Reason for Breakage
 

Hi Community,
I'd doing a project on loyalty points and breakage but I'm finding it really difficult to get any details on the reasons for breakage and the holders of the miles/points breaking. Are these people who have only very small holdings of airmiles etc or are there other reasons for the breakage, eg too busy to redeem the airmiles/points?

I'd really appreciate any advice you can give or if you could point me in the right direction.

Thanks so much!

fmp17 welcome to FT. I'm going to move your thread over to the Milesbuzz! forum for more discussion.

Jenbel
Co-moderator, Communitybuzz!

How are you defining breakage?

Some people leave because the benefits may not be worth the effort anymore (see the threads in the Hilton forum for example)

Some leave because they don't fly, stay or whatever as much anymore.

Some are forced to leave either because their company has taken over the travel programs, and they can not choose their airline of choice anymore.

Some are kicked out because of a period of inactivity.

I would bet there's a large amount of people who don't even have a clue they have points or miles, they filled out the brochure but never bother to check, and have orphan miles (small amounts of miles) in many programs, and never pay attention to it.

It could also be they have tried several programs, and settled into one airline and one hotel and one rental program to concentrate their earnings, letting all the others go.

good points cordelli....

welcome to ft fmp17....if you go through the different threads here you will find a lot of info on the points mentioned by cordelli....

I think breakage is a lot larger than most people think. Starwood's breakage is 56%, according to the latest 10-K (and my math). I'm curious to know how this number stacks up against other programs, but I've never been able to find it in other companies' financials.

my guess is that each program would lose as many members as they gain per year....give or take a 2-3%....

Thanks for all that and I will definitely look at the other threads.
I'm defining breakage as the miles and points that go unused. Starwood 56% is the highest I've seen so far, you have to wonder how positive can the impact on loyalty be!

how would you define 'unused'????

there are some points that go unused because the member's account expires....then there are those like my friend who has been collecting spg points for almost 10 years now & has never used a single point....his balance is in the many millions....he says he wants to use all these points after he retires....given that he is still 15-18 years from retirement, he could end up with one of the largest balance of points out of anyone in the spg program....& he would not have used a single point....

I mean miles/points that will NEVER be used. I assume this is what airlines record as "Breakage" in their financials. But this then opens the question as to how a program knows the miles will never be used? Is this because of inactivity in an account? Presumably in your friends situation the account is active, i.e. continually building points and would not be classified as breakage. The reasons as to why the miles/points will never be used is what I am trying to determine.

then i would go with the points suggested by cordelli above....& like i said before, go through some of the threads here on ft & you will find all the info you are looking for....

Yeah... I'm sitting on 50k+ starpoints (not a lot by any stretch, but definitely enough for 5 nights at a Cat 5 property, which makes it a non-trivial amount) that I don't plan on using for a couple of years. So I don't know how any sort of accountant would know that they "will" or "won't" be used.

the now standard [sorta] 18 mo no activity expiration is probably the largest factor, even tho the al will try to get you to buy them back.....

some occur when the acct holder dies and no one tries to get that part of the estate....

i suspect that no 1 will close an account w/a useful mi count because they are mad at the a/l....

people in nursing homes probably won't use theirs unless their family members ask, but these will prob expire for no activity....
good luck

edit to add....i think that breakage is mi's that disappear from the account and therefore will never be used....are you saying that breakage can be forecast and booked in anticipation based on past stats? and used to reduce the liability?...could be....accountants & attorneys can be a firms most productive people...

You also need to consider breakage of the award instruments and travel vouchers that we are given. We are coming up on the end of the status year for UA, which is Jan 31, 2011. It's obvious that a lot of SWUs will expire unused - and yet that drove our behavior to qualify for status. Also, I suspect that a significant percentage of travel vouchers folks are given expire unused. For US, my husband was given a $200 voucher to compensate him for a delayed flight and forced overnight stay in Phoenix. Sounds good, right? Well, it must be used by him alone and he has not purchased a flight on US in 20 years. (He was flying on a UA award ticket.) UA hands out travel vouchers for flight irregularities. They come in electronic format, but are not attached to our Mileage Plus accounts. Thus, we need to keep careful track of them. I suspect many people are not sufficiently organized to do so. And even when they were paper, I saw the travel file of a friend who had thousands of dollars of vouchers which had expired without use. I wanted to weep.

A while back I dated an AA EXP desk reservation agent. (By coincidence, the quoted poster organized a Do that we attended together.) She told me, not in confidence, that AA considered vouchers "funny money" and was quite free in giving them out, because less than 20 percent were ever redeemed - even though AA didn't, at least at the time, have a rule that restricted their use to the named holder's travel. I suspect the percentage hasn't gone up much since.

It wouldn't be in the form "clacko will never redeem points", but rather "9x% of accounts with no activity for NN months will not redeem", and this would allow the sponsor to write off 9x% of the liability in such accounts while still honoring redemptions. Retailers do essentially the same with outstanding giftcards.

[Best buy] had to look at 10 years of gift-card data to demonstrate what percentage was likely to go unused, he said. Because Best Buy cards don't have expiration dates, the company waits two years before declaring the unredeemed portion "broken," or unlikely to be redeemed.

Retailers find profit windfall -- unused gift cards