Balance Miles and Cash Back in the Face of Devaluations

Today’s “no-knock” American Airlines/US Airways surprise devaluations have the mile-verse spinning.  Once mighty and customer-centric AA has shown its new stripes, and we’re all at a disAAdvantage because of them.

Devaluations are a part of the game we play, just as inflation is a concern with cash.  Today’s post will be equal parts editorial and lessons we can take away from this.

To AA/US Executives Who Might Be Reading This

When You Announce a Mile Sale and then a few days later you change the number of miles needed for travel you’re devaluing midstream. It is conceivable people shared (bought) miles yesterday and planned on booking flights today. They went to sleep thinking “I’ve bought the miles I need, all is well.” and woke up to having too few miles for their award.

I’d argue that for most “average” flyers the goal they have in mind is a fantastic award ticket. When you move the goalpost you risk alienating your core customers. Sure there are people like myself, and others here on Milenomics who don’t like to pay for any flights if they can avoid it.  But the Frequent in Frequent-Flyer Miles means that person has consciously chosen to use your services (and pay you for those services). They’ve done that for weeks/months/years with a goal flight in mind.

These aren’t called “Deserved flights” or even “free flights.” You’ve chosen to call them “Award flights,” a term which brings to mind the idea of awarding your customer. What does it then mean when you take the “award” away from your customer without notice?  Are these “punishment flights?”

Better Luck Next Time

It is easy to argue that changes need to be made. Ticket prices are rising, and award prices need to as well. I’ll agree, except that yesterday somewhere, someone had a goal, an award in mind:

  1. Maybe it was Easter Island with AA miles on an Explorer award.
  2. Maybe it was a dream trip to Asia with US Miles.
  3. Maybe a flight to/from Hawaii as part of another award

Today’s “Punishment tickets” will take the award out of “award tickets” for these and many other individuals.

Hoarding Makes Miles Sad

If before today you didn’t believe in the depreciation of miles, I hope you now do. We’ve devoted quite a bit of discussion here on Milenomics to knowing when to stop earning miles, and how to use our miles.  The reason for both of these is simple: Miles are not to be hoarded.  Earning and Burning your miles effectively insulates you from devaluations.

An empty account is nothing to fear! It means two things: It is ready to be refilled, through pooling methods we've discussed, and also that you used those miles for wonderful memories.

This is not to say that Miles are no longer valuable. We covered this with United’s gutting of Business/First awards; Our miles are not worthless, but they are worth less after an event like today’s.

A cornerstone of Milenomics is identifying the miles we need, collecting them in reasonable amounts, and then switching to cash back. This balance is a delicate one–too few miles and you’ll be paying cash for flights you could easily have used inexpensive miles for. Too many miles and you’re stuck with a Depreciable “asset” you’ve invested not only your money, but also your time and travel into.

Three reasons we want to balance our Miles needed with cash back are:

  1. Miles decrease in value and can only be used for one thing: Travel.Cash is fungible, and can be converted into miles, spent on bills, saved, or used to travel.
  2. Miles can represent a much better value than cash.  It would be hard to argue that a 110,000 mile award to Asia (In Business Class) is a terrible deal. Booking the same flights with cash would require 350,000-650,000 pennies.  Last minute flights are another good example where miles offer significant savings over cash fares. For such reasons an all cash strategy isn’t enough on its own. 
  3. Some cards give you leveraged earning of miles.  A great example is the Gold Amex PRG. Earning 2x MR at grocery stores. Coupled with the sweet spots in both Avios and ANA award charts means $10k spent can represent as much as $400 in flights. 

On a day like today it is easy to feel like quitting, and giving up on miles.  Instead of that, use this type of announcement to get your house in order.  Start looking up flights you can book with miles, book them, and draw down your balances to reasonable levels.  Start a Demand Schedule, and use it to target the miles you earn (and redeem).

Remember Milenomics is about creating your own best system of earning and spending miles. Instead of focusing on what someone else does keep an eye and and ear on what’s best for someone like you, and base your reading of Milenomics on your traveler type and travel needs.

Days like today are tough, but hopefully they’re few and far between.

About the author

- Written by Sam Simon. All ideas are my own, but I encourage you to see my point of view and I promise I'll try to do the same. Connect with me on Twitter @Milenomics.


    1. Al: If you’re getting value from those Hilton points by all means continue. Looking to compare to CB: Unless you know something I don’t I think extracting 1 cent of value from 1 HH point is going to be tough. That said, half a cent per point would equate to a 2.5% Cash back card, and .7 CPP would be 3.5% CB, but only if you’re using those points. If you’re hoarding them they’re worth $0 until you go ahead and book something with them.

      Again, if you’re getting value from your Hilton points (and not hoarding) then by all means continue. However if you think you could get a 3%-5% CB card then the Hilton card may indeed be inferior.

      I’d be interested in hearing a little more about how you’re using these points.

      1. My valuation of Hilton HHonors points post-devaluation is more like 0.4 cents per point, based on the awards I’ve redeemed anyway (Hawaii, Phoenix, San Francisco). Which means 5X is only 2 cents per dollar. In comparison, if you assume airline miles are worth 1.5 cents per mile (only if you would get value out of the partners available) then 2X on an Amex PRG is more like 3 cents per mile. So that’s the better deal. But as you say YMMV.

        1. Glen: I’m with you regarding Hilton Value. There are less tangible benefits, such as being able to cancel an award room up to the day before vs. a lowest prepaid rate where you’re stuck eating the room if plans change, so a Hiton card might be a better fit if your plans frequently change…But ultimately collecting and using at or above your Cost to acquire is the way to go.

          Good analysis of the PRG. Also if you spend $30k in a year on a PRG that 2x MR turns into 2.5MR per $1 (Grocery). The effective rate will then decline as you continue to spend. Putting 40k a year on the card the bonus would equate to just 2.375MR Per $1, $50k the bonus turns into 2.3, etc.

  1. AAdvantage sent me an email at 11:52pm last night with an offer to buy miles with up to a 40% bonus. At the same time they were loading the new “award” chart.

    1. Exactly the kind of situation that really makes you wonder who ok’d a “no-knock” policy on these award changes. Seems so anti-consumer, and so obviously a terrible PR move. This is also the first real interaction we’re having with the “New American,” and it does not sit well with me. Thanks for sharing this.

  2. I’d be EXTREMELY pissed if I purchased miles from US Air yesterday. While I decided not to because I have enough AA/USA points, I’m sure many others jumped in after it got pumped by the bloggers based on the pre-devaluation analysis. I’d even consider filing a lawsuit, which I’d think might have a good case actually. I wonder if there’s somebody out there considering a class action right now?

    1. Glen: See Boon’s comment–apparently AA was promoting a 40% off sale on miles last night as well. I too was wondering the legal angle of this earlier today as well.

  3. So it’s another 20-50-90K miles – just another week or two of MS. No big deal. MSers should view these devaluations positively, as it makes it harder for others to take scarce award space.

  4. Since I can’t seem to find an email on your site….I have 725$ in erewards that I was going to cash out to Avois or AA. Now, I really don’t know if it’s a good value. I’m still on the fence about buying the USAir share as well. I wanted two tickets to anywhere in the Caribbean for next Thanksgiving. Forget it. I’m not shelling out 65k pp. What do you think a good cash out of erewards…still Avois?

    1. Nicole: You can email me at Wow… $725 in erewards. I cannot fathom how much time you’ve invested into that, great job. If you can find low level awards on either AA or US Avios are almost always the cheapest way to go. Especially when you transit zones, like US/Carribean or US/Mex. Avios have no zones, so the distance is the price. Email me if you have more questions.

    2. I can’t fathom it either…but, it’s been about three years and I ignore it for the most part now. Just thinking I need to cash out before they ignore me! Thanks for your pointers!

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