Almost exactly 10 years ago I wrote a post similar to this, referencing some programs that don’t even exist anymore. If you haven’t been in this game that long, go ahead and check the cost of awards back then compared to now to help set your frame of reference.
I’ve said many times that points and miles are like a type of currency. They hold value and can be exchanged for either travel, like we often do, or in some cases directly for cash. And just like your US Dollars, British Pounds, Euros, or other “normal” (fiat) money, points and miles are subject to inflation.
In the past when I’ve mentioned this in the context of devaluations, I think some people didn’t really take it to heart. Inflation for the last decade was not as high as it’s been recently, so I think people will take this concept to heart a bit more today than in years past.
The Cash Value of Points & Miles
Points & miles do have a cash value, but how to calculate it will vary from person to person. Airlines and Hotels sell it for one price, you can redeem them in various ways and calculate an cash-equivalent value, and you can sell them for cash in the grey market. Or you can believe a random blogger’s valuation even though they often are paid by those travel and credit card companies.
The thing is, points and miles are absolutely not cash. There’s no real way to generate a return on your points and miles. Unlike cash, you can’t put them in a CD, buy a mutual fund, or purchase real estate in hopes of growing your balance. Your 100K points today will be 100K points in 5 years if you don’t spend or add to the balance otherwise.
Most people have seen in the past two years how prices of everyday items can increase so quickly. Whether you’re talking about something as big as a house or new car or as small as a dozen eggs, we’ve seen prices increase significantly. The short version is that it’s partly a supply and demand issue and, at least in my personal opinion, partly a profiteering issue. These same forces apply to the points and miles world.
Don’t forget that airlines and hotels are for-profit businesses. Many are publicly traded companies that have a responsibility to make more money for shareholders. These companies are subject to cost increases for supplies/materials (and employment costs) like the rest of us, and want to make more money on top of that. I wouldn’t be surprised if the thought process is to make as much money as possible today to make up for Covid-related shutdowns and in case there’s a slowing economy ahead.
That leads to higher prices. Your airfare costs more and your hotel rooms definitely cost more. And what of your points? Well, for the most part, those travel companies have already made money off you with those points (some airlines make more money from their loyalty program than by flying) . Somewhere along the way they made money getting the points to you, whether it was you flying/staying with them, spending on a credit card, or just buying points/miles outright. Other than goodwill and “loyalty” they really have no incentive to help you use those points and miles for seats or rooms that could otherwise make them more money.
That leads to devaluations, or inflation. These travel companies reduce the utility of points and miles so the value to you decreases. There’s a number of ways to do this, but the two most common are:
- Increasing the amount of points/miles it takes to redeem an award
- Reducing the amount of points/miles you can earn from particular activities
That first one is what we normally consider a devaluation. A flight that costs 50K points/miles yesterday might now cost 65K points/miles. Maybe a hotel will add a new category for high-end properties, maybe an airline will limit how many tickets they’ll sell for Business Class awards. There are so many ways they can do this, and it happens all the time. United Airlines just had a massive devaluation recently.
That United Airlines devaluation was in the range of 30-45% for many awards. If you were holding onto United Airlines miles or Chase points with the intention of transferring them to United, then those points and miles are instantly worth 30-45% less. It may not be as essential as eggs or a car, but that’s still a big hit.
So, What Should You Do?
The advice here is simple: you have to use your points and miles as soon as possible. Whether that’s by booking a trip for yourself or selling them to family/friends (i.e. booking a trip for them that they pay you in cash for), you have to use them as soon as possible. Note that last suggestion may violate terms and conditions, but I won’t tell them that’s what you’re doing.
Many people need to save for a big trip like a honeymoon or a family vacation. Saving in this case is absolutely understandable, as long as you’re aware of the potential consequences. I helped someone book a big family trip using United miles that the family had been saving, and luckily we booked right before United’s devaluation. A week later and that trip would have been impossible to book for the entire family. Be aware of this possibility. It won’t suck less, but you won’t be blindsided at least.
The other thing you can and should do, whenever possible, is to earn transferrable bank points. Someone with a large United Airlines balance would be screwed, but someone with a large Chase Ultimate Rewards balance would be in relatively better shape. Maybe a transfer to Aeroplan or another airline could yield less-bad pricing than United’s new devaluation pricing. Having options with transferrable points is almost always better.
With certain programs this isn’t usually necessary. Southwest, for example, has a program that largely uses a fixed points value. Your points are probably worth around 1.5 cents each if you’re booking a “Wanna Get Away” fare with them. Southwest could still make a massive change to their program overall (they used to be worth around 1.8 cents before) but that’s rare and usually has an advanced warning. Usually.
So…use those points and miles. By most measures they become and less and less valuable every day.