Frequent Flyer Programs Aren't Immune from Inflation, or Award Chart Devaluation. We've seen it for years with Delta SkyMiles, aka Sky Pesos, which can easily total 320,000 miles or more for a one way award from the U.S. to Europe, for a flight that is worth ~$2700, yielding a per mile value of only $0.008, or less than 1 cent per SkyMile.
More recently, we've noticed terrible value for United MileagePlus flat bed business class awards from the continental U.S. to Hawaii–for some of these flights, redeeming a United MileagePlus mile would have yielded a mere $0.006 per mile, or just a little over half a cent per mile. For our Award Booking clients, we recommend that award redemptions earn at least 2 cents per point or mile, and ideally considerably more like 4-5 cents per mile or point. At under 2 cents per point or mile, it's better to pay cash.
It's no secret that some U.S. frequent flyer programs are worth more than the airlines' market capitalizations: American Airlines' current market cap at time of writing is $12.5 billion, but last year analysts valued the AAdvantage frequent flyer program at ~$24 billion. Delta's current market cap is $25.4 billion, but in 2020 the Delta SkyMiles program was valued at $26 billion. United Airlines' current market cap is $15 billion, but in 2020 the United MileagePlus program was valued at $20 billion.
A question we often hear is: how are the airlines' frequent flyer programs so valuable? Why aren't they liabilities, since a traveler can redeem miles to book award travel? The answer is that the airlines sell frequent flyer miles to banks, which in turn dangle them as credit card bonuses. The airlines sell the miles to banks and financial institutions at a significant profit margin–think 80-90%–over the expected cost of those future award redemptions.
And now, The Economist is noting that during the COVID-19 pandemic the airlines, for the first time, have used their frequent flyer programs as collateral: United secured a June 2020 loan with its MileagePlus program, while Delta used SkyMiles as security for a 2020 bond offering.
Investors prefer loans secured by these profitable frequent flyer programs rather than aging aircraft. But savvy consumers, whether frequent flyers or just frequent spenders, should be wary of locking themselves into ANY airline's frequent flyer program, given the frequent award chart devaluations. Delta hasn't even published award charts since 2015 (see Delta's Missing Award Charts and 5 Other Reasons Delta SkyMiles Aren't Worth It).
Just as with stocks, most consumers should want diversification, and the best way to accomplish that is with convertible points programs, such as Chase Ultimate Rewards (which transfers 1:1 to United MileagePlus and other frequent flyer programs, such as Air Canada Aeroplan, British Airways Executive Club, Emirates Skywards, Singapore KrisFlyer, Virgin Atlantic Flying Club and others) and AMEX Membership Rewards (which transfers 1:1 to Delta SkyMiles, Aeroplan, ANA, British Airways, Cathay Pacific Asia Miles, Emirates, Singapore Airlines and others). Plus, Chase's premium credit cards in particular, such as the Chase Sapphire Reserve, offer better category bonuses (3X on all travel and dining, which are major spend categories for affluent consumers) than the airline cards.
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