Many people who read this headline might immediately answer “Yes!” while thinking about how much revenue airlines derive from selling miles to banks and other partners. However, I’m more interested in selling miles to the passengers.
Airlines earn millions of dollars selling miles to their partners, and sometimes they’ll even pre-sell the miles in order to get funds that help them through difficult economic times. With so many miles in circulation, being issued as credit card bonuses or through other promotions, it’s no surprise that award charts have been devalued.
I’ve long earned 50% or more of my miles through actual travel. I realize that’s low by some standards, but I think it reflects a good portion of “normal” people who aren’t quite so obsessive about this hobby. Consider the consequences of a revenue based program like those implemented by United and Delta and recently announced by American:
- Booking a 4,000-mile journey for $300 once earned 4,000 miles. It now provides just 1,500 miles — a decrease of 63%.
- That $300 purchase may have also earned 300 miles as a credit card purchase (excluding bonus categories). It will still earn 300 miles today.
Some people say they’re going to focus more on manufactured spend, or effectively “buying” miles by creating circles of fake transactions to ring up balances on their credit cards and then pay them off (e.g., using a gift card to buy a money order). Banks don’t like this, but it becomes more and more attractive as it becomes harder to earn miles by flying. Some of the same people in this crowd were once avid mileage runners.
In a sense, these manufactured spenders are buying miles — they just do it indirectly through the bank, which is the one really buying the miles from the airline.
You can also buy miles from the airline, but consumers get a worse deal: banks pay a penny or less per mile to purchase in bulk, while you’ll usually pay two cents or more. Such offers might come through limited time promotions, at the time of check-in, or when you buy your ticket.
What I find interesting is that there seems to be a trend of larger and more frequent promotions to sell miles. The prices seem to be falling. Altogether the airlines seem to be focusing their efforts on selling more miles to their passengers — not just banks — at the same time that they make it harder to earn miles by actually flying their product.
Go back to my example above. It’s not unusual to see a scenario like this:
- Buy a $300 ticket and earn 1,500 miles for flying.
- Check-in for the flight and be offered 1,500 miles for $300 more.
- Wait for a limited-time promotion of 1,500 miles for $300 — without flying.
One theory behind the changes to major airline loyalty programs was that they wanted to start handing out fewer miles. That could be viewed as a good thing if it means less competition for award travel. However, I don’t think this is happening at all. I think they’re trying to issue the same number but find other ways than giving them out for free. If anything, competition for award travel might be decreasing because the costs have climbed so much.
It once made a lot of sense to buy miles for an award ticket. 135,000 miles — which cost $4,050 at 3 cents each — to book a first class round-trip ticket to Asia or Europe? Why not?! You might find that you’re paying less to get the miles than you would if you paid for a regular business class ticket. A frequent traveler might earn that many miles each year for free.
Now you might be looking at 220,000 miles for the same trip, but with more frequent sales it seems (in my opinion) that you shouldn’t have much trouble paying about 2 cents per mile — a total of $4,400. The actual cost of buying the miles for an award hasn’t changed much. But few travelers will earn enough miles to book this for free. If you do book an award with your hard-earned miles, it will probably be for business class or coach.
Whether you manufacture spend, buy miles through promotions, or sign up through credit card bonuses, airlines are making it easier than ever to travel at a discount by purchasing miles. Actually buying a ticket? That’s just an afterthought.