Yesterday’s Change
Yesterday, AirFrance and KLM’s FlyingBlue program devalued its low level awards (again). Long haul prices on KLM or AirFrance:
- Economy: 25,000 miles each way, up from 20,000 miles
- Premium economy: 40,000 miles each way, up from 35,000 miles
- Business: 60,000 miles each way, up from 50,000 miles
- La Premiere: 165,000 miles each way, up from 150,000 miles
Partner award prices went up somewhat too. The change was intentional, and in theory will also bring increased award availability on first party metal.
Devaluations Will Happen
Unfortunately, devaluations will continue over time in all programs because:
- Inflation in consumer prices means more points earned for buying the same things with a credit card
- Inflation in hotel and airfare prices means more points are awarded for revenue bookings
- For airlines, CASM inflates over time, and providing an award seat costs more over time
- For hotels, CPOR inflates over time, so providing free nights costs more over time
- Decreasing the value of issued points lowers liabilities on a company’s balance sheet
The only way devaluations won’t happen is with regulation, but (a) that’s unlikely to come, and (b) would just cause a different type of devaluation, such as no award space released.
Protecting Yourself
To effectively shield yourself from devaluations to the extent that such a thing is possible:
- Book awards as early as possible: Points on average are worth more now than they will be in the future, so lock in current pricing when you can
- Book speculative awards with spare points: As long as a program offers free cancelations, you can lock in current pricing and cancel if the trip won’t work out (or if a lower price comes along)
- Don’t save more points than you can reasonably burn in the next n months: Saving points that will decrease in value probably isn’t fiscally sound, just like eating a tub of lard probably isn’t nutritionally sound. Ok, but what value should you use for n? It’s hard to say, but I think the half-life of devaluations is around 24 months with some medium variance
- (A corollary to the prior item) Cash out excess points, especially those you can’t burn in the next n months: Cashed out points turn into cash, which: earns interest, can be invested, and can be used to buy more miles if you cashed out too many. It turns out, money is fungible
Good luck out there!
Next time on Tuesday Wisdom: Elmo’s airplane explains RASM.