WSJ: “Frequent Flier Miles Are Piling Up”

6 Comments

Wall Street Journal (WSJ) has an interesting article on its today’s edition about airline miles piling up that a reader alerted us.

The airlines continue to sell miles at a much faster pace than they are redeemed, and as a result, they are piling up on their balance sheets. Eventually, the miles required for awards will go up, so better use them NOW!

Here’s an excerpt from the WSJ:

Most airline points, however, are given for swiping credit cards bearing airline insignia. Banks pay carriers to be able to distribute them, but the bill is footed by merchants through hefty interchange fees.

This may seem a good deal for card users being subsidized by the stores. But they are still paying the “opportunity cost” of not opting for cards offering other rewards. Those that give back cash—often 2% of the purchase value—are a good benchmark: Choosing to accrue miles instead implicitly costs around 2 cents a dollar.

Beating the airlines have become complicated:

Accumulating points can still be fully rational sometimes. When the starting point to accrue miles was distance flown and rewards were more easily available—banks weren’t flooding the world with points—savvy customers could often spot profitable discrepancies between mile and dollar prices.

Yet over the past decade, carriers have increasingly linked mile accruals and redemptions to the amount of dollars spent by fliers, making it easier for revenue departments to set exchange rates that always favor them.

Conclusion

It would serve most consumers the best to end the addiction with frequent flier miles and hotel points, especially if they have affiliated credit cards, and opt for a cashback card or one that allows the member to convert their points to multiple programs.

The amount of miles piling up on airlines’ books is growing at an alarming level, and they might be worth very little when some try to use them down the road.

I am on a quest to burn down most of my miles and hotel points when you still can get some value out of them. I would assume that the redemption will become fully dynamic in a couple of years like the earning with many airlines already has.

YOU MIGHT ALSO LIKE