'The next bubble' - travel loyalty programs (Elliott)
 

Chris Elliott raising a headline ruckus again...

http://elliott.org/what/the-next-bub...alty-programs/

Uses Delta as the case in point. Though something more concrete on the Hilton deval would have been useful.

... I dont understand why people keep referring to miles as some sort of currency... there's no inherent value to your miles and stockpiling them like some sort of 401k plan is nonsensical.

Whole article has this bitcoin undertones in it as well...

There is a value, it's just defined by the person accepting it, so they have incentive to make the value low.

I agree though, that stock piling is bad, just take a look at the Hilton devaluation.

Interesting response analysis here of the Delta program using their annual report. Didn't realize the miles turned over as quickly as they did. Not so much stockpiling as you'd expect...

http://milecards.com/6002/are-delta-...umbers-say-no/

I sort of agree with the article - usually there is sufficient time to burn a few 100k points when a deval is announced, but stockpiling more points in any program than you could use in 15 months (3 month notice of deval + 12 month out booking) is risky IMO.

Agreed, it's well done, but here is one factor they mentioned, but did not explore:

Compare that to Delta's load factor:

2010 83.95% load 8.3% awards
2011 83.10% load 8.2% awards
2012 84.86% load 8.0% awards

The initial premise of frequent flyer programs was that airlines would use seats which would otherwise remain unsold. As the airline industry reduces capacity, and load factors rise, the space made available for awards becomes more valuable, and redemptions are pushed into less desirable times and routings. Can Delta continue to redeem ~8% of the seatmiles as the load factor climbs?

Miles are not currency. That is our story for the taxman, especially since the companies say we don't own the miles and they can take them away. And we're sticking to that story.:D

Dollars are legal tinder. Rolled up they are great for firing up your Texas BBQ.

... or coke.

And here's another one:

Total awards (millions) 11
Avg miles per reward 23,818

How do we arrive at that number, considering that DL's cheapest award (assuming you can find it on the "low" level) is 25,000 miles? Is this telling us that a significant portion of the 11 million redemptions is for giftcards and other junk?

As someone who has racked up about 400,000 Hilton points so far this year without going anywhere NEAR a Hilton, it sure feels like a bubble to me. :D

And of course, UA million miler was de-bubbled after the merge.

My prediction is that in 5 years or so all of these programs will have suffered hyper-inflation on points, but that true revenue loyalty will still be rewarded.

I think this came up in the Delta forum before (that 11mn awards vs the 262 billion total miles redeemed they report). Can't find it but thought was either they are counting each one-way as an 'award' or there is a lot of 'pay with points' going on where people use the miles as one cent each for dollars off flights.

A change to revenue-based redemption (not merely revenue-based earning) would greatly curtail the programs' ability to devalue their currency repeatedly. That makes me wonder whether the programs are too addicted to devaluation to allow them to switch to a boring but sustainable model like the new Southwest, JetBlue, and Virgin America programs.

Elliott just isn't knowledgeable about how programs work. He doesn't belong to them, makes erroneous assumptions about them, doesn't even read FlyerTalk, and is simply trying to stir up controversy to improve his traffic. He's offering bait, and some are taking it. I like Elliott on TSA, and his ombudsman work can be informative. On loyalty programs he offers little insight. I've always wondered if once he didn't dabble in Delta and found his skypesos worthless.

No one-way awards there at half the price or cheaper one-way partner awards outside the U.S.? AA, for instance, offers a 10K one-way award on Qantas between Australia and New Zealand and on its own metal for 12.5K in the U.S. Just last week I did a 20K award HEL-DUB. Plenty of opportunity there to redeem at less than the 25K level.

Does Delta have any awards like that?

I think the real "bubble" is that there are too many people chasing too few award seats which will lead to more devaluations. I think we should be grateful that Chris is scaring them off!