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Every so often we get news of a devaluation, merger/acquisition, or some other major event that causes major shifts in the world of loyalty programs. The most recent one was that of United eliminating their award chart as of November 15, 2019, and American signaling their impending drop of their award chart as well.
Personally, this was never a matter of “if,” but a matter of “when.” When Delta made the move, I knew the others would follow suit – why? Because US legacy carriers don’t innovate, they imitate. They don’t look to their competitors and think “what can we do to stand out, to be unique?” Instead they continue to devalue and offer sub par products claiming that it is in response to customer demands for increased flexibility and the like.
In a discussion with a friend the other day, he pointed out improvements made by American with their Flagship Lounge upgrades, United with their Polaris product and lounges, and Delta with the Delta One Suite. First off, let me say, that I appreciate ANY improvement that an airline makes, but take a step back from these and remove the US airline branding and just think about the product. Polaris and Flagship lounges are good, but there are far better business class lounges offered by other airlines. United’s “upgraded” Polaris product merely brings it in-line with market offerings. The Delta One Suite is the closest to a true product innovation, but only from the standpoint of the door (but remember, it was JetBlue that was the first to offer this option). The soft product on Delta, in my opinion, doesn’t compete with what is offered globally by many other airlines.
So, What Now?
At the very least let’s take these actions from the airlines as stark reminders that the airlines control the loyalty programs which means they control or have influence over:
- mileage/point earn rates
- redemption rates
- redemption availability
- redemption rules
- routing rules
- transfer partners
…and the biggest thing to keep in mind: POINTS AND MILES ARE NOT INVESTMENTS! They inherently devalue, so please don’t horde them, but USE them.
That being said, if you are looking to book, now is the time to do it. I expect to see bookings increase as people look to dump their miles before the devaluations take effect. The good news here is it doesn’t appear that these devaluations will affect partner bookings, but that doesn’t mean that they won’t make that change in the future.
Other Questions/Thoughts Related to Devaluation
I hold co-branded cards from all three of the legacy US airlines, but never spend on them. Why do I hold them? Well – obviously the perks. Having free checked bags is nice, a bump in the boarding order is always a bonus and in the case of the United – the additional availability of Saver space. This is a perk that I have used many times over the years, but the problem now is that without knowing how much a “Saver” ticket costs, we don’t have a clear idea of the value. American directly devalued their cards when they lost the 10% annual mileage rebate, but this United perk could still remain with a very hazy valuation.
For any airline using a dynamic pricing model for award flights, the associated credit card sign-up bonuses also lose value and clarity. Right now, I know exactly what I can get with 50,000 MilagePlus points, thus making the decision on whether to get the card and spend the required amount a fairly easy decision.
This devaluation also impacts both Marriott and Chase. One of my favorite transfer partners of Chase has historically been United, but their reliability as a transfer partner goes way down in my book without an award chart. Does this makes Chase points worthless? Hardly, but it does add an additional wrinkle and certainly lowers the value slightly. Much like Chase, Marriott has United as a transfer partner (and even offers a 10% bonus on transferred miles). The same situation applies here where the points and the bonus are difficult to accurately compare to other potential transfer opportunities.
Profitability of Loyalty Programs
Loyalty programs generate a large amount of revenue for the airlines and is one of the most profitable areas for them, so it should come as no surprise that they work to reconfigure programs to make them more confusing, opaque, and profitable. In a fun exercise, I went through the 2018 10Ks of American, Delta, and United to look at the revenue from their loyalty programs as well as their PRASM (Passenger Revenue per Available Seat Mile) and CASM (Cost per Available Seat Mile). PRASM and CASM give a glimpse into the profitability of flying passengers around the world.
As you can see there is a hefty amount of revenue from the loyalty programs and I would expect Delta’s to increase in the coming years with the newly renewed deal with American Express. The more interesting figures in this table are PRASM and CASM. None of the legacy airlines are actually profitably transporting passengers. Any profitability that they are recording is coming from freight, loyalty programs, or other minor items. Does this mean that the airlines fail at their supposed core competency – transporting passengers? The short answer is that I don’t know. What I do know is that the airlines are heavily reliant upon their loyalty programs and co-brand relationships and going forward we should never be surprised when the airline use various levers to manipulate those programs to become more profitable and less passenger friendly.
The reason that this blog and our community exists is to help individuals navigate the confusing world of points/miles and efficiently and effectively earn and burn their accrued points. If you take away nothing else from this article, leave with this: Points aren’t collectors items and don’t appreciate in value. Earn your points, use your points, and most importantly enjoy your points. You have earned it!
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