The New York Times just ran a really bad article about Delta’s move to a revenue-based frequent flyer program in 2015.
I’m going to delve into the Times article since many MileValue readers discovered the blog from a New York Times article (“How to Get a Seat Out of Your Award Miles“) in which I was quoted extensively. Bill was also quoted extensively in a recent New York Times article about frequent flyer miles: “Elite Status on Airlines Loses Some of Its Appeal.”
It seems when the Times doesn’t quote us, they get the story about frequent-flier miles wrong in some really obvious ways.
The central premise of the guilty article is its headline: Now May Be a Good Time to Bail on Frequent-Flier Programs.
Let me refute that in four sentences:
- Frequent-flier programs are a way to earn miles, which are a rebate good toward future flights.
- Delta slashed how many miles people will earn on almost all flights, but not to zero.
- You still will earn at least a 6% rebate toward future flights.
- Ditching a small rebate like 6% toward future travel is just burning money, and there’s no reason to do it.
Why is now not a good time to bail on frequent-flier programs? Why else does the article get dead wrong? How does this all affect what rewards card to use?
Now May Be a Good Time to Bail on Frequent-Flier Programs starts with a rundown of the changes to the SkyMiles program coming in 2015. As a reminder, there are some changes to redemptions that all sound good (but we don’t get full details until late 2014.)
The changes to earnings are very bad. Instead of earning 1 mile per mile flown plus status and cabin bonuses, earnings will be based on the ticket price.
- no status: 5 miles per dollar
- Silver: 7 miles per dollar
- Gold: 8 miles per dollar
- Platinum: 9 miles per dollar
- Diamond: 11 miles per dollar
The article’s explanation of how earning miles from flights will work is totally correct. And the article then discusses how redemptions will change and the fact that Delta is NOT going to revenue-based redemptions with a very interesting take on Delta’s reasoning:
Why might an airline not want to make this move? Well, this is part of the game, and it’s a mind game through and through. As long as the possibility exists that someone can take 150,000 miles or so [Scott: He links to the American Airlines chart, which charges a maximum of 135k miles for a Saver roundtrip in First Class to Asia.] and fly in business or first class to Asia in a seat that might otherwise have cost $10,000, plenty of people are going to keep playing. The fact that many people never earn that many miles and end up dumping what they do have on flights that aren’t ideal hasn’t dissuaded many mile collectors.
“Airline miles have been surprisingly durable in terms of people continuing to ascribe major value to a product that really has had less and less value over time,” said Rob Rosenblatt, who helped develop the Delta co-branded card during his time at American Express and also ran the rewards card business at Chase.
Why You Should Not Bail on Frequent Flyer Programs
But then the article goes completely off the rails:
For those who want out, now’s not a bad time to bail. After all, many airline perks, like getting to use a shorter security line and board the plane early enough to get your wheelie in the overhead, are now for sale on an à la carte basis at a fairly reasonable price.
Did you catch that? Now is not a bad time to bail from airline programs because you can just buy the perks of status.
Let’s compare bailing versus not bailing from Delta’s program starting in January 2015.
- Earn zero miles on flights.
- Have no possibility of earning status.
- Earn 5 – 11 miles per dollar on flights. I value Delta miles at about 1.2 cents each, so this represents a 6% to 13% rebate on your Delta flights. On a $400 transcon, that is $24 to $52. Hardly earth shattering, but why turn it down?
- Earn status if you fly enough (and at the same rates as in 2014. MQM calculations are not changing.)
The benefits of flying as a Delta SkyMiles member are going down, but they are not going below zero. There is literally no reason to quit the Delta SkyMiles program just because the benefits are getting worse.
Now I am not saying you shouldn’t ditch Delta for American or United. That could make a lot of sense for you, but ditching Delta SkyMiles membership for no loyalty program when you still plan to fly Delta makes zero sense.
Now I just made the most obvious argument ever: some is better than none. So how did the New York Times miss this argument, and how much damage will they do to readers miles balances who unquestionably accept the premise and drop out of mileage programs?
What Credit Card You Should Use
The fact that this article even goes on to discuss credit cards, which is totally unrelated to Delta’s decision to go revenue-based on flight earnings shows how muddled the thinking is in the article.
Nonetheless, the author is basically right on his first card suggestion:
I’m among the legion of card geeks and travel nuts who are still devoted to the Starwood Preferred Guest program (which includes Westin, Sheraton, W and other hotel brands) and its American Express credit card. I regularly get 3 cents a point in value when exchanging my points for hotel nights in high season at certain properties; airline miles are rarely worth more than a penny or two each unless you use them for upgrades on certain flights or get lucky redeeming them for those premium seats to Asia.
I agree that if you are a casual travel fan and want to put all your purchases on only one card, the Starwood Preferred Guest® Credit Card from American Express is one of the Three Best Credit Cards to put that spending on.
He is right that that Starpoints deliver top value of about 2.5 cents each, and I agree that consistently getting more than 2 cents of value from airline miles is tough.
If you are going to get more than 2 cents per value from miles, you need to book mainly business and first class awards. His comment about booking upgrades with miles shows how little he understands miles because upgrades are almost always a terrible use of miles these days, requiring huge miles and huge co-pays when upgrading the cheapest economy fares.
His next card suggestion is totally wrong for travelers though:
If it’s straight cash back you seek, Fidelity’s Investment Rewards American Express card yields 2 percent cash back into a Fidelity brokerage account, far better than most competitors.
If you travel, get the Barclaycard Arrival(TM) World MasterCard® – Earn 2x on All Purchases instead. The card offers 2.28% back toward travel on all purchases.
The travel categories are so broad:
- any flight
- the taxes on any airline award
- any hotel, B&B, hostel, guesthouse, etc
- car rentals
Anyone who spends more than 2.28% of their spending on travel annually–probably everyone who is the target audience for that article and this blog–is better offer getting 2.28% back toward travel than 2% cash back.
Next the article compares cash back to a straw man:
If the [Fidelity] card continues in its current form, a regular user with a child born today could pay for a year of a college at a state university with the cash rewards. My guess is that an increasing number of people will choose to do that, rather than entering an airline lottery with unknown odds that may or may not land them a few family trips to Hawaii.
This is a head scratcher on so many levels:
- He doesn’t tell us how much a “regular user” spends or what he means by “pay for a year of college” (tuition? full cost?). More importantly, money is completely fungible, so the simplest way to explain the Fidelity card is 2% cash back, not what you can buy with that cash. Anyway, say that you wanted to spend your rewards on college education. Get the Arrival card, use your rewards to eliminate your travel bills, and set aside the money saved from eliminating travel bills in college fund. You’ll have 14% more than in the Fidelity college fund.
- He totally straw mans the redemption side of frequent flyer miles. Miles can be used for a lot more than “family trips to Hawaii.” They can be used for international business and first class at a reasonable rate. Cash back can not be used to get into international premium cabins at a reasonable rate.
- Your credit card choice is totally independent of Delta’s latest moves. Delta’s moves negatively affect the miles you earn from flying. The miles you should earn from credit cards are related to which miles are the best to redeem for the trip you want.
I can’t remember the last time I wrote such a negative post, but this Times article is poorly thought out and could cause a lot of people to get a lot less free travel from loyalty programs. It deserves to be ripped to shreds.
Not only does the article recommend ditching airline programs even though they still provide positive value, but it also gets the credit card advice–which really has nothing to do with the main purpose of the article–dead wrong.
There is a very real story about Delta’s changes for 2015. Most people will earn far fewer miles from flying. And even though the redemption changes sound positive, we can’t be sure yet.
A further real story is how United and American will respond. And will anyone go revenue-based on redemptions, which would completely destroy most of the outsized value we get from our miles?
It’s a shame that the Times missed so badly on the story it tried to tell. If the author read MileValue, he wouldn’t have made those mistakes.