nsx

Recent devaluations by United, Hyatt, and Southwest will reduce the future cost to Chase of member redemptions for airline and hotel points. But suppose that Chase were to decide that it needed to reduce its cost further.

If you were running Chase Ultimate Rewards would you give advance notice, risking a run on the bank? Remember that unlike airline miles, UR points can be redeemed in a flash without any need to lock the points into a specific trip. So a literal run on the bank is a real possibility.

Should we expect any devaluation or UR points to be without notice?

CodeAdam10

Chase doesn't need to deval. Their airline & hotel partners do that job very well for them. Though anything is possible, I can't see them offering a lower transfer ratio (ie: 1000 UR will net 800 UA miles.)

In fact, they need to improve some of their ratios specially IHG and Marriott !

hamhead

This assumes that along with the devaluation for members they pass some savings along to Chase for the rates they pay per point. That might not necessarily be true. I'd have a tendency to think contracts between large institutions like this are set long term to avoid problems and lock in loyalty - i.e.., Chase might agree to pay Hyatt 0.5c per point from 2010-2015. Chase is happy because they lock Hyatt in to Chase as an exclusive UR partner - Hyatt is happy because they have a set income stream to count on.

So even though Hyatt devalued recently, Chase might be locked into the higher rate.

That being said, Chase would have to be the first in the market to move to a redemption value of less than 1:1. 1:1 is the industry standard because it is easy for consumers to understand. To take it further, the more points you receive = the more value the consumer applying for a product sees.

Ask the average American whether they would want a credit card that gave 0.8 UR miles per dollar or 3 Hilton Points per dollar. If you ask one of us, we'd probably say UR or at least fairly even because we know the relative value of the currencies. But to the uneducated consumer, they'd say "Hell yeah Hilton, that card gives me more than 3x value than the other".

mia

I think the wholesale price of rewards to banks and other partners is a contractual constant. What we see as "devaluations" are price changes to balance the supply of award seats and rooms with the higher demand created by the larger number of miles and points outstanding. Chase might later be able to negotiate a lower price, if they found that they had to increase the bonus offered to attract new applications, but right now the major issuers seem more interested in consolidating their market share, and weeding out churners, than in opening new accounts. I would expect their cost per mile/point will remain stable.

I agree that this will be a consideration, but it's not unthinkable. Citi broke the $0.01/point redemption barrier for some ThankYou Rewards cardholders. American Express changed the transfer rate on cards issued in some other countries from 1:1 to 3:2, without advance notice.

I think Chase is likely to give notice, because the alternative is to have the points redeemed at $0.0125 each for travel, and I bet Chase doesn't pay anyone (with the possible exception of UA) 1.25 cents per mile or point.

TMKTakot

Doubtful they would give notice. If I had to guess what they devalue to (if/when), it would be redemption in scaled batches. i.e. 10,000 UR = 8000 United, as opposed to 1:.8

nsx

That sounds right. And at this point United needs Chase more than Chase needs United. With that plus the recent UA devaluation Chase has the upper hand to negotiate a lower cost of UA miles in the next contract period.

mia

My analysis is overly abstract because it ignores one important consideration. Each co-branded card program is likely to have a manager who sees Ultimate Rewards transfers as cannibalizing her business. A manager might successfully argue that the Air/Hotel/Rail brand cards needs to offer better value than UR, because UR's USP should be flexibility.

Still, I think Chase is more likely to tinker with these elements before the transfer rate:

• Reduce new card account bonuses.
• Reduce 5X spending categories to 2-3X.
• Lower the caps on category bonuses.
• Eliminate the ability to transfer points from free to paid cards.
• Reduce travel redemption rate from $0.0125 to $0.01.

nsx

Is there any chance that an airline or hotel company would decide to solve this problem by allowing transfers from their currency back to UR? Or would that unacceptably expose the company to a run on its bank any time it decided to devalue its travel redemption chart?

mia

Once upon a time AA and UA offered transfers -to- Diners Club Rewards, but the transfer rate was at 50%. 1000 AA = 500 DC

Dieuwer

...which had the effect that many Citi cardholders like myself dumped the ThankYou Rewards credit card and moved to greener pastures.

mia

I expect Chase would not provide notice when removing a transfer partner. I am not thinking of the core partners, but the ancillary programs such as KE or VS.