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Discussion in 'General Discussion | Miles/Points' started by uggboy, May 16, 2013.
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|| Airline loyalty schemes failing to take flight new study shows ||
Some interesting numbers. Surprised 4 out of 10 never tried to use their miles.
Maybe too complicated for many, too expensive or too time intensive, but too be fair, many hurdles by the airlines as well. Interesting insights indeed.
I'm not. Most people collect miles with the intention of using them for air travel - and most people find actually booking an award ticket to be a complicated, confusing mess. I bet a lot of people don't even realize that airline miles can be used for other things besides air travel. Let's face it, most people are lazy (and I include myself in that number!), and don't do much research before they sign up for all those "free" awards.
Combined with the lazy, don't forget all the people who never accrue enough points for it to matter. If you are a 1-2x annual domestic US (or intra-Europe) traveler you'll will almost certainly do better in the long run by foregoing award programs and buying based on price and schedule every time.
Which can be planned around, provided one is willing to put in the time and effort.
Sure, but is it worthwhile? Is it worth spending many hours trying to figure out how to save $10 on an airfare? Probably not. Similarly, spending scores of hours to get a "free" trip might not be worth the effort for most people versus just paying the going rate.
The programs absolutely have value for the very frequent users who have figured them out. But that's not everyone, by a wide, wide margin.
Those folks can still accrue enough frequent flyer points to cash in on some non-flight options, though. I bet they just don't think about it.
I agree, though, that for the average traveler, a good 2% cash-back rewards card plus some good Kayak and Priceline skills is the way to go. There is no free lunch, and those "free" award flights come at the price of a lot of time spent in research and (for most non-frequent flyers) heavy credit card spending and card juggling. A lot of people just aren't into that, and I don't blame them!
The typical 2% cash-back card (or even 1%, plus category bonuses) will be a better value than accruing airline points and then redeeming for merchandise in nearly every scenario I've seen. Also keep in mind that the survey was based in the UK where the CC earning options are quite a bit more limited than in the USA.
True, except that it costs nothing to sign up for a frequent flyer account. So those points earned by actually flying on the plane are free (since the traveler was going to be on that flight anyway). Those are the points I'm thinking a casual user could cash in; they won't get much for them (because they won't have many points accumulated), but they'll get something. And since the US system is hub-and-spoke with only one or two major airlines serving most smaller cities, I bet even casual flyers often find themselves on the same couple of airlines for most of their flights.
I often find the " 2% is better mantra" quoted all over these boards and find the statement pretty hard to believe and frankly IMHO smacks a bit of rationalization
a) Is this statement meant to apply solely for airline cards only?
b) What sort of sign up bonus do you get with a cash back card?
How about this scenario? both examples ignoring any sort signup or any other type of bonuses
1) I charge $40k on my HH Surpass (besides getting Hilton Diamond) I accumulate at a minimum 200K HH points for those points I can stay at the Hilton Diagonal al Mar even after the devaluation for 5 nights where the standard rate is between 250-350 Euro ( note I just picked to hotel since I just happened to book it recently) compared to $800 cash back?
Or alternately charge the same amount on my SPG Amex and get two nights at the Marques de Riscal or the W Barcelona which goes for 400 plus euro a night.
Indeed. The "problem" as it is arises when a customer shifts their spend to accrue the rewards at a cost which is greater than the value of the points they are accruing. Let's say you fly a 500 mile route round-trip, earning 1000 points. There isn't much you can do with that. If you purposefully pay extra on the next trip (again, assuming the couple times/year customer) just to accrue another 1000 points is a losing battle in terms of value.
I tend to look at the long term, not a new CC every year. Any card is going to be better in year one than in subsequent years. Beyond that, as I pointed out, I was mostly talking about the target of this study - UK residents - where the points-earning CCs are less plentiful and come with fewer benefits.
Finally, That crazy CC spending only works if you really, really, really want to stay at that hotel (and you can find an award room, something which is NOT guaranteed). My "big" trip last Christmas/New Years involved nights in Bangkok, Luang Prabang, Vientienne, Yangon, Bagan and Mt. Kyaiktiyo. Having 200,000 HH points would've been pretty useless to me versus the cash-back.
Oh, and you need to either naturally have a spend that high - $40k annually is roughly double the average in the USA - or be willing to invest time to learn about the manufactured spending schemes and the time to actually pull them off; neither of those are free.
For the average user, the infrequent traveler who isn't in to churning and manufactured spending, a cash-back CC can be much easier to deal with than the points-based programs. They are harder to "game" and max out with some inflated CPM numbers but unless you were willing to spend the 300 euro for the room anyways that's a pretty bad way to do the math.
I agree with Wandering Aramean, the value proposition for credit card points only works with churning or high spend.
For quick one-night stays, I've been using Priceline more frequently...and I'm Platinum with Marriott and Hyatt and Gold with SPG and Hilton. What I save far outweighs the points (and sometimes perks) that I forgo.
I'm also one of those cashback-is-better "mantra" rationalizers. The cash nicely supplements the miles and points I earn from my travel.
Very true. The way to win at that game is to open frequent flyer accounts on the airlines which service your town, fly those airlines based solely on ticket price, and after the accounts have a few thousand points in them, cash those points in on inexpensive trinkets you would buy anyway. But of course a lot of people don't do that, and they end up with the worst of both worlds: never enough points saved to get anything really nice, and those points cost too much because they overpaid on flights to earn those 'free" miles.
So very true! Too many people on the points/miles boards and blogs talk as if their personal time has no value. Sometimes the sensible thing to do is just to buy a revenue ticket (particularly if, like most US travelers, you only fly domestic coach) and use all those hours you'd spend trying to track down an award ticket doing something more relaxing and fun.
If you're a truly frequent traveler, if you naturally have a high annual credit card spend, and/or if you have the financial discipline and good credit score needed to churn cards regularly, the points and miles game can be quite rewarding. But it's not for everyone, and there's nothing wrong with recognizing that - or acknowledging that the "free" trips are being paid for (even if not with money).
The examples I quoted apply specifically to my situation. If you notice I did not at all mention churning or manufactured spending.... practices I do not indulge in and is quite irrelevant to the point I am trying to make since I did not factor those into it..
I my contention that your premise that cash-back is as you say " will be a better value than accruing airline points and then redeeming for merchandise in nearly every scenario I've seen." might very well apply to your particular scenario but IMHO is on the face of not at all encompassing.
The great majority of my hotel points come from normal spend on cards my wife and I have had for years.
A few more points:.
1! Mentioning my example of $40K annual spending ... is fair enough but I cannot but help notice that you ignored the
equally valid SPG $20K spend example..which be more normal .. no?
.2) As a HH Diamond and SPG Plat I have not had too much difficulty get award rooms for the dates I desire.
3) Cash back is fine but there a lots of times where using points are more cost effective I am sure you are well
aware of many such examples.
4) Finally the mention of whether I am prepared to spend 300 euro for a room is a bit of a red herring
If I want stay at a property or on a certain date I very well might and I have done so many times.
If I had the inclination to give examples of lessor valued properties which would obviously give more nights for less
points it would still blow your 2% argument out of the water.
I just happened to use those three examples of hotels I stayed at recently or am planning to stay at in the near
The median household income in the US is a tad over $50,000/year (http://en.wikipedia.org/wiki/Household_income_in_the_United_States). Most households in the US aren't spending $20,000 per year on their credit cards, let alone $40,000 (http://www.nerdwallet.com/blog/credit-card-data/average-credit-card-debt-household). And about 2/3 of households carry a balance from month to month, with interest fees that wipe out any value they'll get from either cash back or miles/points.
Most of us vastly overestimate both the income and the financial sophistication of the average American. And I'm sure the average European isn't all that different.
Sure, but if you're annually doing 40K you are on the high side of average by a decent ways.
Yes, and still a relatively bad value unless that specific brand ha a room where you want it and when you need it.
Well, I'm an SPG gold, too, thanks to AmEx. Turns out that doesn't help me get a room when they don't have hotels in the places I visit.
And there are plenty of stories both here and on FlyerTalk about ridiculous rates for redemption on the HHonors side of things, even before the recent award chart changes. SPG is a bit better, but you still have to want that to be the outcome of your spend and you have to know in advance you're going to hit that number. Getting 2 nights for free at a hotel in Barcelona is actually not all that helpful for most travelers; I'm willing to bet that most Americans don't go to Barcelona and only stay two nights. So I can get two "free" nights and then pay the premium to stay on where I've already unpacked or pick a local property where the daily rate is lower and save money overall. That's what the rational analysis has to consider.
Yes, I'm aware that both can work. And, on the average, I believe that cash-back is likely more valuable for more people than points-based programs. One of the reasons the airlines and hotels can afford to offer the 'big" redemptions is that they know there will be a certain amount of breakage on the points. That's basically free money in to the system that they get to use to offset the awards booked by the rather small part of their user base which spends the time and effort to figure these things out.
I've paid large amounts for a room, too. I've also found that I can often do better - particularly in Europe and Asia - by avoiding the Western brands. Pay less, get a better (for me) hotel and comparable amenities, all without worrying about the hotel points. It really can work quite nicely.
Not necessarily. You'd still have to show a need for that redemption value versus the alternative.
At the end of the day the CC earning comes down to opportunity cost. For the occasional traveler with an average CC spend volume I believe that cash-back is likely to better meet their needs most of the time. That average, occasional traveler isn't the person spending a week in Barcelona or someone with elite status.
You're not average. Neither am I.
I agree completely with the above and I suppose for the other areas of our differences in opinion it really comes down to ones perspective and objectives ( and whether you are prepared to put in a little work in attaining such ) with regards to the use of cards.
It is satisfying to see that my arguments suggesting that the average Joes' financial situation is probably not sound enough to allow them to benefit greatly from practices like churning, are being echoed here. The reason I would agree that the cash-back CC is better for most with limited income and/or travel is that it requires nothing special to implement. One just spends and a percentage of that spend rolls back in effortlessly as cash, which can be used toward paying CC balances. On the other hand, to obsess with points on the notion that it is the surest way to afford that dream vacation is a pipe dream, unless one is among the few that are sufficiently disciplined and have the know how to effectively navigate the treacherous waters of everyday personal finances in which many competing priorities vie for the same limited pot of income money. With 2/3 of households carrying a credit card balance from month to month, it is difficult for me to see how most of those households can afford to hunt for miles/points on the promise of a big pay off. Using cash would be infinitely better and safer, which makes a cash-back CC the saner option.
Folks who can incorporate the CC bonuses into their every day spend are better equipped to benefit than those who must juggle things around. The bonuses should, at best, be viewed as supplementing another, larger source of points/miles rather than as the primary source of points/miles -- this means the game is for those who are already frequent fliers/guests. None of this makes sense for the occasional traveler, who would be better off just using cash or a cash-back CC.
While I read through this discussion, I realized that I did not have a cash-back CC in my portfolio, so I remembered getting repeated snail mail offers from DISCOVER for a CC that gives back up to 5% on selected purchases. This led me to the Discover it® cash-back card. I immediately liked it, applied for it and got instantly approved (card arriving in 7-10 days). In my view, this seems like the perfect cash-back CC, but it requires a very good credit to get, according to folks at CreditKarma, who also provide the following review and pros and cons. Judge for yourself:
The sign up bonus consists of waived interest payment on transferred balance (18 months interest free) or on purchases for 6 months, which could give folks who are in a hole the break they need to get out of it. However, that they are in a hole might make it tough for them to be approved for this card.
One way this card could be great for folks like me, who earn airline miles fairly easily by virtue of being a top UA elite (100% bonus miles with every trip on top of BIS miles) and of taking mainly long-haul international trips, is to use it to purchase costly airline tickets for long haul trips and then collect the associated 5% cash back and miles. The same scheme would work for folks who have a top elite status in a frequent guest program.
Take home message:
And United, in their 10K, says they expect 24% of miles to expire unused. It shows that many of the comments here about joining, but not getting enough added value to be worth paying up for, are valid.