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OK, first, what is “dynamic award pricing?” That’s the term for tying the cost of an award ticket tightly to the cost of the equivalent revenue ticket – generally at around 1 cent per mile. So a $500 ticket would cost 50,000 miles.
Air France just signalled this is coming in one form or another in 2018. And then British Airways indicated yesterday as well that the Avios program is moving in the same direction next year.
This is bad for us miles junkies for two reasons.
The first applies to everyone that uses miles, and that is that this move basically makes it pointless to earn miles from credit card spending. You see, you generally earn miles (or points that transfer to miles) at around 1 to 1.5 miles per dollar (setting aside category bonuses for a minute here). If the best that you can redeem for is a penny per mile, wouldn’t you have been better off just earning 2% cash back? Probably.
The second is that many of us go out of our way to earn points for aspirational awards in First or Business class. These tickets cost many, many multiples of coach in most cases, but only 2-3x the cost in miles. This allows a sort of symbiosis where airlines that can’t sell those pricey tickets can remove miles from their accounting ledger and we get a great deal – sometimes even an experience of a lifetime in a private suite on board a plane.
When you move to revenue based awards, that $10,000 first class ticket is no longer, for example, 110,000 miles. It’s now 1,000,000 (ONE MILLION) miles.
Does this make sense for the airlines? Well, it’s easy to see how the bean counters think so. If you redeem one million miles for that ticket instead of 110,000 miles, they reduce their liability by more than 9 times as much.
Pennywise and Pound Foolish
I’d argue, though, that they are going to wind up biting the hand that feeds them. For many years the airline’s frequent flyer programs have been more profitable than flying itself. They sell miles to the credit card issuers in unreal quantities to shore up their books. I’m already strongly considering dropping my Delta Platinum Amex card this year because I frankly don’t want to accumulate Delta miles at 1% of my spend. And that is because Delta is the only major US carrier that has already been implementing dynamic award pricing. I’d rather store them elsewhere where I can get better value on my redemptions – or even earn points with a transferable currency like Citi, Chase, or American Express’ reward programs, so I can transfer them to any carrier where I can get a fantastic first or business class award.
Why should you care now?
Because it is a great time for me to repeat the mantra of “Earn and Burn.” There is just no point in saving your miles for retirement because you may be only able to redeem those miles for a very small fraction of what you think you are saving them for. It’s very real that the 100,000-mile award you covet will jump to a million miles under dynamic award pricing.
I don’t mean that you should just blow your whole balance in one shot, but don’t be shy about redeeming them. This may well be another era we look back at fondly – the era when you could really and truly use miles for amazing first class tickets around the world.