mile flown.  Not bad, but not great.  I haven’t been to either city, so I’m tempted to book.  The price is a little high for just the miles and the fare has a two night stay required.  I wouldn’t mind a short vacation, but I’d rather go when it’s warm and there is sunlight.
US Airways Jet in New York
Domestic flights aren’t any cheaper from Denver; I’m looking at 8c a mile.  There are some cheap transcon flights (BOS-SNA for 4.5c / mi), but I’d need to reposition to a coast and that’s not cost effective unless I fly a few round trips.  There aren’t any cheap day trips out there, so very frustrating.  I guess I’ll go back to ITA Matrix and search some more.

Monday, July 30, 2012

Status Qualification Strategy Time

If you haven’t thought about it already, you should start planning out your status qualification strategy.  With five months left in the year, you are quickly running out of time if you are trending below your goals.  Also, with this much of a heads up, you may be able to grab a good deal on some flights or hotels stays to top off your numbers (use ITA Matrix and try to force extra connections).
United Express ERJ-145 at MLI
I’m doing fine for United 1K status this year.  Flown and booked trips total about 96,000 EQM (elite qualifying miles), so I just need one or two work trips to close the gap and I am set.  I did my United mileage math in June and booked two mileage run trips to SJU to make sure I get to where work travel can close the gap. 
W South Beach Miami Room Upgrade
Hotels are not looking so good though.  I have given up on Priority Club status all together because of their recent award chart devaluation and my lack of hotel activity (7/60th of the way to Platinum and 7/20th to Gold both on points earned, it’s not happening).  I am safe at Hilton Silver because I have their Amex, but Gold is too far out of reach to bother.  Starwood Preferred Guest is my favorite program and I will pull out all the stops to keep Platinum.  Right now I have 19 of my 25 needed stays booked or completed.  This leaves me with 6 stays in 5 months, not unreasonable, but it will be a stretch.  I have been bouncing hotels all year to increase my stay count without needing more nights.  I may be able to grab another three stays from work travel, but the last three may come out of my pocket.  Not insurmountable, but the $40 / night Four Points by me closed, so it may get expensive to make Platinum.  It’s still better than finishing the year at a pathetic 23 nights.

Friday, February 17, 2012

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.  

Tuesday, January 3, 2012

Time to Panic

The new year means all your status trackers reset to 0.  I'm starting to freak out over this because I have a greatly reduced slate of business travel in 2012, so I need to make up more out of pocket.  I used to be able to become a 1K in October only with business travel.  Now I'm lucky to gather 20,000 miles for work travel.  
0's Scare Me
It's time to start collecting any cheap miles I can find.  Lucky for me, Southwest is starting new service to Providence, RI and United may match Southwest's low introductory fares, so cheap same day weekend trips may be out there.