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Travel

United Airlines mortgaged its frequent flyer program

Here's what that means for United MileagePlus members

Summary

This is an unusual move to get a quick influx of cash. But United Airlines frequent flyers probably won’t see much change – at least for right now.

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Thanks to the pandemic, fewer people are flying. According to TSA checkpoint data, the number of flyers is down 78% from this time last year. Since airlines have a lot of fixed costs, many are looking for sources of cash.

In an effort to recoup losses, United Airlines recently announced a deal to mortgage its MileagePlus frequent flyer program for $5 billion.

See related: Prepping your post-pandemic rewards travel strategy

A quick way to get cash

The mortgage announcement made headlines because airlines are so protective over these programs.

“Frequent flyer programs are like Fort Knox to airlines,” says Burkett Huey, equities analyst at Morningstar. One reason for this is frequent flyer programs are extremely lucrative.

“What people don’t realize is that frequent flyer programs make more money for the airline than operating the actual airlines,” says Peter Greenberg, travel editor for CBS News.

Beyond the miles that customers accrue directly from the airline, airlines sell miles to credit card issuers.

“About 82% of those miles are never going to be used,” says Greenberg.

You can mortgage almost anything that has value. But even to those well-versed in frequent flyer programs, this move seems a little unusual.

“It looks like this is kind of the first deal of its kind,” says Brendan Dorsey, managing editor of Million Mile Secrets.

In the past, airlines have tapped frequent flyer programs to raise money, doing everything from pre-selling miles to selling parts or all of the programs, Dorsey notes.

Zach Honig, editor-at-large of The Points Guy, agrees that the mortgage aspect is unique. “It’s definitely a move we haven’t really seen before in the U.S.,” he says. “What we have seen is programs spun off and managed independently.”

Dorsey adds, “It’s possible [other airlines] will look at doing the same.”

What does this mean for MileagePlus members?

For MileagePlus members, this news might be unsettling. But according to United, this deal will not impact customers at all.

“As part of the deal, United will maintain full control over MileagePlus and there won’t be any changes to MileagePlus members, including cardholders,” says Maddie King, spokesperson for the airline.

Even if the company hypothetically defaulted and MileagePlus is surrendered to the banks, “the underlying economics [of the program] wouldn’t change,” says Huey, who doesn’t believe this will have any impact on the consumer.

Honig concurs: “Ultimately, there probably won’t be any changes that can be attributed to this loan.”

But Dorsey is more cautious about potential long term effects for MileagePlus members.

“It made sense to me that they would use this to leverage cash,” he says. But for program members, “it’s hard to say what it means right now.”

For the time being, though, Dorsey is reassured by the terms of the mortgage.

“What’s good for them – and for members, too – is that they’re not giving up any control,” he says.

See related: Stuck with airline and cruise credits? Here’s how to put them to use

A smarter way to use miles

Regardless of how this ultimately plays out for consumers, this is a wake-up call for any frequent flyer who hoards miles.

“Miles are imaginary,” Dorsey says. “They only have value once you redeem them.”

In fact, these miles normally lose value over time.

“One mile five years ago was worth a lot more than it is today,” says Dorsey.

If the pandemic continues, Dorsey predicts that the airline may “try to squeeze more value” out of the program. If so, “that usually means devaluing the miles,” he says.

This has already started to happen with United miles. In April, United Airlines increased the number of miles required to book a ticket through its partner airlines by 10%, Dorsey notes. So a ticket that was 70,000 miles would now cost 77,000 miles. Though not a huge jump, those miles now buy just a little bit less.

This is why smart flyers adopt the motto of “earn and burn,” says Dorsey.

Honig adds that you shouldn’t think of these miles “as part of your retirement savings … you don’t want them sitting in your account for years and years because, as we’ve seen, they will devalue.”

See related: Best ways to redeem United miles

What to do with your frequent flyer miles

If you have a co-branded credit card and don’t plan on traveling anytime soon, it might be time to reevaluate your rewards strategy and start putting charges on a card with a little more immediate value, like a cash back card, says Dorsey.

You could also opt for a more flexible travel card that doesn’t just earn rewards for flights, he noted.

But for the miles already sitting in your account from credit card spending or flying, you probably shouldn’t immediately cash them out by any means necessary – especially if you’d consider using them for anything other than flights.

See related: United Airlines partners

Airline loyalty programs have always delivered the most value when used for travel. So even as the future value of these miles might be in question, cashing in miles for gift cards or merchandise is not typically the best move. And in light of the pandemic, United has increased the cost of these items, says Honig.

“Now those redemptions are significantly more expensive – you need a lot more miles than you would before,” he says.

Contrary to conventional advice, Honig admits he’s banked over a million miles in his United account. And he doesn’t have any immediate plans to cash them out, citing confidence in the program’s post-coronavirus future.

His advice for anyone in a similar situation: “Look at where you want to travel after the pandemic.”

See related: How to donate unused rewards miles and points

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The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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