Why Points Devaluations Aren’t That Big of a Deal

Jason SteeleNovember 27, 2019
On a similar note...
On a similar note...

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I’ve been a pretty hard-core credit card and award travel enthusiast since 2006, and over the years, a lot has changed. Gone are brands like Continental, US Airways and Starwood hotels, while terms like dynamic award pricing and the Card Act have entered the lexicon.

Yet throughout this time, there have been two constants: Loyalty programs continue to offer less value from their points and miles, and everyone who collects them complains — like the story of Chicken Little — that the sky is falling.

The sky has been falling for a long time, and yet somehow I’m traveling more than ever with my points and miles. That's because even as airline and hotel companies are making moves to devalue their miles, credit card companies have made it easier than ever to earn them.

What’s a devaluation?

Devaluation is a term that economists use to describe what happens when a country lowers the value of its currency. For example, a million Turkish Lira were worth less than one U.S. dollar when I visited in 2001, due to extreme devaluation. It turns out that airlines, hotels and other loyalty programs operate much like sovereign nations and can take steps to devalue their currencies of points or miles.

For example, if an airline once charged 100,000 miles for a round-trip business class award ticket to Europe but now charges 200,000 miles for the same award, then it’s devalued its currency by half. And if it makes far fewer seats available as awards and imposes fuel surcharges, miles get devalued even further.

Why do airlines and hotels do this? Frankly, because they can. It’s easy to award points and miles to customers and then quietly reduce the value of these rewards over time. Customers receive less value from their rewards, and many companies appear to think that this is a good idea.

By comparison, it’s extremely rare that companies take significant steps to add value to their points and miles. Usually, a massive devaluation is paired with some other slight improvements and members are told that the program has been “enhanced.” An airline or hotel loyalty program sends out an email saying that while many awards are now priced higher, some (previously overpriced) awards now cost less.

Many observers find these announcements pretty disingenuous, especially when a company fails to provide advanced notice of the negative changes and goes too far to spin it as positive.

Why I’m not worried

Here’s the thing: If I’d listened to a tiny fraction of all the naysayers I’ve encountered over the years, I would have quit the hobby of collecting points and miles long ago. Yet every time I heard that the best times have come and gone, new and often greater opportunities continued to present themselves.

The key has been the credit card industry, which has some unusual properties. It’s not only highly competitive, but it’s also consistently profitable. If you include local and regional banks and credit unions, there are hundreds of credit card issuers in the United States. And yet the credit card business seems to be quite prosperous, losing money only during the depths of the Great Recession in 2009.

To prove the point another way, try to name a major credit card issuer in the U.S. that has gone out of business. I can’t — and I’ve been studying this industry and writing about it for over a decade.

As a byproduct of both competition and prosperity, card issuers engage in a perpetual state of one-upmanship when it comes to offering rewards. If the Chase Sapphire Reserve® offers 3x points for travel and dining, then the American Express® Gold Card is revised to feature 4x for dining and U.S. supermarkets. Terms apply. And all of its competitors have to contemplate changes to keep up.

And while we once settled for 1 point or mile for every $1 spent outside of bonus categories, cards started offering higher rewards on all purchases. For example, Citi recently announced that Citi® Double Cash Card – 18 month BT offer cardholders could earn 2x Citi ThankYou points instead of just cash back. The cash back rate is 2% per dollar spent: 1% when you make a purchase, and another 1% back when you pay it off.

Those points could be transferred to airline miles when you also have a Citi Premier® Card or Citi Prestige® Card.

Credit card issuers are offering more generous welcome bonuses and other promotions. Cardholders can also receive bonus rewards now for various activities such as referring friends, adding authorized users or completing quarterly spending challenges.

The bottom line

It’s true that every time you go to redeem your travel rewards, it can feel like they're worth less than before. But at the same time, you have to balance that disappointment with the exhilaration of seeing the value of credit card offers increasing at an even faster rate.

Just as we learn in the story of Chicken Little, we can’t believe the sky is falling forever. I don’t like the devaluation of travel rewards, but as long as the credit card industry keeps competing as it has been, I know I’ll continue to receive fantastic value from the points and miles I receive.

The information related to Citi Prestige® Card has been collected by NerdWallet and has not been reviewed or provided by the issuer or provider of this product or service.

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