Many bloggers and posters of frequent flyer programs love to go “woe is me” and implying that the airlines are screwing everyone by devaluing your hard earned miles. I think that nothing more is happening here than the laws of economics – yes, economics applies even to miles and points!
Basic economics dictates that the worth of a dollar or other monetary unit, is equal to the worth backing that currency and the amount in circulation. Increase the amount of currency and the worth of each dollar decreases proportionately. This is called inflation. My lovely wife, for example, cannot understand why the U.S. does not just print more dollars to pay off our debt. I am done trying to explain the concept of inflation to her (this argument went the way of why algebra uses “x” – we almost got divorced over that) so will hopefully do a better job with you.
Every time that an airline or hotel issues a mile or point it is just as if they printed a dollar. When there are not many miles in circulation, the value of a mile is relatively high and can be redeemed for a high value product. This would be the 80’s. If miles were redeemed at the same rate they were spent, everything would be fine. However, airlines and hotels discovered that they could actually sell their miles instead of just giving them away for free to customers who used their asset. They started selling them first to credit card companies and later to many other services, such as mortgage companies, in order to develop a very lucrative cash stream. Think about it, these credit card miles are just a bunch of electrons that may or may not get redeemed for a product that is often not sold such as empty airline seats or rooms. This results in more and more miles in circulation.
As more miles get printed, more people start chasing the same amount of assets (seats and rooms). They become hard to get and people start to rebel and stop buying the miles. In order to keep the market going, the airline raises the price of a free seat, making them harder to afford therefore more available. People shout and complain about “devaluation”, but what you are really witnessing is classic inflation.
As the market picks back up, more companies buy even more miles and the cycle continues. The economic term for this is an inflationary spiral. This is why a free economy round trip has gone from the original 20,000 miles in the ’80s to 25,000 in the ’90s and I find 50,000 is very common in today’s market. Pro tip – always check the price of the First Class ticket compared to the coach, it can often be the same because few people check for FC. Back to the lesson. As someone who has collected miles since 1986, I can tell you that they were hard to earn back then. Even with the credit card, there were no 100,000 mile bonuses like you see today. Scoring 25,000 miles from a mortgage in 1994 was huge. The majority of big mileage makers were businessmen who traveled a lot. This is the main reason that the Pudding Guy became so famous as earning a million miles was really something in those days.
Nowadays, guys like Greg, the Frequent Miler, can earn a million miles in one month of credit card and other bonus tricks! Note that the airlines react to this inflationary spiral by trying to keep selling the “good miles” to credit card and other companies and minimize the “bad miles” which are those they give away for free to people who fly. They are just trying to maximize their shareholder return and if you have airline stock you should appreciate that. So what do you do in this inflationary environment?
Ironically, my best advice is to earn miles faster than they can raise their prices for redemption. I know that this only continues the cycle, but it is really all the individual can resort to keep the value of their accounts. In monetary inflation, you actually lose value by keeping them in a bank that earns half a percent interest. Similarly, don’t worry about your account balance. Use them whenever you are getting a good return against the alternative of purchasing the ticket or room, but don’t burn them for the sake of burning them. A big need for miles could be just around the corner and you need to keep some reserve. In the past, I would make back these miles through a combination of credit card purchases (good miles) and flying on business-paid or cheap vacation fares(bad miles). What the airlines are changing now is going to a revenue-based method of giving you those free “bad” miles. UA and DL are going there next March and, much like baggage fees, all will eventually conform.
So keep flying, but concentrate on earning more of your miles through those lucrative bonuses, smart credit card use, and other ways to collect large amounts of miles for little effort (or money). The industry will continue to find and try to shut down these avenues for you. Witness the shutoff of the CVS/ Vanilla Reload “easy button” for MS. This will continue to be a game of cat and mouse as the Boarding Area bloggers find a new method, let you exploit it, and then see it shut down. I never said this was going to be easy! But it should still be fun if you are the type of person who enjoys solving a puzzle and getting a pretty good reward for a few hours of your time each week. If you discover your own trick please share it, but do so discretely. I suggest posting on here your rough idea or plan and let people email you for the details. Good luck in the Grand Game!