While you weren’t paying attention last fall, there was a seismic shift in the currency of frequent flyer miles as the last major airline moved from a distance-based model to revenue-based rewards. Here’s what you need to know to maximize every flight – and dollar spent – in the new marketplace.
In a time before deregulation, hub-and-spoke, discount airlines, oil hedging, airline-branded credit cards, and baggage fees, airlines knew there was a correlation between distance flown and revenue generated. Your butt in a seat was as valuable the next butt in a seat, and everybody was generally awarded equally for all miles traveled through increased fidelity rewarded in mileage bonuses, elite status, upgrades, lounge access, and other perks. In an era when a seat on the same flight between New York and London can range from $500 to $5,000 (or more) that correlation no longer holds, and the new revenue-based programs are aimed at promoting loyalty among valuable big spenders.
For flyers on "discount carriers" such as Southwest and JetBlue, the revenue-based rewards model being adopted at American, Delta, and United Airlines is old news, as each awards points rather than miles based on dollar fare equivalent. But if you're left craving the good ol' days, look to the West Coast where Hawaiian Airlines and Seattle-based Alaskan Airlines are the only two major carriers still operating under the "butt-in-seat" system.
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While it may not make sense to commit to a single airline, exclusivity with one of the three major airline alliances is a solid, though deeply personal, strategy. Search deeply within yourself to figure out which of the three - One World, Sky Team, or Star Alliance - is best for you. Which has the most flights landing in your home airport? Do alliance airlines cover the cities and destinations to which you fly? Is there fare class earning among partner airlines you fly often? Will the alliance actually award reward flights on your desired routes?
For their part, the constantly changing alliance programs are adapting to the new realities of the marketplace and even taking discount airlines under their umbrella. Later this year, look for the 28-airline Star Alliance to add South African discount carrier Mango as part of its new Connecting Partner program. Just keep in mind that Mango, and other low-cost carriers, won't be full alliance members, so don't expect cheap-o fares to materialize into anything redeemable on United, Lufthansa, or China Air. But, if all goes as planned, the partnership could make your South African safari within reach of award availability.
Shifting from mile-based currency to revenue-based rewards (think points instead of miles) also allows airlines to shift to variable award ticket pricing. For instance, last February, Delta ceased production of charts showing mileage-award levels and quietly began pricing choice award tickets based on the same factors that influence dollar fares. April 2015 saw Southwest add variable pricing on popular routes and flights while raising their standard award conversion rate from 60 points to 70 points per dollar of fare. The variable pricing model will only continue to ripple through the marketplace in 2016 and beyond as airlines tweak their programs to manage costs and maximize revenue.
While variable pricing allows airlines to rapidly devalue points, frequent flyers are often better served by low-cost carrier reward programs with variable award pricing. Consider that both Southwest and JetBlue price award seats on dollar fare equivalent, and an annual study of award availability by consultant Switchfly found that each airline's frequent flyer program ranked among the top five for overall award seat availability and lowest average award ticket price.
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When used strategically, co-branded airline credit cards can be a boone for jetsetters and big spenders looking to maintain elite status and amplify their points or miles rewarded per dollar spent.
At their most basic level, the current crop of co-branded airline credit cards reward flyers with additional points or miles for purchases made at their respective airlines. For instance, the Southwest Airlines RapidRewards Visa offers two points for every dollar spent at the airline, and the United MileagePlus Explorer Visa, Citi AAdvantage MasterCard and Delta SkyMiles American Express reward every dollar spent at their respective airlines with two frequent flyer miles. Alaska Airlines has one of the best basic offerings, rewarding flyers with three reward miles for every dollar spent at the airline with their Visa Signature credit card.
These co-branded credit cards are also an excellent vehicle for status addicts. Consider that both Delta and United have revenue-based requirements for achieving elite status. However, both airlines will waive that requirement if you spend at least $25,000 on one of their qualifying co-branded credit cards. American flyers should check out the Citi AAdvantage Executive World Elite MasterCard offering 50,0000 miles after you spend $5,000 in three months and another 10,000 elite qualifying miles after spending $40,000 in a calendar year.
Most of the co-branded airline credit cards on the market offer tantalizing perks such as complimentary checked bag, priority boarding, and limited lounge access when you purchase airfare with their respective cards. While it seems like a good deal on the surface, these cards also charge annual fees. In many cases, use of perks available can justify annual fees, but be sure to do the math before opening a co-branded airline credit for the free checked bag bonus alone.
Finally, remember that these cards aren't designed for consumers looking to build their personal credit or those that carry a balance month to month as their interest rates are generally high. Furthermore, be aware that the actual airlines have very, very little to do with these credit card products or their customer service, as banks simply purchase miles from the airlines to package as a co-branded credit card. That means that perks such as complimentary checked bags are not in fact complimentary as your bank pays a negotiated fee to the airline for that luggage.