The free flights and elite standing perks provided by airline loyalty packages are finally designed to do one factor: Get you to spend extra money with the airline.
However prior to now few years, these packages have gotten much more sophisticated and fewer rewarding. Gone are the times of merely incomes miles or elite standing based mostly on how far or how typically you fly. Right this moment, the “Large 4” U.S. airways — American Airways, Southwest Airways, Delta Air Strains and United Airways — all reward prospects based mostly on how a lot they spend.
Ganesh Sitaraman, a regulation professor at Vanderbilt College and the creator of “Why Flying is Depressing,” joined NerdWallet’s Good Journey podcast to debate how airline loyalty packages have advanced.
“In some methods, they’re not likely frequent flyer packages in any respect. They’re massive spender packages,” Sitaraman mentioned.
That is as a result of loyalty packages have turn out to be an necessary income for airways. In keeping with aviation consulting agency IdeaWorksCompany, whole income from the highest 10 airline loyalty packages was $32.2 billion in 2023, a rise of virtually 19% from 2022. Delta Air Strains alone reported incomes almost $2 billion final 12 months by its partnership with American Categorical.
However strategic flyers can nonetheless get pleasure from one of the best components of those loyalty packages whereas avoiding their pitfalls. Right here’s what you want to know.
Airline miles and factors are a forex
Members of airline loyalty packages earn “miles” or “factors,” after which money these in for award flights or different advantages. Miles and factors are the forex that frequent flyer packages are constructed on.
“The airways create factors actually out of nothing, after which they promote them for actual cash to banks which have co-branded bank cards,” Sitaraman mentioned. “The result’s that airways, in some methods, are sort of like banks or quasi-banks… Airways concern forex, the factors, they usually get to resolve how a lot that forex is value and what it may be spent on.”
Sitaraman says one of many greatest issues for flyers is that they don’t know the worth of their factors and miles. Airways don’t publish that data, and it’s sometimes not a set worth throughout all redemptions. For instance, a $100 flight may cost 10,000 miles (that means every mile is value 1 cent for that redemption) whereas a $400 flight may cost 20,000 miles (that means every mile is value 2 cents).
It’s good to spend your miles commonly
Since airline miles fluctuate in worth, it’s simple for airways to quietly elevate the worth of flights in factors, which implies your rewards are value much less.
“[Airlines] can scale back the worth of the issues you may get for the factors,” Sitaraman mentioned. “And so one of many issues that we have seen is the altering worth over time in these level techniques.”
That’s why flyers ought to attempt to use their miles commonly, as a substitute of stockpiling them. Miles typically devalue, that means the flight for a dream journey to Europe may cost extra miles in three years than it might this 12 months. To not point out, some packages’ miles expire after a sure interval of inactivity.
You lose out on rewards and not using a journey bank card
Sitaraman explains that individuals with good credit score scores who can repay their bank card payments in full every month could be lacking out if they do not use a bank card that earns rewards.
“The bank card firm takes a reduce of each one in every of these [card transactions],” Sitaraman mentioned. “And so what the purpose system is like is nearly getting slightly kickback.”
Sometimes, journey playing cards allow you to earn one or two factors per greenback spent, with extra on sure bonus classes. Cardholders can then redeem these factors for journey or different forms of rewards.
Selecting a journey bank card that matches your price range and targets, although, is essential. Airline playing cards could provide advantages like free checked luggage and precedence boarding, however additionally they restrict cardholders to incomes factors with only one airline loyalty program.
A extra versatile technique is to get a basic journey bank card that earns transferable factors. These factors will be transferred to a number of airways or resorts’ loyalty packages, typically at a 1:1 ratio. That method, when an airline loyalty program inevitably raises the variety of miles required to e book award flights, you’ll have a stash of rewards that you may switch to different packages that will present higher redemption charges.
Simply ensure that to repay your bank card invoice in full and on time. Late charges and excessive rates of interest on rewards playing cards can eat into — and sometimes absolutely negate — the worth of any rewards earned. When you’re planning to hold a steadiness, give attention to paying off your debt with a card providing a 0% APR promotion or low rate of interest, as a substitute of incomes rewards with airways.
To be taught extra concerning the origins of airline loyalty packages and what flyers can do in the present day to enhance the flying expertise, hearken to Ganesh Sitaraman’s full interview on the Good Journey podcast.