Are you sitting on a large pile of air miles reward points? You might want to use them before they’re reduced in value, as the liabilities tied to airline loyalty programs in the U.S. have soared during the pandemic, making the threat of devaluation in 2021 a likely possibility.
The pandemic created a glut of unused air miles
Recent analysis from LendingTree shows that five of America’s largest airlines (Delta, American Airlines, United Airlines, Southwest, and JetBlue) collectively owe frequent fliers $27.5 billion worth of free air travel, almost a 12% jump from last year. This is all understandable: Consumers kept on collecting points during the pandemic, despite not being able to use them for travel.
Those unused air miles are a liability to airlines
It turns out that airline credit card loyalty programs are even more profitable than the core business of selling flights. However, with revenue from flights plummeting last year, losses in the American airline industry totaled $35 billion. As a result, airlines have taken on debt to cover the costs, using their loyalty programs as collateral.
To pay off that excess debt quickly, the next step would be for airlines to cut costs, which is difficult as airlines already have high operating costs. That makes loyalty programs a juicy target—as Bloomberg points out, airlines looking to shore up their balance sheets could reduce the value of those rewards or reinstate policies that allow miles or points to expire. As Jay Sorensen, president of airline consulting firm IdeaWorksCompany, put it to the Wall Street Journal, “You have travel returning, pent-up demand and an oversupply of miles. We are set for a devaluation.”
The value of air miles tends to shrink over time
Over the years we’ve seen the value of air miles decrease as airlines have steadily increased the number of points or miles it takes to claim a free flight. As Forbes’ Dan Reed argues:
In truth, carriers have been devaluing their frequent flier miles gradually for many years. They were doing so already before the pandemic arrived, then in April 2020 United devalued its MileagePlus Program miles, and did it again last October. Delta did it in October, and then again in February of this year. In April of this year Southwest devalued its Rapid Reward miles by 6.5%. And there are plenty of experts out there now warning that more such moves are likely, maybe even inevitable, sometime between now and the year’s end, assuming there’s not another surge in the number of Covid-19 cases and deaths in the U.S.
That’s not to say that all airlines will drastically devalue their loyalty programs. Airline companies are reluctant to alienate customers (what is loyalty, really), so they might place limits on when and where you can book flights, instead. Either way, it will still hamper you ability to find good deals.
Use your points when you can
As a general rule: If you want to preserve the full value of your air miles, the sooner you book, the better. Otherwise, to maximize your value, consider being flexible about flight dates and your destination, as the good deals might become a bit harder to find.