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As airlines merge, frequent flier miles decline in value

US Airways-American combine; consumers should expect change, plot strategy

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As American Airlines and US Airways finalize their merger, some travelers are bracing for a new frequent flier program that would raise the number of miles for a free ticket -- a move that would mirror changes from other companies in the travel industry.

In the past several months, carriers including United, Delta and Southwest Airlines and hotel chains such as Hilton, Starwood and Hyatt have modified their loyalty programs to require more award miles or points to claim certain flights or hotel rooms. The changes mean that miles or points racked up through travel or credit card promotions don't go as far as they used to. 

Surviving the winter rewards turbulence

When changes are announced, howls with outrage often emanate from websites such as FlyerTalk, an online bulletin board: "This is not a devaluation, it is an annihilation!" wrote user PointsNmiles, following the announcement in November that United was increasing the required number of miles for certain routes and classes of service. "220,000 miles RT [round-trip] in first [class] to fly to Japan? That is ridiculous! ... What they've done is gutted the program!"

Many of the increases from airlines and hotels are on business- and first-class flights and luxury hotels, with basic awards such as domestic coach flights generally unaffected.

The changes in pricing have left consumers with some distinctly different price tags on their rewards flights. Matt Hague, founder of finance and travel blog site Saverocity, points out, for instance, that a round-trip coach ticket from the U.S. to Japan on United will now cost 70,000 frequent flier miles, compared to just 50,000 on American.

"Why would they keep offering that value, when others in the market are offering the same trip for so much more?" he says. "It's screaming out for a rebalancing."

Merged frequent flier program
The higher reward requirements from competitors are prompting people who follow travel rewards programs to speculate that US Airways and American will follow suit. The airlines closed their merger deal Dec. 9, and announced they will continue to operate their rewards programs without change, for now.  In January, the airlines, which will operate under the American Airlines name, will begin merging their frequent flier programs. In March 2014, the combined airline will drop its affiliation with the Star Alliance, which had been US Airways' multi-airline global partnership ally, in favor of American Airlines' global partner, the oneworld alliance.

Details of the changes have not been announced, but US Airways spokeswoman Michelle Mohr says the airline will "give members even more opportunities to earn and redeem miles from an expanded route network and partnerships."

Changes such as repainting planes, altering routes and merging workforces will likely take years to complete. Merging a frequent flier program could happen more quickly, but will still likely take months, as the airlines integrate technology. The combined airline will also have to pick a credit card partner. Current participants in the US Airways and American programs are expected to have their miles transferred to the new program, estimated to be the world's largest.

Raising the price of free trips
Airlines have long reserved their right to make such changes. In their fine print, they say they may increase their requirements, limit the availability of redemptions, impose black-out dates and fees and even kick out participants who violate the rules. How far they can go is an issue being tested in court: On Dec. 3, the U.S. Supreme Court heard the case of a former Northwest Airlines Platinum Elite member who was stripped of his membership in the program because the airline said he complained too much to airline management: some 24 times in eight months.

There are a number of reasons why airlines and hotels are raising the bar for free redemptions. They often cite increased investments -- renovations, new planes and the like -- saying they must pass along those costs.

In addition, the number of participants in loyalty programs has risen, as has the number of points and miles. When American started the first airline loyalty program in 1981, the only way to earn AAdvantage miles was through flying. Today, people who never fly on American can earn miles through credit card purchases, car rentals, online shopping malls and other avenues.

In the past four years, the number of participants in American's frequent flier program has increased by 16 percent, to 72 million at the end of 2012, according to company securities filings. The number of frequent flier miles the company issues is rising, even as it reduces the number of flights it offers.

"There are lots of ways to earn miles and hotel points that weren't there in the past," says Scott Mackenzie, a travel blogger at HackMyTrip. "So when more miles and points become available, it's reasonable for the number of points needed to go up." 

Also, companies are becoming more sophisticated. In the past, marketing departments ran award programs, while operations departments ran the revenue side of the business. Now, those are becoming integrated, giving companies a better idea of the costs associated with offering rewards, says Dennis Armbruster, vice president and managing partner of LoyaltyOne Consulting, which works with travel and retail companies on rewards programs.

"They're trying to make these programs work harder for them, in terms of not cannibalizing sales they would have gotten otherwise," he says. 

What you can do
To get the most out of points and miles, travel experts offer these tips:

  • Don't hoard. Like most currencies, frequent flier miles and rewards points lose value over time, so don't plan to hold onto them for years. This also lessens the risk that you will forget about them. Most programs will remove what you have accumulated if there's no account activity for as little as 18 months. "You don't want to build up these massive balances and wait for somebody to come in and cut your legs out from under you," Hague says.
  • Concentrate activity in a few programs. Don't focus only on one rewards program, because you'll be vulnerable if the program changes. But don't spread yourself too thin, either. Armbruster says the best offers are targeted at active customers: "If you are active and engaged, you will get much better deals."
  • Explore programs that allow transfers. In addition to airline and hotel companies, major banks such as Chase and American Express offer their own rewards programs -- and the points transfer to more than a dozen airlines and hotels on favorable terms. If you build up points in bank programs, you're less vulnerable to changes in any one airline or hotel program.
  • Redeem awards before changes take effect. Usually, when an airline or hotel announces that more points are required for an award, customers have a few months to book awards at the old level.
  • Remember that there is still value. If most of your miles come from sign-up bonuses and spending on credit cards that you would have used anyway, you still come out ahead -- even with the recent wave of devaluations.

See related: How do I redeem miles on alliance partner airlines?, Credit card perks can save you cash this Christmas, Best ways to redeem rewards points over the holidays

Published: December 9, 2013



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