Here's why I don't plan to spend cash on travel this year
The ongoing spread of the coronavirus has disrupted the global travel industry in a way we've never seen before, and even the best experts don't know when things will fully return to normal. Like many on the TPG staff, I've been playing around with some fully refundable/cancellable trips for later this year and early into next year just so I have something on the calendar to look forward to, but more than ever I'm going out of my way not to spend any money on airfare or hotels.
While the entire goal of travel rewards is to save your hard earned money and travel for free, I normally pay cash when I find a cheap fare or a low rate at a hotel and try and save my points for more aspirational redemptions. This year, I'm changing my strategy and using points for all my travel for the foreseeable future to try and conserve cash.
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Earn and burn is the name of the game
Points and miles tend to lose their value long term as airlines and hotels devalue their award charts, which is why the unanimous advice in the award travel community is to earn and burn without letting your account balances get too large.
While I'm not currently traveling at the moment, I'm still earning points from spending on my travel rewards credit cards and I have a few new cards I plan to open in the coming months as well. That's to say nothing of the approximately half a million points and miles I had going into this crisis, or the several hundred thousand I've had refunded to me from trips I had to cancel.
The general consensus is that when it becomes safe to travel again, the return will be slow and gradual and we won't just see a snap back to previous levels of air travel. Several airlines are even retiring planes in anticipation of an industry wide contraction. My current points and miles balance is enough to last me for nearly a full year at my pre-COVID travel levels, which means it's likely to last me much longer moving forward. The bigger my account balances get, the more likely I am to use points instead of cash even on cheap tickets where I'm not getting the absolute best possible redemption value.
Save your elite-qualifying spending for next year
If you're struggling to decide whether to use points or cash to pay for a ticket, you can consult TPG's monthly points and miles valuation series to see how good of a redemption value you're getting. If the valuation is right on the fence between points and cash, frequent flyers have one strong incentive to still spend money on their tickets: qualifying for elite status. Not only do airlines not count award tickets toward elite status qualification (unlike most major hotel chains), but all three legacy U.S. carriers also have a revenue requirement to qualify for status.
For this year at least, that's a moot point. Delta, United and Alaska Airlines have all announced that they will extend members current elite status into next year, and American Airlines is widely expected to make a similar announcement in the near future. This makes requalifying for status for next year a moot point, and gives customers a strong incentive to save their cash budget to spend on flights next year, in the hopes of requalifying again for status for 2022 and beyond.
Related: Complete guide to airline elite status during the coronavirus outbreak
Refunds are already proving difficult to get
It's worth repeating that at this point, we don't know exactly how long this pandemic will last and when it will be safe to travel again. I've started playing around with some trip ideas for this fall and winter, but I fully understand that anything I book now might have to be canceled depending on how this all plays out.
Related: Beyond coronavirus: What the future of travel will look like for all of us
Airlines around the world, sometimes with the backing of their local civil aviation authorities, have already made it challenging or downright impossible for customers to get refunds on cash tickets, even for flights that have been canceled. I've been stuck with a few hundred dollars in travel vouchers from Delta, United and American, and am still waiting on two different hotels to process refunds back to my credit card.
With new bookings drying up and refund requests continuing to mount, airlines and hotels are strapped for cash. Once you hand over money to them, you should expect some degree of difficulty or wait time in getting it back in the event you need to cancel. Until we have a better handle on this situation, booking with points and miles feels safer to me as award reservations are much easier to cancel and refund.
Cash is king during an economic slowdown
The uncertainty we're all facing right now doesn't just affect travel bookings, it ripples through every corner of our economy. Companies that are hanging on right now might be forced to close their doors and lay off employees if the current situation extends for several more months, and many more people might find themselves out of work. In that case, the best thing you can do to protect yourself and prepare for the worst is to increase your cash on hand.
Just like airlines and hotels are trying to stay liquid, you should be doing the same thing and making sure that you have cash and credit lines that you can draw on if your financial situation deteriorates. This means that if you have a choice between booking with cash and points, points are looking like an even more attractive option
Related: The best cash-back credit cards
Bottom line
I'm itching to get back in the air again, but even once public health officials give us the all clear to resume non-essential travel, I plan on drawing down on my points and miles balances before I consider spending any cash. There's so much uncertainty in the air, both on an individual and a national level, that keeping your cash accessible and not tied up in a ticket you may have to cancel just seems like the smart idea.
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