Screwing you at 35,000 ft. Flying is about to change.
Two of the nation’s largest airlines, United Airlines and Delta Air Lines, have announced that in 2015, frequent flier points will be based on dollars spent on plane tickets rather than miles flown.
This is a significant change in how frequent flyer mile clubs work. As the name implies, ‘frequent flyer miles’ historically referred to rewards offered to travelers for miles traveled in the air.
This means that if you flew from Cairo to New York (5,602 miles) versus L.A. to New York (2,500 miles) on most airlines you would earn more reward miles on the Cairo/NY flight than the LA/NY flight. This was always one of the greatest secrets to travel for anyone who lived, worked, or traveled abroad. You’d earn lots of SkyMiles very rapidly simply leaving the country. The model incentivized international travel because it was the fastest way to earn higher status in these airline loyalty programs, thereby earning more benefits (like upgrades to business class or free flights).
With the latest decision of United and Delta to favor dollars spent, versus miles flown, they’ve taken the first step towards making flying a much worse experience for everyone but the wealthiest individuals and organizations. How so?
The same hypothetical flight I mention above, can actually cost the same amount of money, even though the flight to Cairo is more than twice the distance. LA to NY is normally around $500, but if you book last minute, fly business or first class, or fly during peak travel season the ticket can easily cost well above $1,250.
Meanwhile, the economy class ticket from Cairo to NY is almost always between $800 and $2,000 – even when booked last minute. The only way to buy more (which is what these new rules incentivize) is to pay for a first or business class ticket which can range from between $3,500 to $15,000 per seat!
These rules make it a lot harder for the average person to change their status, thereby damning you all to tiny seats, only the most awful airline food available (if you even get food), and diminishing carry-on space.
In both scenarios the only way to earn more rewards is to spend more. When you think about it, this was always the case. If you wanted to fly in style, fly first or business class. But the great equalizer was that if you flew a lot for work, or because you had family abroad, or for any number of reasons you could actually push your way into a higher bracket of reward benefits, or join the Million Miler upper echelon of travelers, if you just kept traveling (even if you weren’t spending a whole lot doing it). I call this miler mobility. With these new changes, to get Million Miler status you will essentially have to spend a million actual bucks.
The other ‘hack’ to get around this was tie your Frequent Flyer status to your Hotel, Car Rental, or Credit Card rewards programs. This was quite convenient because you could convert one type of reward to the other. Perhaps you travel a lot for work, or do a lot of public speaking, and they cover all the costs of your hotel rooms. You could take those points and convert them to sky miles to get free flights, or vice versa.
However, if you think of these frequent flyer points as a type of currency, what this move by airlines has just done is put pressure on their partners (the Car Rental agencies, Hotels, and Credit Cards) to also move their rewards programs to match more of a 1:1 equation with real currency. If the airlines do it, then they effectively lose money if they don’t also do it. Another word for what is ultimately a dramatic jump in pricing is inflation. In the sky, your dollar no longer goes as far as it once did. It only goes as far as a dollar will.
Before this, what was the value of a frequent-flyer mile?
Travelers frequently debate on how much accumulated miles are worth, something which is highly variable based on how they are redeemed. An estimate is approximately 1 to 2 cents per mile based on discount (rather than full fare) economy class travel costs.
The airlines themselves value miles in their financial statements at less than one one-thousandth of a cent per mile.
This value was based on a multiple of the miles flown, now it’s based on a multiple of dollars spent. In the example above, I illustrated how you can spend less money going twice the distance as another traveler. This is why these changes aren’t great for the average traveler.
To the airline’s defense, some might say this is simply a market correction. Last year was one of the most traveled years by plane, ever. Increasingly the world is globalized and people are traveling more, from more places to more places.
Perhaps the airlines realized that the currency in some parts of the world is stronger than others. There is no easy way of stopping the wealthy in some countries from buying their tickets from other countries in weaker currencies by using proxy agents like travel agencies. It stands to reason that the airlines have realized these loopholes which once benefited the middle class was not earning them enough to offset the loopholes that were benefitting wealthy purchasers. They are simply trying to capitalize on those who spend more.
Also, to be fair to those wealthy purchasers. It’s my understanding that until now, miles flown were miles flown. They were not really modified by how much one spent. This means if you bought a first-class ticket, you weren’t earning any more or less miles than any an economy class passenger. Even though to buy a first-class ticket with miles, it was way more than an economy class seat. Miles were miles. This scenario actually does suck for anyone who spent $10,000 on a first class ticket if the goal was to earn more rewards in the process.
It was correctly pointed out in the comments that this paragraph is incorrect. Travelers actually do get bonus miles for paying First or Business Class. This is usually some multiple of the base miles one earns flying Economy. When I double-checked, my last flight International flight earned me 25% extra for flying business class.
We all know that the flight experience has greatly diminished over the past few decades. Seats have gotten smaller, meals are less edible, space is sold back to you at a premium. This all echoes the fact that there are simply more travelers, looking to pay less, and regulators looking to fine and charge the airlines more to maintain safety standards.
Whatever the reasons, the result is the same for (you) the average consumer, flying is about to get slightly worse.