Airlines Want You to Burn Your Miles

(Bloomberg) -- As seats shrink and fees multiply, it's hard to find value from an airline these days. Except when redeeming frequent-flyer points.

The six largest U.S. carriers grew more generous from 2013 to 2018 as they sought to encourage mileage redemption. The average price, in loyalty miles or points, for a domestic rewards ticke t declined 13.5 percent over that time, according to data compiled by IdeaWorksCompany and CarTrawler.

“Airlines are recognizing that in order for the loyalty program business to be sustainable longer term, consumers have to stay engaged and continue to want to earn this currency,” said Joe DeNardi, a Stifel analyst who tracks reward travel. “One way is to allow them to use it more effectively.”

To entice travelers to use—rather than hoard—their miles, airlines have decreased the number of miles needed to book a ticket, increased the numbers of seats per plane available for rewards travel, and enhanced the buying power of each mile. The prices to redeem miles have also declined in tandem with airfares. To be sure, not every flight has seen these generous changes, and airlines tend to offer better prices on off-peak flights where they won't sell as many seats.

Carriers have also shifted the method of awarding miles from distance flown to a ticket's price. Delta Air Lines Inc. and United Continental Holdings Inc. swapped to revenue-based mileage accrual in 2014 and American Airlines Group Inc. followed two years later. That put all three legacy carriers in line with the accrual method both Southwest Airlines Co. and JetBlue Airways Corp. have used for years.

Airlines are broadening how loyalty miles can be used, with Delta accepting them to upgrade a fare even after purchase—an option being used by about 1,000 passengers a day, the airline said in January. The carrier has increased the number of SkyMiles “Flash Sales” and has introduced one-way tickets starting at 5,000 award miles.

Carriers no longer care “whether they sell a seat with dollars or miles,” said Jay Sorensen, IdeaWorks president. “Historically it was negative from a revenue standpoint if they sold a seat with miles in general. Now airlines are recognizing that these loyalty programs are tremendously valuable.”

Customers traveling on redeemed miles will often purchase other products and services with cash, Sorensen said.

United's overall redemptions have increased and the average price of awards both domestically and across its route system has decreased, mostly over the past 16 months, said Maggie Schmerin, a company spokeswoman. In 2018, more than 250,000 of United's MileagePlus members chose awards for 15,000 points that previously would have cost 25,000, she said. Program members also booked 10 percent more of the airline's most affordable rewards option last year than in 2017.

American Airlines cut prices in some award categories starting in 2016, and the following year increased available awards in its AAdvantage program, including those that could be used on connecting flights. Last year, 13 million awards were redeemed, the company said, up 18 percent from 2017.

The IdeaWorks/CarTrawler study used booking queries for a party of two at frequent-flyer program websites during March, looking at 280 specific travel dates from June through October. The average mile or point statistics refer to the lowest rate found.

The study did not include international travel, an area where mileage redemption bargains have become far more elusive, said Adam Morvitz, the founder and chief executive of Juicy Miles Travel Services Inc., a New York-based service that books airline award trips. Most foreign travel on U.S. carriers' international partners remains subject to fixed mileage charts, and those itineraries have gotten more expensive, he said.

“The perception of falling award prices is due to the fact that carriers like Delta now have a sort of hybrid program,” Morvitz said. “Delta sets fixed mileage redemptions when flying with their partners, but awards on Delta's own planes are all over the place.”

To contact the editor responsible for this story: Joshua Petri at jpetri4@bloomberg.net

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