Travel Rewards Credit Cards

Nov 13

Airline mergers: What does it mean for miles?

Yesterday, American Airlines and US Airways announced that they had settled with the Department of Justice and would be merging.  So what does that mean for miles?

The answer: Not much.  Technically, US Airways is purchasing American, but the American Airlines brand is better known, so that is what the new airline will be called.  Any US Airways miles will likely be turned into American miles one for one, so there is no net loss.  It will be slightly harder to redeem for tickets, since total capacity will be down a bit, but the number of destinations that you have open to you will go way up.

So there shouldn’t be any concerns regarding miles.  Just head forward as you normally would.

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Nov 11

More about devaluation…

As discussed earlier, airlines will often raise prices of awards, thereby devaluing their programs.  One thing I forgot to mention is that one of them does it, the others often follow suit.  Why?  Because they can.  It’s the same way that my 4-year olds always want to be line leader and see everyone go after them.

In this case, it was Delta and Hyatt Hotels that picked up the trend.  Delta devalued for the second time this year, which might be a record.  Hyatt, a pretty well regarded program, also jumped into the game.

I like to joke that I never want to have more miles than I need for an emergency trip to Bali in first class, but seriously, hoarding only gets you hurt.  Spend as you get them and then earn more, saving only a smaller amount for an emergency.

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Nov 08

Why are airline tickets priced so crazily

Many people have seen the analogy comparing airline pricing with paint, but rarely are we given an insight into why the pricing is so crazy.  I hope to provide a little bit of that explanation.

The Economics 101 explanation would be “supply and demand.”  But S & D is too simplistic.  If it were that easy, you would price airlines like paint.  If you need paint, you go to the store and get some.  If lots of people want paint, the price goes up.  If few people want it, the price goes dow.  But the manufacturer can always make more paint.

Airline pricing is far more complex.  Let’s use a different analogy that explains, rather than demonstrates, the intricacies of pricing.

You are taking a class with a very unusual grading system.  It’s a pass/fail class, and the only way that you can pass the class is to obtain one of the 21 beads that the professor is holding.  The professor tells you that there are only two rules: You must buy a bead from him in an auction and each student may have only one bead.  You look around the room and notice that there are only 20 students.  Since each of the students can only have one bead, there’s no need to bid high.  You can let each of the other 19 students buy a bead and still have two left to buy.

But then the professor throws a twist into the system by flushing two of the beads down the toilet.  All of a sudden, the beads have become that much more valuable.  Each student needs one to pass the class, but there are fewer beads than students.  The bid prices are going to go much higher.

And the question is, so what?  The above example seems like a simple supply and demand equation.  Less supply than demand leads to higher prices.  But there are other factors to take into account.

First, there’s a matter of time.  Once that plane takes off, if the seat is empty, it’s worthless to the airline.  Thus, the airline has every incentive to sell that seat.  Advantage passenger?

Not quite.  The airline has years of data, telling them what the demand for any given time will be.  By adjusting the supply just a little bit, as the professor did above, it can make prices go much higher.  If it prices a seat too high, it can always adjust it lower.

The airline also has another advantage: it knows why you are flying.  An airline passenger who books a flight several weeks or months in advance is likely a leisure traveler.  That passenger does not have to travel since, if the price is too high, they can always do something else.  Those passengers are price-elastic, meaning that a small move in the price will have a large impact on the passenger’s decision to fly.  On the other hand, a passenger who buys a ticket only a few days out is likely a business traveler, since business travelers often have to fly on short notice.  The airline knows that that passenger has to fly, no matter what, and likely will pay any price for that ticket.  That passenger is price-inelastic.  The airline has all the power in that situation.  In the situation with the professor, imagine that there are a couple of types of students.  Some are just there for the fun of it.  They don’t necessarily need to pass the class, they’re just trying to learn.  But other students are taking the class for a requirement to graduate.  They need to pass the class and are willing to pay more for the beads.

Airlines have sophisticated revenue management systems which tell them how to price tickets.  The systems tell them everything from how those tickets sold at the same time in the previous year to how many people looked at tickets for a certain flight and chose not to go, implying that the tickets were priced too high.  The computers can run all sorts of simulations and determine what even a small change in price or supply will do to demand in an attempt to maximize their revenues.

Airlines are further segmenting travelers with ancillary revenues.  Ancillary revenues are any revenues that the airline generates that aren’t part of the ticket price.  For instance, some airlines will sell you a very cheap ticket, but force you to pay to check a bag, choose a seat or even carry on luggage.  These airlines often appeal to the most price-elastic customers who want to pay as little as possible and don’t mind passing up some amenities, such as the ability to select a seat ahead of time.

Airlines also sell tickets in various fare classes.  Fare classes offer the ability to pay more or less for a ticket on the same flight.  For instance, I may need a ticket that is fully refundable if something goes wrong and allows me to upgrade for free or a cheap co-payment.  You may not care about those amenities.  Thus, I would buy a ticket in a higher fare class.  In the example below, I have show a ticket on US Airways from Boston to Charleston, SC.  There are four different fare classes and each one offers different amenities.  The more amenities you want, the more you will pay.  In this case, the fares range from $100 to $692, a massive difference.

 

  • 1904
  • 5:00 AM BOS
  • 7:14 AM CLT
  • 1809
  • 9:21 AM CLT
  • 10:18 AM CHS
(1) 5h 18m   $100  $370  $611  $692

 

As a passenger, you will never know the “best” price for the ticket you want, but you should at least be aware of the factors that go into those prices.

 

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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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And finally, you can apply for credit cards through the Credit Cards for Charity link above. All card proceeds are donated to charity, so please do well by doing good!

Nov 04

Shopping for miles: 17 American miles per dollar spent at Nieman Marcus

In the Shopping for Miles section, I discussed earning miles by shopping through an airline’s website.  You can get some good deals, but you rarely get more than three or four miles per dollar spent.  Often, the biggest rewards are for merchants you may never have heard of who are willing to offer great rebates just to get some business.

But occasionally, you get a gem.  Or a place that sells gems.  Or a place that sells clothes priced like gems.  In this case, I’m referring to Nieman Marcus.  Planning on doing some shopping there?  Well, now’s a good time, since you’ll get 17 American Airlines miles per dollar spent through Thursday, November 11 (Thanks to Wendy for the email.).  We haven’t yet discussed how to value a mile in dollar terms, but I generally seem them as worth 1-2 cents each.  Thus, in mileage terms, you are receiving somewhere between 17% and 34% back on a purchase.  Enjoy!  Added bonus: Through the end of January, they’ll throw in free shipping.

You can see the deal here.  Before making a purchase, I always recommend a very simple process known as clearing your cookies to ensure that the purchase tracks properly.

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And finally, you can apply for credit cards through the Credit Cards for Charity link above. All card proceeds are donated to charity, so please do well by doing good!

Nov 03

Weekend Updates

A few updates this weekend:

  • I started on the glossary, which is now its own page.  If you have any suggestions for terms, particularly ones that I have used, that should be in there, please let me know.
  • I added direct links to the various alliances in the post about airline alliances.
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Nov 01

An easy way to earn miles: e-Miles.com

One of my favorite types of posts is ways to earn miles without actually flying.  As we saw in the “Shopping online” section, it can be easy to earn miles on the ground.  Rarely do you hit the miles jackpot with these options (It’s usually 500 miles here, 1000 there, etc..), but they add up.  Surveys and ads can be an easy way to do so.

One program that I use is called e-Miles.  Sign up at this link and then fill out the short form.  On the last page, choose your interest in their various categories.  Hint: the more “High Interest” categories you have, the more mileage opportunities they will offer you.  And that’s it!  Disclosure: I may get something from e-miles if you use that link.  Thank you in advance.

Note: They do not send ads to your inbox, so you won’t be getting spammed.  Instead, you go to e-miles.com and log in.  Once you log in, you’ll see a list of opportunities.  Some will look like this:

 

offer preview Disney: Great Fall Savings at Walt Disney World Resort! 5No thanks, remove

 

You’ll click on the “5” and then hit “Continue” on the next page.  You can ignore any ads that pop up, answer 3-4 yes/no questions on the following page and you’re done, five points richer.  The whole process should take you about 15 seconds.

Other ads will look like this:

offer preview Everything you need for your Gatlinburg vacation is right here in the Free Vacation Guide and Gatlinburg Emails. You’ll be thankful to have this information to help plan your vacation! 5  +  5No thanks, remove

Note the plus sign.  That means you get five points for clicking on the link plus another five points for taking an additional action.  Some actions can earn you hundreds or even thousands of points, so it could be worth a few seconds.  In this case, the reward is much lower, but all they want you to do is submit your e-mail address in the ad for those five points.  That will add you to their mailing list, but you can avoid spam by having a back-up email.  I have two addresses: my primary one and one to receive these types of promos.  That way, you never have to see the emails if you don’t want to.

What can you earn?

Rewards are very easy to earn on this site.  In terms of airlines, 500 e-Miles points will get you 500 frequent flyer miles on United, US Airways, Southwest, Frontier or Alaska Air.  But you can also get gift cards, such as a $10 Amazon or Starbucks gift card for 600 points.

There are no real downsides to this program.  It is free and redemptions are free.  Generally, I can earn 500 miles every week or so.  Doesn’t sound like a lot, but that’s 25,000 miles per year!  Enjoy.

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And finally, you can apply for credit cards through the Credit Cards for Charity link above. All card proceeds are donated to charity, so please do well by doing good!

Oct 29

Elite Status: Extra freebies for frequent travelers

For those travelers who fly more than 25,000 miles per year on a particular airline (or airline alliance), you may be eligible for Elite Status on that airline.  Think of it as a bonus on top of the miles that you are already earning.  The airline keeps track of not only the miles that you have flown in your lifetime (which are redeemable for rewards, as discussed here) but also what you have done in a calendar year.  The more miles you fly in a year, the better your perks will be for that year.  For example, on American Airlines, if you fly 25,000 miles in a year, you’ll get to check a bag for free and use a priority security line.  If you fly 100,000 miles, you’ll receive “Executive Platinum” status, which not only gets you that free bag and priority security access but also a special phone number to call, chance for a free upgrade and, when you land, your bag will be tagged as the first one to come off the plane.  Note that these are only some of the benefits that you receive, with the entire list available at each airline’s website.  While each airline has individual nuances for its program, the benefits tend to be very similar from program to program.  It’s also worth noting that airlines will often reward you with elite status based on the number of flights you take, in addition to the miles you fly.

One nice thing about elite status is that it lasts for at least two calendar years, the year you earn it and the following year.  So if you fly 25,000 miles on a particular airline in January, 2014, you’ll receive their first level of elite status for not only the rest of 2014 but also all of 2015 (in addition to a bad case of deep vein thrombosis.  Most airlines have only three tiers, which begin at 25,000, 50,000 and 100,000 miles flown in that calendar year, although some have two and some have four.  You’ll want to check with your particular airline to see what its program offers.

Since elite status can be so valuable (First class seats are awfully comfortable!), some airlines are making it trickier to earn.  For instance, Delta and United Airlines have added annual spending minimums to achieve elite status.  Others are making cheaper tickets only count 50% toward your elite status qualifications.  Charges like bag fees and upgrades are very profitable for airlines; the carriers have become reluctant to give them up.

Note that hotels offer similar programs, although the rewards vary so much between brands that each chain needs to have its own post.  But the goodies are there for your stay, as well.

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Oct 28

Airline Alliances: What are they and how do they work?

We’re moving into FF Miles 102 territory, but it’s important to understand the ideas behind airline alliances.  Simply put, an alliance is a partnership between two or more airlines, making long-distance travel easier.  There are three main alliances: Oneworld, Star Alliance and SkyTeam.  And while two US Airlines can be in the same alliance (US Airways and United are both in Star Alliance, for instance.), the greatest benefits come from domestic and international partnerships.

Example: You need to book a flight from Miami to Munich.  Since American Airlines is the largest operator out of Miami, you choose them for your flight.  But American doesn’t have a flight to Munich.  Rather, it relies on British Airways, its Oneworld partner, to pick up the connection in London.  You’ll fly American from Miami (MIA) to London Heathrow (LHR), land at 8:40 am, and then change to a British Airways flight there for the connection to Munich.  Here is how the page on American’s website looks.  Note that it tells you that the connection is on a different airline but allows you to book the whole thing on its site.  This way, you don’t have to search for connecting flights yourself.  

 

AA logo 56 07:05 pm MIA 08:40 am LHR
AA logo 6545

Operated by
British Airways
12:40 pm LHR 03:30 pm MUC
  • Overnight flight or connection
  • Terminal change

 

From a mileage perspective, these partnerships are extremely important, because airlines usually allow you to earn miles on a partner’s flight.  In this case, the passenger can earn American Airlines miles (or British Airways miles, if you are so inclined) on not only the portion flow on American but also the portion flown on British Airways, thus building your collection of miles on one airline.

On this flight, the two airlines also have a Codeshare Agreement.  The codeshare means that more than one airline are selling seats on a particular flight using different flight numbers.  For instance, in the above example, American Airlines is selling you the flight from London to Munich as part of your connection from Miami.  For you, that flight is AA 6545, although it is flown by British Airways:

 

American Airlines

6545

Operated by British Airways

London (LHR)
November 13, 2013 12:40 PMTravel Time : 1 h 50 m
Cabin Class : Economy
Seat : unassigned
Munich (MUC)
November 13, 2013 03:30 PMBooking Code : Y
Plane Type : 319

But you’re not the only passenger taking that flight.  For instance, if a passenger in London simply wanted to book the London-Munich portion, they’d go to British Airways and book the following:

 

12:40 13 Nov 15:30 13 Nov
British Airways BA0952

Only 5 seat(s) left at this price

  Only 5 seat(s) left at this price Lowest

Same flight, same plane, but a different flight number, in this case BA 0952.  Note the “BA,” since it was booked through British Airways.  And to complicate matters, there may be people from all over the world with several different flight numbers, even though it is the exact same flight!

Fortunately, it’s not as complicated as it sounds.  The flight number represents the original airline that booked the flight and is simply a way to facilitate connecting.  For you, it doesn’t matter how many different flight numbers there are; the computer does all the work for you.  You simply need to know that your flight is called AA 6545, even though it is actually operated by British Airways.  There’s the benefit of the partnership: American is delivering a passenger to BA, who picks up where American left off, allowing passengers to make a virtually seamless connection instead of having to find their own way among airlines.

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Oct 27

Choosing a frequent flyer program: Which one is for me?

So you’re just getting started and about to build your frequent flyer account.  You’re now ready for the most important question: What airline’s program should I choose?

And the single best answer is: It depends.  Sorry about that, the answer may not be so easy.

Truthfully, like many things in life, the best program for you may be chosen for you, rather than the other way around.  If you live in a city where one or two airlines dominate, such as Philadelphia (US Airways), Seattle (Alaska Air), Dallas (American Airlines or Southwest) or many other major cities, the best option is simply to choose to fly the dominant airline.  That airline will have the most options for you, including non-stops, and it simply doesn’t make sense to choose a program that is going to make flying inconvenient for you.

But if you live in an area where there is no dominant carrier, you have some options.  So here’s a few things to consider:

  1. Is there a city that you fly to often?  If so, see what airlines have non-stop flights.
  2. Do you have family members that like a particular airline?
  3. Do you have a preference for an amenity on a particular airline?  For instance, if you have a family with small children, you may want to choose an airline that has television onboard, such as Jet Blue.  If you need wi-fi on every flight, try a carrier with strong wi-fi coverage, such as Southwest or Delta.

But here’s the bottom line: When you’re just starting out, choose your flights based on price and convenience (and not necessarily in that order).  It is rare that you should be choosing a flight based solely on frequent flyer miles (although there are a few occasions, which I will discuss over the next several weeks), so when you’re starting anew, do what’s going to make your travel easiest and let the program choose you.  You’ll probably find that you are flying one carrier more than others over time, and you can take it from there.  Eventually, factors such as elite status and alliances (relatively simple concepts that I will discuss next week) will also impact your choices.

 

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And finally, you can apply for credit cards through the Credit Cards for Charity link above. All card proceeds are donated to charity, so please do well by doing good!