Travel is back. Now, points and miles devaluations are (likely) coming
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Travel took a huge downturn last year. With air travel dropping to as low as 5% of the normal volume and hotel occupancy under 25% by April 2020, travel brands were in survival mode.
One of the ways airlines tried to stay afloat was by leveraging their loyalty programs. In fact, last summer American Airlines and United each secured billions in government loans using their rewards programs as collateral. The AAdvantage program was valued at up to $31.5 billion, while MileagePlus came in at around $22 billion.
Aside from loans, airlines relied on selling miles directly to consumers and banks to survive the pandemic. American Express continued its billion-dollar partnership with Delta SkyMiles, while making a deal to purchase $1 billion worth of Hilton points. Some of these sales translated to elevated credit card welcome bonuses, with applicants happily taking advantage of these offers for post-pandemic travel.
While airlines and banks were printing points, individual loyalty account balances grew thanks to promos and incentives — anything to drive a sale or a swipe. New category bonuses were added to popular rewards cards and there were even bonuses of 60,000 miles available just to get existing cardholders to use their cards, which was previously unheard of.
As time goes by and travelers start really cashing in those rewards, the most likely response from travel loyalty programs is ... devaluation.
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Abundance has consequences
Some banks tried to curtail the influx of airline miles (and provide in-the-moment relevant options) by allowing cardholders to redeem points for everyday purchases rather than transferring them to rewards programs.
Still, plenty of hopeful travelers held on to them in anticipation of a vaccine rollout and reaching the other side of the pandemic. In November 2020, the chief financial officer for American Express stated that despite other options, cardmembers were "stocking up the points to travel."
As vaccines are rolled out and travelers work to use up those canceled trip vouchers they have been sitting on for a year, there's another storyline likely growing for those stockpiled points. Those points and miles generated during the year when most people weren't on the road are now going to be cashed in.
Even still, we are seeing record-breaking welcome bonuses on rewards credit cards. This includes the ability to earn 90,000 bonus Delta SkyMiles with a new Delta SkyMiles® Platinum American Express Card (after you spend $3,000 in purchases within the first three months of card membership. Plus, earn a $200 statement credit after your first Delta purchase within the first three months. Offer ends 7/28/21.) and 60,000 miles from the Capital One Venture Rewards Credit Card (when you spend $3,000 on purchases in the first 3 months from account opening.
Even without a pandemic, the normal course of action is that points and miles are worth less over time, but there's a real risk that the normal rate of decline could increase for a bit in the coming year or two.
Here's why that is likely and what you can do to protect your hard-earned points and miles.
Inflated point balances
The combination of high credit card sign-up bonuses and lack of actual travel has increased the number of unredeemed points on the market. As with any currency, this leads to a sort of inflation. In the points and miles world, there is only one eventual outcome: devaluations.
While these points were an asset during the pandemic as they were being sold off to keep airlines afloat, they're now a liability.
Airlines and hotels know consumers are eager to put their points to use and with travel prices already increasing alongside demand, this puts them in a tough position. After all, when you redeem points that were sold to you or the banks at a substantial discount, it's not ideal to have you redeeming them when airfare and hotel prices are skyrocketing. And with the possibility of travel to Europe and Asia opening up this summer, this dilemma is further exacerbated.
The best way for airlines to minimize losses is by increasing redemption rates or limiting award availability. Let's hope for consumers' sakes it's the latter. But considering that many airlines and even some hotels have imposed dynamic pricing, we're bound to see redemption rates increase either way to deal with increasing travel demand.
My advice? Redeem your airline miles and hotel points now. You don't have to actually travel now, but you can already make your bookings for the rest of 2021 and even into early 2022 with many programs.
You may be wondering if collecting points is even worth it and whether you might be better off dropping all your rewards credit cards in favor of a 2% cash-back card. While that's certainly an option, transferable rewards will continue to offer the highest value proposition — especially if you're saving up for premium travel.
Increased travel demand
With the vaccine becoming widely available, and the CDC loosening guidance for vaccinated travelers, there is an increased demand for travel this summer and beyond.
Factor in the possibility of international travel and we're going to see even more of a travel boom this summer. This creates an ideal time for airlines, especially, to devalue their programs to protect revenue.
Continued move toward dynamic pricing
Both airlines and hotel programs have been moving toward dynamic pricing models in recent years.
However, it's unlikely that hotel programs will devalue to the same extent as airlines as a direct result of the pandemic. That's because hotel chains relied less on their loyalty programs to stay afloat. Most hotel chains merely manage, rather than own, their properties. So there was less financial liability during the sudden downturn in travel demand. While hotel chains will want to recoup their losses, they won't need to do so to the same extent as airlines, which carry the sole financial burden for all aspects of their business.
That being said, hotel chains like Marriott and IHG have already implemented dynamic or peak/off-peak pricing. And World of Hyatt has peak and off-peak pricing rolling out this summer, after a delay from 2020 due to the pandemic.
This approach to pricing allows hotel programs to adjust the number of points required, allowing them to recoup large amounts of points in the market on dates with higher demand. So while hotel redemption rates might be higher once you're ready to book your post-pandemic trip, the increase will be more predictable since it's based on a clearly outlined chart.
Delayed award chart changes
Because of the irregularities in travel demand, most hotel chains did not make major changes to hotel categories since the pandemic. Only 11 Hyatt hotels changed categories this year and less than 3% of Marriott's portfolio changed categories, with most going down. And as mentioned, Hyatt even suspended plans to implement peak and off-peak pricing until July 2021.
So when travel demand ramps up again, hotels and airlines may be looking to play catch-up in 2021 and beyond by changing their award charts, moving more hotels into higher categories, increasing the number of miles required for a flight or embracing dynamic pricing to a greater extent.
The programs most at risk of devaluation
The loyalty programs most at risk of devaluation have heavily relied on selling miles to stay afloat — whether to banks or directly to consumers. Think American Airlines, Avianca, Delta, United and Hilton.
Some of these programs — such as Delta, United and even Hilton — no longer have published award charts, making it easier to change award redemption rates without notice, which has happened in the past — and will likely happen again.
I would even put Alaska Airlines in this somewhat risky category since they joined the Oneworld alliance, making them ripe for a devaluation once the figurative dust settles. However, there is hope for some near-term stability keeping things roughly the same for that program. In December 2020, the airline took to Twitter to deny any plans for a near-term devaluation, but time will tell how long that holds beyond 2021.
How to protect the value of your rewards points
Whether they happen this year or five years from now, award devaluations are bound to happen. Luckily, there are several steps you can take to protect yourself.
Don't hoard airline miles and hotel points
For starters, don't hoard points.
That has been a difficult feat over the past year, but now that travel is becoming possible again, I would recommend redeeming your airline miles and hotel points as soon as possible. Prioritize programs that are most at-risk for a devaluation (i.e., airline miles) and don't be afraid to splurge on that bucket list redemption you've always wanted.
Or maybe you are ready to reconnect with friends and family and can cash in miles for the whole gang.
We know that Hyatt is introducing peak and off-peak rates in July, so that's a program where I would recommend redeeming your points before that goes into effect, especially if you travel during school breaks, holidays or to destinations with a clear high season (like ski-out hotels).
You can always rebook if your reservation later falls under off-peak dates, but take advantage of the current award chart while you can — especially for higher-category hotels.
Even if you don't have immediate travel plans, you can book trips in advance and cancel or change your reservation down the line if you need to. You will need to balance the use of points against any vouchers with expiration dates that you are sitting on, many of which have been extended through 2021.
But when given the opportunity, cash those points in and start making new memories.
Don't earn miles and points speculatively
This advice applies regardless of whether we're in a pandemic or not: Don't go out of your way to earn miles and points speculatively.
Make sure you have a redemption goal and timeline in mind for using your points if you go through any extra effort to earn them. For example, we are seeing a plethora of sales on miles and points — don't pick up any more unless you know how you are using them.
The same thing goes for shifting all your spending to one specific rewards card or loyalty program. Have a plan before putting all your rewards in one hotel or airline bucket. The last thing you want is to earn a ton of points with a poor route network or one limited to domestic flights when you're looking to travel abroad.
Focus on earning transferable rewards
Programs like Chase Ultimate Rewards, Citi ThankYou, Amex Membership Rewards and Capital One miles are less prone to devaluations since they have a set redemption value on direct travel bookings and can also be transferred to a dozen or more hotel and airline partners. This means that cards such as the Chase Sapphire Preferred Card (especially with its current welcome bonus offer of 60,000 bonus points after you spend $4,000 on purchases in the first three months from account opening. ) are still good additions to your wallet.
If you are sitting on a transferable point balance with Amex Membership Rewards and partner Avianca ends up devaluing its award chart before you can book that coveted award ticket to Hawaii, you can still transfer your Membership Rewards to Aeroplan for a cheaper award.
With airlines and some hotel chains selling billions of points to stay afloat during the pandemic, devaluations are inevitable.
The best thing consumers can do is spend their points and miles before it actually happens and avoid going out of their way to acquire too many airline or hotel points without a near-term use in mind. In the long run, the best strategy is to focus more of your efforts on earning transferable rewards currencies that aren't tied to a single airline or hotel.
That gives you many more options if — or rather, when — one or more loyalty programs end up devaluing.
Additional reporting by Summer Hull.