The value of loyalty schemes is depreciating fast. Jenny Southan investigates why your miles and points are reaping fewer rewards, and what you can do about it

Frequent flyers need to keep track of two types of currencies – “real-world” pounds, dollars and euros, and the “virtual” miles and points they accumulate through airline and hotel loyalty schemes.

Back in the 1980s, when Virgin Atlantic launched its Freeway programme – an early incarnation of Flying Club – the rewards were much simpler. “I think the deal was that if you flew Upper Class you got a free economy ticket,” says Alan Lias, the airline’s head of loyalty and ancillary revenue.

Nowadays, you need to have accrued thousands of miles from numerous flights (or partners) to get the same benefits, often with fees and taxes charged on top. The problem is a consequence of inflation – just as the purchasing power of real-world currencies depreciate over time in response to market forces, so too do miles and points in the travel industry.

Far from being a low, steady rate of inflation, loyalty members are complaining of dramatic and sudden jumps in the number of points and miles required for free nights and flights, along with higher tier status thresholds, black-out and expiration dates, route restrictions and reduced award seat/night availability.

All of these changes immediately devalue balances and may even coerce travellers into spending more cash to get what they want. As Brad Benton, director of rewards global programmes at Marriott International, says: “Our goal is to drive more paid business into our hotels.”

Since the beginning of the year, US-based members of Delta’s Sky Miles Medallion programme now have to fulfil minimum annual spend requirements to qualify for silver, gold, platinum or diamond status in 2015 (see below). United introduced a similar model last month for those looking to achieve Mileage Plus Premier status. It shows that legacy carriers are beginning to move over to revenue-based models, which have, until now, been favoured by low-cost carriers such as Southwest Airlines, Jet Blue and Virgin America.

“The distance flown is no longer the sole way to determine how frequently a customer is travelling with you, or who is the best or most valuable customer,” says a spokesperson for Delta Sky Miles. “What you are seeing industry-wide is a recognition that the amount of money a customer spends is an important component that will continue to be looked at.”

Tim Winship, founder of frequentflier.com, says: “Now Delta and United have done that, it’s a pretty fair expectation that American will do the same.”

The erosion of generosity is an emotional subject for any business traveller – when you sense your loyalty has been undermined, the normal reaction is to feel personally affronted. You only have to read frequent flyer forums to see how worked up people can get, with threads given headings such as “Is Intercontinental Hotels Group taking the p**h?”

After taking a deep breath, it’s worth considering why these changes are happening. First, to increase profitability and ensure sustainability. As hotels invest in revamps and expansion projects, and airlines pour money into their onboard products (flat-beds in business are now the norm), the costs, it would seem, have to be met by the customer – either directly, through increased rates, or indirectly through adjustments to the structure of loyalty schemes.

Virgin’s Lias acknowledges that it has been “quite lean” for the frequent flyer programme (FFP) member. He says: “Legacy carriers have lost billions and billions of dollars over the past 20 years and what tipped it over the edge was the banking crisis in 2009. Many airlines went through a process of consolidating and decreasing capacity to drive more yield.

“With more and more big airlines getting together, it has taken a significant amount of capacity out. The result is a reduction in the availability of rewards, and given there are trillions of miles out there, the response has been to make the perks side of things work a bit harder.”

It could be argued that virtual currency redemption rates are more stable than real-world currency prices, which fluctuate daily or even hourly. So although hikes in redemption rates may come as a shock to the consumer, it is simply because they are more noticeable.

Still, a contributor to BA Executive Club forum moreflyingtalk.com says it is not as simple as that, and that the repercussions could be damaging. “There is no loyalty in loyalty programmes,” says timnicebutdim. “Companies need to understand that customers plough thousands of pounds their way, but if they devalue their programme without a second’s notice then this infuriates some customers.”

As with real-world currencies, inflation is exacerbated by the issuing of yet more tender – think of hyperinflation in Weimar Germany in the 1920s, when people had to queue with wheelbarrows of notes to buy a loaf of bread. In the same way, the constant issuing of billions upon billions of points – through double/triple/quadruple miles promotions, partnerships and credit card bonuses – weakens their value.

Randy Petersen, founder of flyertalk.com, says: “These programmes have become so ubiquitous that when I go to get my teeth cleaned, the hygienist talks about her miles because she earns them with her credit card.” In 2004, The Economist estimated that there were 14 trillion unredeemed miles in circulation (although FFP news and advice site webflyer.com later put the figure at 23.8 trillion) – the value of which also somehow needs to be accounted for by the industry.

Like money, miles are only worth what they can be redeemed for. Although travel companies rely on the fact that a good chunk of them will never be cashed in, one way of reducing the liability they have for providing all the rewards themselves (as well as generating additional revenue) is to take on partners and create online shops.

Lufthansa’s Miles and More scheme is linked to more than 300 affiliates, ranging from alliance carriers, car rental firms and hotels to spas, duty-free stores and tech brands. Members of Virgin’s Flying Club who have 1.2 million miles to spare can even nab a seven-night stay on Richard Branson’s Necker Island. But as Lias notes: “Most collectors want to redeem back on flying.”

Far from solving the problem, taking on partners, particularly credit card companies, increases the number of miles and points out there, contributing to depreciation. Brian Kelly, founder of thepointsguy.com, says: “In the US, you can get tonnes of miles just from doing online shopping and never stepping on a plane, and it’s not like they are adding more flights to keep up with demand [when it comes to spending them].”

He adds: “It is easier in the US as our credit cards are far more lucrative – in the UK you are lucky to get 15,000 or 25,000 points as a sign-up bonus, but in the US we have about 100 really good cards and some give up to 100,000 miles.”

John Ollila, loyalty expert and founder of loyaltylobby.com, agrees: “Loyalty-branded credit cards offer the general public a way of obtaining status they wouldn’t normally obtain through stays or flights.”

In November, Ollila was sent a Chase credit card offer from Hyatt, offering elite Gold Passport diamond membership “for as long as you are a cardholder” – giving anyone that was approved top-tier status without even setting foot in any of its properties. (This later turned out to be a mistake – the offer being for lifetime platinum.)

All this might sound good, but there are wider implications. Rockhopper, a contributor to our online forum, wrote last April: “While the hotel company may gain revenue through these sales channels, it completely dilutes the benefits for me as a loyal guest as well as making redemptions more expensive and less available.”

The number of global loyalty members is rising – Delta Sky Miles has 90 million (up from 70 million in 2009, when it incorporated Northwest’s World Perks), while IHG Rewards has 76 million (up from 61 million in 2011).

Gretchen Kloke, vice-president of Starwood Preferred Guest, says: “SPG membership in emerging markets has grown by 400 per cent since 2008. Room nights abroad for Chinese SPG members are up over 20 per cent this year and every 20 seconds, in China, a new guest joins.”

As a consequence, more limitations have to be put in place to protect the finite number of award nights and flights available. Winship says: “We have seen the price of many awards gradually increasing. There is a herd mentality among the airlines – when one raises the price of award tickets, the predictable reaction from others is to follow suit.”

The same goes for hotels. Last May, Marriott introduced a ninth category, with some of its most popular top-end hotels, such as London’s St Pancras Renaissance and the New York Marriott Marquis (previously in category eight, priced at 40,000 points), bumped up to 45,000 points per night.

In the past year or so, Starwood has increased the award price of 218 of its hotels (decreasing 48), while IHG Rewards has hiked the price of a free night at 30 per cent of its properties, as well as introducing nine award categories, with top-end hotels costing 50,000 points.

The worst offender is Hilton HHonors, shunting redemption rates up by as much as 90 per cent by bringing in an extra three categories costing 40,000 to 95,000 points in high season. Previously, a top-level category seven hotel cost 50,000 a night.

Making elite status harder to gain or hold on to is a common tactic – Hilton recently increased its requirements for gold and diamond status. Members now need 20 stays or 40 nights or 75,000 base points per calendar year to reach gold, up from 16 stays or 36 nights or 60,000 base points.

Marriott’s Benton says: “There is no limit to the number of top tier members we can have, though we have some pretty high thresholds – our top platinum tier guests need to give us 75 paid nights within one year. That’s about three months worth of business days, and there are not a lot of people who travel that much.”

Still, Kloke has observed that high thresholds aren’t putting customers off. She says: “It may be counter-intuitive, but Starwood’s elite membership in its loyalty programme has doubled over the past five years, despite the global recession and ongoing economic challenges.

“At SPG, our strategy is to focus on this new tribe of global travel elites who are more profitable – and powerful – than ever by creating the richest elite hotel loyalty programme in history. In fact, the top 2 per cent of our members drive 30 per cent of Starwood’s profit. What’s more, they spend 60 per cent more than they did five years ago.” But perhaps that’s just the Chinese.

Some critics argue that elite benefits are being watered down due to greater numbers of top-tier members (though Starwood denies this). Kelly says: “It used to be that the top 1 per cent got all the perks. The airlines now see a real opportunity to sell upgrades, and for credit card companies to pay for all the perks. Silver passengers are now seeing credit cardholders receive almost the same benefits as them.”

What does the future hold? Kelly says: “If the airlines squeeze too much and really devalue miles and points, there will come a time when consumers say: ‘These miles have become worthless, I’m going to switch to a cashback card.’

“The FFPs are some of the most profitable arms for airlines. What’s more, elite flyers bring in a disproportionate amount of revenue – airlines don’t want to anger their top customers. If they lose too many, they may roll back these changes or add on new benefits to keep them happy. They are testing the limit – trying to make people pay and take things away as much as possible.”

Don’t be blindly loyal, exercise your power as a consumer and react to changes you don’t like. Use your points wisely, but also consider the role you may play in exacerbating the problem. You can’t always have it both ways…

POLL

How many airline and hotel loyalty programmes are you an active member of?

0 – 8%
1-5 – 54%
6-10 – 22%
11-15 – 9%
16 or more – 7%

TEN WAYS TO FIGHT LOYALTY SCHEME DEPRECIATION

  1. Don’t hoard your points and miles – use them within 12-24 months of earning them.
  2. Work out what the value of a point or mile is in financial terms to better assess the value of your redemption.
  3. Consider transferring points out of one scheme and into another when you know a devaluation is approaching.
  4. Use your miles and points effectively – don’t burn them all on gadgets and spa breaks.
  5. Don’t rush into making a booking – sometimes it might cost more than paying for a cash ticket.
  6. Boost your earnings – put everyday expenses on airline-affiliated credit cards and take advantage of shopping bonuses.
  7. Don’t be too loyal – switch to another scheme, ask for a status match, and book with competitors if you don’t think you are getting value for money.
  8. Behave like an investor in the stock market and do your research – miles and points are a currency just like pounds and dollars.
  9. Sign up to US airline schemes – they tend to have fewer surcharges and fees on award flights than European counterparts.
  10. Redeem miles on flights starting in non-UK European hubs that have lower taxes and charges.

HOW MANY MEMBERS?

  • Delta Sky Miles – 90 MILLION
  • American Airlines AAdvantage – 71 MILLION
  • United Mileage Plus – 52 MILLION
  • Lufthansa Miles and More – 25 MILLION
  • British Airways Executive Club – 7 MILLION
  • IHG Rewards – 76 MILLION
  • Marriott Global Rewards – 44 MILLION
  • Hilton HHonors – 39 MILLION
  • Starwood Preferred Guest – 17 MILLION
  • Accor Le Club – 12 MILLION
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