How the world of points and miles has changed over the last decade
This post contains references to products from one or more of our advertisers. We may receive compensation when you click on links to those products. Terms apply to the offers listed on this page. For an explanation of our Advertising Policy, visit this page.
Many aspects of travel involve a lot of “hurry up and wait,” as you rush to the airport in time for your flight only to stand in line to check-in and clear security, eventually spending hours lounging around in the same site. By contrast, the world of points, miles and loyalty programs is fast-paced, with unexpected changes lurking around every corner.
Each year, TPG likes to look back on some of the popular trends in loyalty and credit cards from the previous 12 months, but 2019 feels different. Not only does this New Year’s Eve mark the end of a decade (one in which award travel exploded from the hidden corners of the internet into the mainstream); we’re also in the midst of some seismic shifts in the way airlines and hotels provide rewards and make award space available for redemption.
Get points and miles coverage like this delivered to your inbox by signing up for the TPG daily newsletter.
Given all of this upheaval, it’s time to take a look back over the previous ten years at some of the most significant changes in the world of loyalty programs.
Revenue-based mileage earning
You can’t fault a business for focusing on its bottom line, but one of the most sweeping changes of the last decade — that’s affected nearly every facet of award travel — is that airlines and hotels are emphasizing customer spending over anything else. Hotels always awarded points based on the cost of your room, but not that long ago, airlines used to award miles based on the distance of your flight, not the cost. This is how the mileage run was born, with savvy travelers finding cheap long-haul fares and racking up tens of thousands of miles at minimal cost.
Now, all three legacy U.S. airlines — Delta, United and American — award miles based on the cost of your ticket before taxes and fees and don’t factor in distance (with the exception of elite status, but more on that in a moment). This means that you’ll earn roughly the same amount of miles flying these two United flights between Los Angeles (LAX) and Shanghai (PVG) or between Chicago-O’Hare (ORD) and Washington-Reagan (DCA), even though one flight is 12 hours longer and covers over ten times the distance.
In fact, the legacy carriers all use an identical revenue-based system for awarding miles based on your tier of elite status:
|Elite status||American Airlines AAdvantage||United MileagePlus||Delta SkyMiles|
|5x miles per dollar||General member||General member||General member|
|7x miles per dollar||AAdvantage Gold||Premier Silver||Silver Medallion|
|8x miles per dollar||AAdvantage Platinum||Premier Gold||Gold Medallion|
|9x miles per dollar||AAdvantage Platinum Pro||Premier Platinum||Platinum Medallion|
|11x miles per dollar||AAdvantage Executive Platinum||Premier 1K||Diamond Medallion|
Not only has this change effectively killed the economy mileage run, but it’s made it much harder for deal-seeking travelers to earn any miles from actually flying.
As an example, during college I regularly qualified for AAdvantage Gold elite status each year by spending just over $3,000 on flights. Even with the 7x miles per dollar I earned on my tickets, that amounts to just under 21,000 miles (after subtracting taxes and fees). Those miles are worth about ~$295 based on TPG’s valuations, but in reality they won’t get you all that far. Before AA launched its economy web specials, that wouldn’t have been enough for a domestic round-trip on flights over 500 miles, and it certainly wasn’t enough for even a one-way economy award to Europe. Of course my travel was relatively limited while I was in school, but I was loyal to AA with my wallet and really didn’t get much warmth in return.
If you’re yearning for the days of racking up tons of miles based on the distance of your flight, it’s worth noting that flights on most partner airlines still earn miles based on the flight distance. Earning rates vary by partner, so you’ll need to check the chart before you book, since many discount economy fare buckets only earn 25% or 50% of the distance flown. Still, if you’re able to find a cheap business-class fare on a partner airline, you might be able to use it to pad your mileage balance rather quickly.
Revenue-based elite status qualification
The focus on customer spending now extends to earning elite status as well. Almost seven years ago, Delta became the first airline to announce a spending requirement to its elite qualification metrics, one that needed to be met in addition to the traditional flight requirements. United and American quickly followed suit, and now United has carried this to its logical extreme, completely eliminating the concept of elite (or Premier) qualifying miles and focusing almost exclusively on how much a customer spends when it comes to awarding elite status.
While this is a negative change for most travelers, it unfortunately makes perfect sense from a business perspective. Loyalty to a single airline is a financial decision, and perks like lounge access and complimentary upgrades should be reserved for passengers who put their money where their mouth is. Still, this change generally favors business travelers over leisure travelers, especially those who frequently book expensive, last-minute tickets.
Let’s take a look at this change in practice. Imagine you’re a business traveler based in Washington-Dulles (IAD), a major United hub. You don’t travel often for work, but you have a client in Frankfurt (FRA) you go to see twice a year. Your company pays for you to fly in business class, but since your travel dates aren’t always set in stone, you end up booking two separate, one-way tickets.
Under the old elite status qualification scheme, you would have earned 200% Premier Qualifying Miles for a “C” fare, business-class ticket. With two round-trips to Frankfurt a year, that would have netted you a bit over 32,000 PQMs, qualifying you for United Premier Silver elite status but nothing more.
Now, all that matters is the cost of your ticket. One-way business class flights from DC to Frankfurt routinely price out at ~$8,800, with the return tickets costing closer to $5,300. Add that up, and you’ll be spending a little over $28,000 on two round-trip tickets. Since taxes and fees are minimal on this route, this means you’ll earn well over 24,000 Premier Qualifying Points and qualify for United’s top-tier, Premier 1K status with the exact same trips that would have only earned you Silver a year before.
While American Airlines is trialing a similar program for targeted customers for 2020, Delta and AA haven’t fully jumped on board with this plan yet — though I expect to see them follow United’s lead in the next year or two. For now, you’ll still have to spend the following amount (in addition to qualifying flight activity) to earn elite status with Delta and AA:
|Spending requirement||American Airlines||Delta Airlines|
|$3,000||AAdvantage Gold||Silver Medallion|
|$6,000||AAdvantage Platinum||Gold Medallion|
|$9,000||AAdvantage Platinum Pro||Platinum Medallion|
|$15,000||AAdvantage Executive Platinum||Diamond Medallion|
There are ways to generate revenue for an airline other than actually buying plane tickets, which is why Delta still lets you earn a Medallion Qualifying Dollar (MQD) waiver by spending on its cobranded credit cards. If you spend $25,000 a year on a Delta card, you’ll earn a MQD waiver up to Platinum status — but you’ll need to spend a whopping $250,000 to earn an MQD waiver for Diamond Medallion status.
Dynamic airline award pricing
Dynamic or “variable” award pricing — where prices fluctuate from day to day based on demand instead of following a fixed award chart — is one of the most difficult changes for long-time award travelers to swallow. Airlines try and spin this as a program enhancement, by offering more award seats at a higher cost to those customers willing to pay for it (thus better matching supply and demand), but more often than not, it leads to a creeping increase in prices across the board.
Delta was the first to adopt this trend years ago, and for a long time, the SkyMiles program was snubbed as offering a comparatively worse value than American Airlines AAdvantage or United MileagePlus. Now, United has implemented dynamic pricing for flights on its own metal, and American Airlines has moved in that direction as well. Unfortunately we’re still in the early days of this new reality, and I expect it to get worse before it gets better as airlines experiment with higher pricing — and I fear some international carriers may adopt a similar scheme.
While there are some award sales available on select routes for limited times, most people associated dynamic pricing with the extreme upper end, such as American Airlines now charging 480,000 miles for a one-way business class award between the U.S. and Australia.
Based on TPG’s valuations those miles are worth $6,720, well above the cost of an actual cash ticket (and not considering the nice haul of miles you’d earn by paying for a flight like that).
The silver lining (if there is any) is that U.S. carriers already charged comparatively high rates for most awards and weren’t great about releasing low-level, premium-cabin awards on their own flights. For now, at least, you can still score great deals by leveraging partner programs. Instead of transferring 180,000 Amex Membership Rewards points to Delta to book a one-way, business-class award between the U.S. and Asia, transfer 60,000 to Virgin Atlantic to book the same ticket. Instead of paying 110,000 United Miles for a Lufthansa first-class award to Europe, use 87,000 Avianca LifeMiles instead.
Further Reading: TPG Points Lab: Save miles booking Delta awards with Virgin Atlantic
If you’ve built your points strategy around transferable points currencies like Chase Ultimate Rewards and Amex Membership Rewards, you’re relatively protected when an individual program gets devalued or switches to dynamic pricing. It’s worth the time to study up on some of the higher-value transfer partners, but I believe that, sooner or later, dynamic pricing is going to be the norm, not the exception.
Hotel “peak and off-peak” award pricing
While airlines have taken dynamic pricing to an extreme, they’re not alone in trying to drive incremental revenue from their award redemptions. Many hotel chains have already launched (or will soon launch) peak and off-peak pricing for stays booked with points. The big advantage this has over dynamic pricing is that hotels clearly publish the peak and off-peak rates, and since most peak travel dates are rather predictable, there’s a bit less shock factor.
Hilton has been using this pricing for a while, though instead of using the peak and off-peak designation, Hilton publishes a maximum and minimum price for each hotel, creating a range of possible rates. Marriott launched peak and off-peak pricing this year (after giving us plenty of advance warning), and Hyatt recently announced it would be making a similar change in March 2020.
So far, I’ve found Marriott’s peak and off-peak pricing to be more or less exactly what you’d expect, and I’ve been able to take advantage of a number of off-peak awards already. I also don’t mind paying an extra 10-20% if it means more award space at high-end properties, which is a trend I’ve definitely noticed. For February, one of the busiest months in the Maldives, the St. Regis Maldives has award availability for a five-night stay for about 75% of the month, with a mix of peak, standard and off-peak pricing thrown in.
Airlines have a limited number of seats in premium cabins, and if dynamic pricing makes more award space available, it’s often at painfully egregious rates. Meanwhile, you’re still getting a phenomenal deal whether you book the St. Regis Maldives at 70,000 points a night (off-peak), 85,000 (standard) or 100,000 (peak).
Financially-sustainable loyalty programs
So where are all these changes coming from? It’s easy to say airlines and hotels are simply doing this because they can, but there’s a deeper reason that’s important to understand, as it might help us predict some of the changes the next decade will hold.
Loyalty programs used to be a huge money-loser for airlines and hotels, a gift to frequent travelers to retain their business. Now, the proliferation of credit card partnerships and the sale of miles has made loyalty programs huge financial engines. Airlines and hotels make a ton of money selling their respective currencies to credit card issuers and retail partners, who in turn give them out to customers to drive more business.
As noted by View From The Wing, American Airlines didn’t actually make money flying passengers during the first quarter of 2019. Their cost per available seat mile (CASM) was 15.31 cents, while their passenger revenue per available seat mile (PRASM) was only 14.49 cents, meaning that they lost .82 cents for every seat-mile flown. Yet American Airlines still reported a $185 million net income during that same period, largely due to the $708 million in revenue generated by the AAdvantage program, credit cards and other partnerships. If it wasn’t for AAdvantage, American Airlines would have lost money from its core business of passenger air service.
With airlines and hotels finding more ways to sell their points for a profit and passengers finding more ways to redeem them, there’s a strong incentive for airlines and hotels to try and fix the value of your redemption. If, across the hundreds of billions or possibly even trillions of points and miles redeemed every year, an airline can average a redemption value of 1 cent per mile but can sell its miles for 1.5 cents each, it can continue to grow its loyalty operations with a safe profit margin. This doesn’t mean that high-value, premium-cabin redemptions are gone for good, but don’t be surprised if airlines continue to launch new, low-value redemption options to encourage customers to fork over the miles in their account.
More targeted promotions
This last trend is not unique to the world of loyalty programs, as companies in every corner of the market have been investing billion of dollars into collecting and interpreting data about their different customer demographics. This has led to more targeted promotions, where companies use secretive criteria to decide who gets a higher credit card welcome bonus or an offer to earn bonus points or miles on an upcoming trip. With so many targeted deals though, it’s more important than ever to carefully check your mail and your email and make sure you’re not missing out on a great offer sent just for you.
A couple of interesting offers that we’ve seen recently have included American Airlines gifting elite status to customers with the option to extend it by completing a certain amount of flying, and American Express breaking with its long-time restriction of a single welcome bonus per card when it invited targeted users to apply for a second business platinum card.
It’s impossible to say how these companies decide who to target. Some — like the free AAdvantage status — seem to go to passengers with a small amount of activity who could nonetheless become a loyal American traveler, while others might reward customers who are more active or tend to spend more with a certain brand. There isn’t really anything you can do to increase your chances of being targeted; you just need to keep an eye out when new promotions are sent out so you can check if you’ve been targeted.
The end of the year is as good a time as any for some thoughtful reflection, especially this year as the world of travel loyalty continues to go through some massive and fundamental changes. While we groan and complain each time a new airline switches to dynamic pricing or adds (or increases) a revenue requirement for earning elite status, the truth is we’ve been on this path for the better part of a decade now. Businesses will continue to make the decisions that are best for their bottom line, and we shouldn’t be caught off guard when they do.
Featured image by Melissa Tse/Getty Images
Welcome to The Points Guy!
WELCOME OFFER: 80,000 Points
TPG'S BONUS VALUATION*: $1,650
CARD HIGHLIGHTS: 2X points on all travel and dining, points transferrable to over a dozen travel partners
*Bonus value is an estimated value calculated by TPG and not the card issuer. View our latest valuations here.
- Earn 80,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That's $1,000 when you redeem through Chase Ultimate Rewards®. Plus earn up to $50 in statement credits towards grocery store purchases within your first year of account opening.
- Earn 2X points on dining including eligible delivery services, takeout and dining out and travel. Plus, earn 1 point per dollar spent on all other purchases.
- Get 25% more value when you redeem for airfare, hotels, car rentals and cruises through Chase Ultimate Rewards®. For example, 80,000 points are worth $1,000 toward travel.
- With Pay Yourself Back℠, your points are worth 25% more during the current offer when you redeem them for statement credits against existing purchases in select, rotating categories.
- Get unlimited deliveries with a $0 delivery fee and reduced service fees on eligible orders over $12 for a minimum of one year with DashPass, DoorDash's subscription service. Activate by 12/31/21.
- Count on Trip Cancellation/Interruption Insurance, Auto Rental Collision Damage Waiver, Lost Luggage Insurance and more.
- Get up to $60 back on an eligible Peloton Digital or All-Access Membership through 12/31/2021, and get full access to their workout library through the Peloton app, including cardio, running, strength, yoga, and more. Take classes using a phone, tablet, or TV. No fitness equipment is required.