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With so much in flux, it’s hard to define a strategy around points and miles. Especially when most decisions are based on fear and speculation of airlines and other travel operators going under. Every travel group I am part of, is buzzing with discussions around a ‘strategy’ in these uncertain times, including liquidating account balances. While I am presenting reasons to not liquidate your account balances, this obviously does not apply to readers that may be cash strapped and liquidating may be their only way to ‘put food on the table’. Liquidating miles and points means purchasing gift cards or merchandise, often at less than desirable value of the currency itself. Here are three reason why you should not liquidate points and miles, yet;
- Major airlines, hotel chains, banks and credit card issuers will survive. We live in extreme capitalism where the very companies that posted record profits year over year for a decade, inflicted basic fares, non-refundable booking options, and higher spend requirements upon us, will now be in a position to ask for bail-outs (yet again). And our governments will not fail them. Nor should they, because these major companies are tied with livelihoods of several thousands of employees and households. Yes, we live in extreme capitalism where the smaller players will be allowed to wither away or bought out by the giants. The loyalty programs of these bigger companies will be well protected under them. So unless you are hoarding thousands from an airline or hotel that was already on the brink of collapse, fear not, government financial packages especially designed for COVID-19 affected businesses are on their way.
- Miles and points are not the same as stocks. Loyalty programs in general are some of the most profitable units within the company and generally get treated as such. Here’s an example: for recent pandemic related flight cancelations, Air Canada chose to offer future credit (as opposed to refunds) to customers that bought cash tickets, while those that booked reward tickets are getting full mileage returned, including the tax portion. A recent post on Doctor of Credit, covered a couple of examples where major airlines filed for bankruptcy and yet the members kept their miles intact, here is an excerpt;
The short answer is that it really depends on the type of bankruptcy we’re talking about. For example in 2005 Delta filed for chapter 11 bankruptcy and after 19 months of restructuring they exited that bankruptcy. Before they entered bankruptcy co-branded credit card partner American Express provided delta with $600 million in cash and financing. In this case Delta frequent flyer members kept their miles and Delta was able to show that this program was a positive asset. American Airlines also filed for chapter 11 bankruptcy in 2011 and members kept their miles as well. A counter point is Midway Airlines when it filed for chapter 7 bankruptcy in 1991, all 700,000 members lost their miles.
Simply put, for airlines to recoup the losses or stop the bleed, there are several other avenues before they come for your miles and points balances.
- Liquidate points and miles by buying gift cards or toaster is often bigger loss in value than the potential risk of devaluation of points and miles. Right now, with wide open availability of award seats and hotel nights, maybe a great time to book that future luxury trip you have been holding off on. Personally, I would rather book a refundable lavish vacation (a year out) than buy gift cards and merchandise at poor value, to liquidate my balance.
The silver lining – as 2008 crisis has shown, frequent flyer programs tend to become more lucrative after major economic downturns, as businesses try to win back customer cash. I don’t see this time being any different. Once the lockdown eases up on the travel industry, we can expect better bonuses and perks to shake away sluggish demand and win back our loyalty. That period of time, just after the crisis and the economy rebounding, we may enter a phase where the airlines and hotel chains will actually have to work towards customer satisfaction. In the meantime, some may switch their short term strategy to earning cash-back on their spends, while some will continue to play the long game with their account balances. Regardless of the strategy you adopt, I don’t think its time to panic and liquidate miles and points on merchandise.
Title Image: Photo by Tina Bosse on Unsplash
I used up my Frontier points, expiring in April, for magazines. I was thinking of subscribing to the Wall Street Journal. There were three options in terms of number of issues. The next day, all three options were gone, so I chose magazines. I left some points in the account to see if any better choices show up in the next few days. Spirit emailed me to say they are extending the expiration date until fall. I do not have enough points on these budget airlines to travel anywhere. Otherwise, I would redeem points for something domestic in the fall and hope all of this had ended.
Yeah, I am seeing several airlines suspend their gift card options and other liquidation avenues in hopes to keep their cash intact. Sad times. With $58B allocated to airline industry in US, I am hoping that the airlines like Frontier and Spirit would survive this as well – https://travelupdate.com/us-airlines-60-billion-dollar-bailout-coronavirus-covid19-bill/
I don’t think liquidation is just for those who are “cash strapped”. It could also be for those with millions of points (or dollars). However i still wouldn’t redeem for prepaid cards or merch. Why not instead invest in the market while its low with tax free dollars? It can even go against further tax liabilities in a sheltered account. You can’t get compound intrest on a first class flight
I did put a toe in an S&P index fund Monday (in IRA and Roth IRA) after having gone almost all cash a while back. I got out today, with nice 18% gain, but also the knowledge that I can’t stomach it yet long term (or even over the weekend). Maybe when I was younger, but not so much at 65 and retired.
Absolutely! If you can move cash from points and miles into the stock market for quick gains, that would be a good investment. My post was addressing people who are liquidating in poor value, with fear that companies would go under.
I debated and did did do some cashing in,
1) I had Wyndham points nearing four year expiration, and a lot more may be in the same situation soon. I got enough Lowes cards ($150) to put any expiration off until October,. I’ll use 10,000 more to convert to Caesars Total Rewards credits later in the year (alreadiydid 20,000 earlier in the year).
2) I HAD in excess of 1.2 million Radisson points, I converted about a quarter to $500 in Visa prepaid cards, I just have so many, as well as points in other hotel programs.,
No further plans, except the Total Rewards (which I always think is a good idea).
Thanks for sharing Carl! I like your hybrid approach to using some for cash and some for aspirational travel. As long as the strategies are not based on fear for industry collapse, I think this hybrid approach is pretty decent for folks that have a huge cache to draw from. Cheers!