American Express takes a hit in the points game

Posted by Seth Miller on January 14, 2013 under frequent flyer, News, points | 15 Comments to Read

Lots of folks will gladly tell you how awesome the American Express Membership Rewards program is (and often include a link for you to enroll, earning them a few bucks for the effort). The points are reasonably easily transferred to a variety of loyalty programs and the overall value is decent. Plus their enrollment bonus numbers are often pretty solid, including some incredibly generous offers every now and then. But all those points have to be paid for eventually. For American Express that point is apparently now. And the numbers are not pretty.

The company announced a number of financial charges and restructuring efforts late last week, many related to their credit card products focused on lower income markets. But there was one rather surprising number which also cropped up in the list of charges the company would be recognizing:

It also said it would record $342 million in expenses related to its cardholder rewards program after determining the rate at which its customers redeem points earned on purchases is higher than previously calculated.

It would seem that the folks running the actuarial tables to bet on how much servicing the points will cost missed. Badly. More than a third of a trillion billion dollars in redemption costs AmEx pays to partners was missed as part of their recent performance efforts. Is this because customers are becoming smarter about how they redeem their points? Or because they really just screwed up in the accounting department? Hard to know for certain but neither is necessarily a comforting thought.

The company was still profitable in the quarter despite the write-downs so this isn’t likely to lead to massive restructuring of the awards side of their business. Still, it has to raise some concerns in the world of cardholders churning for points. As the cost to service the points rises the acquisition costs of customers grows. Trying to keep that number down is one of the primary keys to building a strong customer portfolio. If the enrollment bonuses cost the banks more over time then either the points have to decrease in value or the number issued has to decline. Neither of those is a particularly enticing option.

Definitely something to pay attention to in the coming weeks and months; maybe there was a very real business reason so many affiliate link providers got cut recently.

Bonus Avios on transfers from from AmEx Membership Rewards

Posted by Seth Miller on August 29, 2012 under frequent flyer, points, Wandering Aramean Travel Tools | 4 Comments to Read

The American Express / British Airways Avios transfer bonus is back. A promo like this runs once or twice a year, it seems. Last time it was a 50% bonus on tansfers; this time around the pair are offering a 40% bonus for US customers transferring Membership Rewards points to Avios. The promo is set to run through September 27, 2012.

This promotion doesn’t suddenly make Avios an awesome redemption value across the board. That said, they do have their purpose in the points ecosystem (Check out a discussion of them in episode 6 of the PointsHoarder podcast) and getting 40% more of them for free is not such a bad deal.

Another advantage of this promotion is that the bonus points are built in to the transfer ratio rather than credited at some point after the fact. Combine that with the instant transfer timing from AmEx to Avios and it means actually booking an award with the bonus points is pretty easy to do.

Oh, and if you’re curious just how many Avios an itinerary will cost, something that their site does a horrible job of displaying when there are connections involved, check out the Avios Redemption Calculator. It will show prices across various single connection itineraries for most valid city pairs.

Related Posts:

• PointsHoarder 6 – Diamonds in the Avios Rough
• British Airways offers new Avios upgrade option
• The debacle that is Avios, and a few gems it offers
• Last chance 50% bonus on Membership Rewards -> Avios transfer (this time)

Last chance 50% bonus on Membership Rewards -> Avios transfer (this time)

Posted by Seth Miller on May 29, 2012 under frequent flyer, points | 3 Comments to Read

Avios, the latest incarnation of points from British Airways and Iberia, certainly have received their fair share of negative reviews since the product launched. For customers who have connections or who have historically enjoyed long-haul, premium cabin awards the pricing can be a bit steep. Oh, and fuel surcharges, too, on most itineraries.

Still, if you’ve got American Express Membership Rewards points and you’re looking to convert to Avios, doing it when there is a transfer bonus in place is the smart move. The current promotion – 50% extra – runs for two more days, so it is time to get on that if you’re going to do it. Promos like this have historically happened every few months, so hopefully it’ll be back again, but there’s no guarantees there. Then again, probably not worth transferring unless there is a specific Avios award you’ve got in mind and the inventory is available. Or if you’re willing to take some risks on that front.

Perhaps the best thing about this bonus is that the bonus Avios post when the transaction goes through, not several weeks later. And the transfer from AmEx to Avios is near real-time. If the points are useful to you then this is definitely a good time to make the transfer.

Oh, and if you’re curious just how many Avios an itinerary will cost, something that their site does a horrible job of displaying when there are connections involved, check out the Avios Redemption Calculator. It will show prices across various single connection itineraries for most valid city pairs.

Are loyalty program points the next hard currency??

Posted by Seth Miller on May 5, 2012 under frequent flyer, points | 3 Comments to Read

The analogies of points as a currency are not new. There are a few programs out there today that already have "pay with points" types of functionality available, but there are still a number of limits on those systems.In most cases they can be used only for specific purchases, mostly travel related, or via certain merchants. American Express Membership Rewards are one of the most easily spent on non-travel events, though the point valuation of that channel is not very attractive.

Listening to representatives from the loyalty programs and the companies who help them make the programs work at the Randy Petersen Executive Travel Summit a few days ago, however, it seems that the idea of defining a specific cash value to points and allowing full fungability of them is not too far away. Loylogic has partnered with Etihad to put their PointsPay product in the market, allowing points to be easily redeemed for value on a credit card, making points instantly spendable anywhere that credit card is accepted, for example.

Other companies at the event spoke of the shift from points to real currency with different levels of optimism and excitement. Some were lobbying for full transparency on the points, noting that many customers have already figured out what the values are anyways. Others suggested that the opacity of the specific value actually increased the perceived value, making the customers feel that they were getting a better deal and allowing the programs to remove the liabilities more quickly.

Still other companies suggested that the best way to increase the perceived value of the points is to offer up redemptions that are less utilitarian and more creative. Whether it is allowing customers to use points to redeem for space travel, a week on a private island or cashing in 386,000,000 points for a yacht, the options are, at least in theory, endless. That those awards generally are never redeemed makes it easier to offer them and the perceived high valuation since they are still too far out of reach for most to attain.

One concern voiced (by me, among others) regarding this apparent shift is the potential that it will erode or displace the travel award segment of the programs, effectively taking away some of the variable value of the programs and making them truly fixed rebate opportunities. Most present in the room and in the private conversations in the halls seem to think that this point hasn’t arrived. At least not yet. The cynic in me still sees great potential for that time to come, sooner than not. A few carriers are already very close; JetBlue, Southwest and Virgin America come to mind, though they are all still essentially only travel for the redemptions. Switching from that closed redemption network to an open, fixed-rate system actually wouldn’t be too huge a leap, at least on the conceptual side of things. The actual work to make it happen isn’t so trivial.

I’m not throwing in the towel quite yet; there are definitely still opportunities to play the game and come out ahead as a customer. But they are getting harder and harder to find. The market seems to be shifting in that direction, both on the supply and demand side of the programs. This is definitely an area to keep an eye on in the coming months.

Related Posts:

• Tiers within tiers from the loyalty programs
• Which type of frequent flyer are you?

Taking a look at the Virgin America partner redemption options

Posted by Seth Miller on March 19, 2012 under frequent flyer, News, points | 12 Comments to Read

It was August 2010 when Virgin America announced their plans to offer reciprocal earning and redemption benefits with the other carriers in the Virgin brand. Alas, the frequent flier market works slowly in some cases and after more than a year there was no real news on the redemption side of the deal. That ends this week, with both Virgin Atlantic, Virgin Australia and Virgin America announcing redemption rates.

I’m focusing on the the rates for Virgin America here, mostly because I find the ranges they cover to be more intriguing than the numbers from the other two. Virgin America has published a calculator that displays the number of points required based on the city pairs that the two partners serve. Even more interesting to me, however, is that the underlying data is contained in a singe easy to download XML JSON file. Drop that file into Excel and throw some filters on it and the data that comes back is quite interesting indeed.

First up, both one-way and round-trip redemptions will be offered. That’s the good news. Unfortunately, there is a penalty for one-way awards relative to return trips. The penalty is generally 5-10,000 points, based on the samples I saw, though one or two did go higher than that, especially in premium cabins.

As for the actual redemption rates, there are definitely some interesting sweet-spots on the chart. JFK to London return is only 35,000 points in Upper Class, for example, which is pretty nice. The down-side is that it also comes with $1100 in taxes and fees to be paid. Also, it is more than double the price of an economy award on the same route (15,000 points + $650 in fees). The fees do track directly with what Virgin Atlantic charges for a revenue booking (the APD and the YQ are both higher in business class) so that’s not completely ridiculous, but with base fares as low as $120ish round trip in economy dropping 15,000 points seems like a REALLY bad idea.

The real fleecing in the program, however, comes when you try to redeem for Business Class awards on Virgin Australia AND you add a connection in the United States. Los Angeles to Brisbane is a rather reasonable 80,000 points up front. Want to connect onward to Chicago? Tack on another 100,000 points. And if you want to go to JFK rather than Chicago it is an extra 50,000 on top of that. Yeah, it is that ridiculous.

And the taxes aren’t particularly great on those fares either. At least the transcon penalty on Virgin Atlantic is only 15,000 points.

Comparing the rates to the value via American Express Membership Rewards – one of the easier ways to accumulate Elevate Points – shows further examples of the limited value. Getting that JFK-London award is 35K Elevate points, which would mean 70K MR points. Redeeming via ANA would allow the same trip for 63K points and roughly the same fees. JFK-Capetown would be 190K MR points via Elevate or 115K via ANA.

Adding these partners is a great thing, in theory, for members of the Elevate program. With the redemption charts the way they look, however, the numbers are not particularly attractive. I’d stay far, far away.

Related Posts:

• Virgin America/Membership Rewards earning rate announced
• A couple of Virgins join forces

The debacle that is Avios, and a few gems it offers

Posted by Seth Miller on November 18, 2011 under frequent flyer, News, points | 10 Comments to Read

When British Airways and Iberia announced a couple months back that they were integrating their loyalty programs under the Avios moniker there were a whole bunch of folks (mostly based in the USA) who were pretty upset at the potential issues it could raise. At that time I took a somewhat measured approach, suggesting that there are a few areas in which folks might see benefits, mostly for those in the UK or Europe. Now that the details are out and we can look at the numbers I’m still not certain, but the program mostly seems to be a debacle unless you live in the UK or Spain and only fly on simple trips.

You didn’t want to connect, did you?

The single-partner award chart isn’t nearly as bad as previously expected, with a catch. Awards on a single partner now do not permit connections. If you require a connection for your itinerary then you redeem an award for each flight. That means JFK-EZE on AA would be one price (25K one way in coach) but connecting via Miami would add 7,500 to that total; connecting via Dallas is 10,000 more. So if you can position yourself to get to a hub gateway (or if you are lucky enough to actually live in one) then the numbers can be quite reasonable still. I queried ~150 city pairs on routes operated by wide-body aircraft by Cathay Pacific, Qantas and LAN and found a few routes where the numbers aren’t completely awful. But that assumes you’re at the gateway and want to go to the hub. A pretty significant catch to be sure.

Also on the connection front, it appears that folks based in Europe are going to feel the pinch of award prices rising. A trip from Istanbul to Paris sees a 4,500 point surcharge over a trip from Istanbul to London. Not all that surprising considering the rate on London-Paris is 4,500. In other words, even if you stay on BA metal for the journey you get hit with a connection penalty. This applies to flights originating in the USA as well, and the up-charge might be even more than you’d expect (ORD-LHR is 20,000; ORD-CDG is 25,000 while MIA-LHR and MIA-CDG are both 25,000). In other words, the award charts are very inconsistent and nearly impossible to decipher with any reasonable sense of reason.

Multi-partner Awards

The multi-partner award chart is unchanged and is shown below. With this scheme you are permitted up to 8 segments on an award, including an open jaw stopovers so long as the stopover is on the direct point of travel. That basically means only at hubs, which is also not particularly great, but also not atypical.

Some "gems"

So, what are these "gems" I referenced in the thread title? There are a couple to talk about.

If you’re looking for flights operated by international configured aircraft and hoping for a bargain there are a few routes that come up as quite reasonably priced. Some have gone down from the prior charts, though, again, no connections are permitted any more so there’s that problem. Still, take a look at some of these routes with the decent redemption pricing (o/w, economy):

Comparing those numbers to other carriers I’ve compiled data on suggests that the program isn’t a complete fiasco, so long as you can avoid that pesky connection problem.

Also, it is possible to redeem 10% of the regular Avios award price for an infant in lap which is a nice feature and most certainly not one that most programs offer. But that’s a pretty small consolation.

Upgrade or downgrade?

In the end, I believe that the overall changes to the program are quite negative for most customers. Yes, there are a few bright spots where award costs have gone down and those should be celebrated, but for most customers the connection penalty will be a rather steep price to pay to make the Avios retain value. That said, if you live in a hub or in a spoke with good frequencies there is the slight chance that the program can be made to work for you.

I’m quite happy that I’m not sitting on a pile of Avios right now, even being in NYC where I have the advantage of many non-stop options. If it comes to that I’ll just move some Membership Rewards points over and leverage the program that way.

Check out some other views on the changes from these noted loyalty bloggers:

• Lucky’s posts
• Avios points not pricing correctly – One Mile at a Time
• British Airways clarifies some Avios changes – One Mile at a Time
• TPG’s thoughts:
• British Airways Avios Program Worse Than I Expected

Related Posts:

• Updates to the British Airways program coming soon

Broader fuel surcharges coming to Aeroplan

Posted by Seth Miller on November 9, 2011 under frequent flyer, News, points | 2 Comments to Read

Following on the heels of this summer’s award chart adjustments that saw many awards increase in cost it appears that Aeroplan, the loyalty program associated with Air Canada, is also adjusting the surcharges they levy on certain award redemptions. Specifically, it appears that the YQ fuel surcharge, to date only levied against redemptions on Air Canada flights, is now applying to flights operated by Lufthansa, Austrian and a few others.

This trend is not a new one. Recently American Airlines began charging the YQ surcharge on flights operated by partner British Airways. Delta charges a similar fee for flights originating outside the USA, even if flown on Delta airplanes, while not charging where the flights originate in the USA. Needless to say, the development is a costly one for customers.

With Aeroplan as one of the last great redemption options for the American Express Membership Rewards program this move also devalues those points a bit. Not great news at any level.

More over at View From the Wing.

Buying a ticket shouldn’t be this hard

Posted by Seth Miller on October 22, 2011 under Trip Reports | 3 Comments to Read

I’ve been working lately on cobbling together a rather ridiculous series of flights for our winter vacation this year. The plan is mostly South Asia, focusing on the southern tip of India and Sri Lanka, plus a quick stop in Bangkok on the way home. At least that’s the theory.

Initially I booked the trip using points for award travel round-trip between New York City and India. Since then the itinerary has morphed a bit so I’ll be changing things up (thank goodness for free award changes as an elite!) but I actually need to get a couple of the tickets purchased in order to make those changes, just in case. And it is proving incredibly difficult to buy at least one of the tickets.

If you had asked me a month ago, before I started all of this, I would have bet that the ticket on Sri Lankan would have been the hard one to acquire. I would have lost that bet. The transaction with them was smooth as could be, handled fully online and it was only a couple days later that American Express called to make sure that I really was buying a couple one way flights from Colombo to Bangkok in early January. It wasn’t even a big enough risk for them to call immediately.

Buying the flight from Bangkok to JFK on EgyptAir, however, is proving to be a ridiculous mess. I started with their website which looks pretty slick, at least for the flight selection search bits. It showed the fare I had seen otherwise online (about $150 less for each ticket than any other channel) and I went through the long process of entering in all our personal data to book the flight. At the final payment screen, however, the transaction was denied. Repeatedly.

My first call was to Visa to make sure my card was OK. It wasn’t, but they cleared that up. Waiting two hours didn’t help; still denied. Another 24 hours later and still denied. Even more strange, however, was that the credit card company didn’t even show the most recent transactions. It is as if EgyptAir never even tried to authorize the card; they just rejected the transaction. It took a couple calls but eventually I got in touch with someone in the EgyptAir ticketing office in New York to try to process the transaction. The first agent saw the reservation and the price I was quoted online. She transferred me to another agent to handle the transaction who promptly informed me that the fare was $300 higher. Ugggh.

So long as I was not going to get the discounted fare I figured I’d try to get some other value for the transaction. American Express offers bonus Membership Rewards points for travel booked through their portal so why not give that a go, right? Apparently their system is not robust enough to handle selling a one-way ticket in business class from Bangkok to New York City:

That’s is simply ludicrous, especially considering that probably a dozen airlines or more offer service on that route with a single connection.

And so I’m essentially left with a bevy of third party online travel agencies through which I can try to book the flight, but now I’m faced with wading through their differing fares and service fees to find the right price. Plus I’m stuck with dealing with one of them for service going forward rather than dealing with the airline directly. What a mess.

It shouldn’t be this complicated to spend money on a plane ticket.

Bonus from Membership Rewards to hotels; not quite as bad a deal

Posted by Seth Miller on October 9, 2011 under Hotel, points | 3 Comments to Read

I’ve never been a particularly big fan of using American Express Membership Rewards points for hotel stay transfers. The rates are generally pretty awful and there are better ways to accumulate hotel points out there. Still, the option is there and every now and then it is something that folks use.

It looks like AmEx is trying to make the product a bit better, at least for a few months.

UPDATE: This promo is only for cards in the MR First program, namely US-issued Platinum and Centurion cards. Sorry for getting anyone else excited, though you probably shouldn’t have been anyways.

Through the end of the year they’ve got a sale on for transfers to Hilton HHonors and Starwood Preferred Guest. Both programs are offering 25% off.

There is also a 25% discount on the various free night certificates that are available via the Marriott Rewards program:

None of these are a particularly great deal but it does suck a bit less.

Virgin America/Membership Rewards earning rate announced

Posted by Seth Miller on October 2, 2011 under frequent flyer, News, points | Read the First Comment

The partnership between American Express Membership Rewards and Virgin America was announced several weeks ago but without many details at the time. Those details were expected to be announced by October 5, 2011, when the partnership was supposed to be fully in effect. Apparently the numbers came out a bit early and The Points Guy noticed the rates. Wow do they suck.

The conversion rate is 200 AmEx MR points -> 100 Virgin America Elevate points. Virgin America’s Elevate program has relatively fixed redemption values for the points, topping out around the 2 cents/point range. With this conversion factor the AmEx points are topping out at 1 cent/point and can actually do rather worse. That’s a pretty bad rate of return on those points.

It is even more crazy when you consider American Express also has a buy with points option that natively values the points at a penny each (1.25 for Platinum/Centurion card holders) and buying via that method actually is seen by the airlines as a revenue ticket so one earns more points (the native program points, not Membership Rewards points) for flying on that flight.

The only slightly reasonable explanation for why one would transfer AmEx points into Elevate at these rates is if you’ve got almost enough for a reasonably high-value award already and you just need to top off the account. Otherwise it is quite a bad deal.

This change, coming on the heels of Continental exiting the program as a redemption partner and the impending doom of devaluation for US-based earners in the British Airways Avios conversion, doesn’t really do much to offset the losses in the Membership Rewards program.

Related Posts:

• Updates to the British Airways program coming soon
• A great time to transfer AmEx Membership Rewards to British Airways
• American Express steps up travel benefits for Platinum card