Airlines change from miles to price-based rewards
American joins Delta, United in awarding points for cost, not distance
By Tony Mecia
The three biggest U.S. airlines embraced identical frequent flier programs that dramatically alter how passengers earn reward miles for free flights -- and for most travelers, it's bad news.
American Airlines announced Nov. 17 that beginning in the second half of 2016, it is joining United and Delta in overhauling how fliers earn frequent flier miles. Instead of basing miles on the distance of the flight, the airlines are pegging rewards earnings to price of the plane ticket. Delta started the price-based approach in January 2015. United followed suit in March 2015.
The altered way to earn miles should cause credit card holders to reassess their travel reward cards, to see if the ones they have match their travel and spending habits. Travelers might also need to adjust their expectations of airline award programs, which for all but hard-core travelers are becoming less generous.
"Like the era of low fares that has passed us, the era of cheap awards has just about reached its end," says Robert Mann, an airline-industry analyst with R.W. Mann & Co. in Port Washington, New York.
With the changes, most travelers are likely to earn fewer miles from flying than in the past. The most-frequent fliers, however, are likely to earn more. American and the other airlines are also increasing the miles needed for some award tickets, especially those in business and first class.
HOW PRICE-BASED REWARDS WORK
Instead of awarding frequent flier miles by the distance flown, all major U.S. airlines will award them based on the cost of the ticket. Features of the new programs:
1. Most customers (those without elite status) will receive frequent flier miles equal to the cost of the fare multiplied by five. Elite fliers have a higher multiplier, up to 11.
2. Earnings from credit cards will remain the same: 1 mile per $1.
3. Airlines have also been increasing the number of miles needed for free flights, especially in business and first class.
Use of airline credit cards will continue to earn miles at the same rates as they did previously, typically one mile per $1 charged.
Analysts say that changes to airline reward programs could sour customers on airline credit cards, if they perceive that awards are now too hard to earn, on top of perceptions that frequent flier miles are already too difficult to redeem.
"One could argue that the moves that are being made now are going to disenfranchise or disadvantage the rank-and-file members, many of whom hold a credit card," says Jay Sorensen, president of IdeaWorks Co., a Wisconsin-based airline consulting firm. "This creates the opportunity for competing cards to perhaps poach members who feel disaffected."
Other types of cards, such as general travel reward cards or cash-back cards, generally have more straightforward ways to earn and redeem reward points. However, airline cards tend to offer perks that other cards can't offer, such as free checked bags and expedited boarding. They typically come with generous sign-up bonuses that offer enough miles for one or two domestic round-trip tickets.
Coach fliers hardest
In announcing the changes, American said it is taking the "first step in the evolution" of its frequent flier program. The airline said it wants to "ensure we're rewarding our most loyal customers with the benefits they value the most."
Those at the top -- Executive Platinum members -- will almost certainly wind up with more miles than before. To get that status you need to fly 120 flight segments a year or a minimum number of miles that varies based on whether they're flying coach, business or first class.
Casual coach travelers are likely to earn far fewer miles per trip and receive rewards less frequently.
For instance, say you live in Seattle and fly American to see your mother in Philadelphia three times a year, on a nonstop coach ticket that costs $400 round trip each time. Since the round-trip distance between those cities is about 4,740 miles, you would earn 14,220 miles per year from flying under the current plan. Every two years (six trips), you would accumulate enough miles for a free domestic round-trip coach ticket, which is 25,000 AAdvantage miles. To earn that ticket, you'd hypothetically have spent $2,400 on airfare.
But under the new plan, if you do not have elite status, you earn miles equivalent to five times the cost of your ticket, so each $400 trip earns 2,000 miles. At that rate, you would need more than 13 trips -- four years' worth -- to earn a free ticket to visit mom. For that ticket, you will have spent $5,200 -- more than twice as much as under the current program.
People might start asking, 'Would I be better off just taking the 2 percent cash rebate that a lot of these cards now offer?'
Airline analyst, R.W. Mann & Co.
Executive Platinum members will earn frequent flier miles at a rate more than twice as fast, because they multiply the cost of a ticket by 11 instead of five. They're also flying a lot more, and probably on pricier tickets.
"If you are a casual flier on these lower fares, it's a pretty significant devaluation," Sorensen says. "If you are a high-fare, high-frequency, premium-class traveler, you will have more miles than you know what to do with."
All four major U.S. airlines -- American, Delta, United and Southwest -- now have strikingly similar structures for earning frequent flier miles. The new programs at American, Delta and United give miles on the price of the flight, multiplied by a figure between five (no elite status) and 11 (highest elite status). Southwest awards miles based on the amount of the fare multiplied by a figure between six (cheapest fares) and 12 (business fares).
Brace for more
Sorensen says he sees more changes ahead, especially in the area of redeeming awards. For airlines, he says, it makes sense to link award redemptions to the price of a ticket, too, as opposed to an "arbitrary currency" of airline miles. Most round-trip coach award tickets on American, Delta and United start at 25,000 miles, regardless of the cost of a purchased ticket on the same flights.
"There is more unfinished business that has to occur," he says.
Southwest, for instance, makes award seats available on every flight, but the number of points required varies based on the cheapest available fare.
Experts say the best advice for consumers is to understand the new programs and how soon they can expect rewards. If you have a miles-earning credit card, but you're becoming less loyal to that airline because rewards from flying are harder to earn, it might make sense to explore other options, says Mann, the airline-industry analyst.
"People might start asking, 'Would I be better off just taking the 2 percent cash rebate that a lot of these cards now offer?'" he says.
See related: How to react when your reward program changes, What that 'free' airline award ticket will cost you
Published: November 23, 2015
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