Travel Rewards Credit Cards

Nov 05

Mileage devaluation: When an airline increases mileage “pricing”

When the first frequent flyer program was created, airline managements simply had no idea how popular they would become.  No one saw a tie-in with credit cards, shopping, etc.  And while those enhancements have dramatically raised the profile of frequent flyer programs, The downside, however, is that there are far more miles out there than there are seats to fly them, meaning that airlines have only two choices: Give out fewer miles or raise prices.

When you receive miles from someone other than the airline (for example, when you get them from shopping), the merchant who gave you the miles actually bought them from the airline to give to you, so the mileage programs are great revenue generators.  Guess what the airlines think of the idea of giving out fewer miles?

So the other choice to handle “miles inflation” is to raise prices.  All of a sudden, that ticket that used to cost 40,000 miles costs 45,000 or even 50,000.  That’s up to a 25% price increase and takes care of a lot of the excess miles in the system.

I bring this topic up because United just made a rather nasty adjustment to its mileage charts, effective on February 1, 2014.  If you are flying on United’s own planes, increases are 10-15%, although not all categories were raised.  But it’s on the partner airlines where things get ugly.  Feel like using your United miles on one of its partners?  Good luck with that.  Price increases were up to 70% or more.

In the real world, inflation tends to come pretty steadily at 2-3% per year.  In the airline world, it only tends to be every few years, but with much sharper increases.

My advice is to spend you miles when you can, since they don’t earn interest and rarely become more valuable over time.  It’s always good to have some on hand in case an emergency arises, but hoarding millions of miles will just get you hurt in the long run.

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