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Why you say my miles are worthless?

Airline miles. The dreaded phrase the brings to mind thoughts of “never usable,” “blackout dates,” and “pointless (no pun intended).” Airline miles have become harder and harder to use over the last two years, due to higher load factors and filled seats in planes with actual revenue paying traffic. The economy has a direct correlation on how airlines sell plane tickets, revenue or mileage redemptions, and how that has affected the overall availability of award seats in planes. So what has caused this new form of traveling “for free” and why is it harder to travel “for free” now than it was 3 years ago? Why is it harder to use miles, and earn miles now? These are questions of basic economics and the relationship between the economy, and a large driver of the economy: business travel.

During the Financial Crisis of 2007-09, airlines were hurting, bad. Between high fuel costs, and low load factors on flights (for both cargo and passengers), airlines had very slim to negative profits for a long period of time. To thrive in a troubled economy where people no longer flew for business, families did not take vacations to far flung places, (like Hawaii), and an era when technology allowed people to telecommute across the ocean to see loved ones for Christmas, it was difficult to survive.

To combat these low slumps, airlines began to contract with banks, the other troubling party during this time period. Essentially, airlines and banks set up a system for people to travel more while spending money on their daily expenses, rewarding them with airline miles so that they can go to see grandma for Christmas. With that, banks would issue co branded credit cards (co branded with airlines) which would award miles for consumers to charge things to their credit card. With these spending rewards would come large sign up bonus, usually of 100k points after spending a small amount of money. Banks would make money on people swiping their cards to buy groceries, airlines would be happy because they are selling miles, which in turn fills seats, and consumers would be happy because they can travel more. A win trifecta.

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Photo: Wikimedia Commons

How does this relate into today? We created a system where consumers are addicted to credit. Consumers still charge everything to credit cards, still earning miles with their desired mileage programs. From here, the banks still make their 1-3% per transaction, and airlines are still selling miles to turn an alternative profit. There is one small difference here: Airlines are selling plane tickets, a lot of plane tickets. They are filling seats with people who actually want to pay money for plane tickets. The economy has rebounded, which means that business and holiday traffic is up. “Delta Air Lines reported $1 billion in adjusted net income, or $1.27 per share, during the second quarter,” (USA Today). That is the best performance Delta has ever had from a financial perspective. Airlines are selling seats and points, with some ancillary fees (bag fees, upgraded economy seats, etc.) and are raking in the cash. So, what is the downside? Those miles sitting in your United Mileageplus Account.

Airlines are limiting the number of airline tickets that you can purchase with miles. Why? Simple: so they can take real money from people buying over priced plane tickets. The market has been flooded with many points through lucrative sign up bonuses and easy ways to manufacture spend (that is another article in itself), and now everyone accrues points for flying and spending, a lot of points at that.

Although the industry is going in a direction that we do not want to see, I have to admit that there are still possibilities in the mileage world. This year alone I will have flown for 70 flights over 90k miles, majority of which are utilizing airline miles. Before years end, I will have been to Rio de Janeiro, Chicago, Panama and Japan.  It is still possible, even in a world of revenue based systems and limited seats. For that, I provide hope. No matter what happens, we will always find a solution to the world’s points problems, and with that, there is always a way to travel the world for free. The only issue is: how hard will it be?

 

Source:

 

Jansen, Bart. “Delta Announces $1 Billion Quarterly Profit.” USA Today. Gannett, 15 July 2015. Web. 17 Oct. 2015.

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