How Credit Card Points Threaten The Value Of Loyalty Programs…

It was once always a bad idea to use your credit card points for anything other than converting them into airline miles or hotel points. That toaster – bad idea. The home gym – even worse. But over time, airlines got greedy, hotels did too, and credit card companies realised that there could be a lot less hassle for all involved, if they just made their own points more valuable, creating less need for their cardmembers to transfer said points over to another party.

Over time, we’ve watched credit cards go from allowing you to redeem their own points from less than half a cent per piece aka 50,000 miles for a $195 toaster, to nearly 2 cents per point, with one steady value of 1.5 cents per point offered by the Chase Sapphire Reserve card, which you can redeem for any travel purchase. The American Express Business Platinum has been the best other card on the market for redemption towards airfare purchases.

In other words, rather than transferring points to an airline or hotel, and needing to suss through room or flight availability, plus additional taxes, fees and surcharges, you could redeem 100,000 credit card points for $1500 of travel value, toward anything you could buy with cash. And yes, you could even cover the rest of the purchase with cash if necessary.

That’s simple, easy and fun. No blackouts, no “sorry, not during school holidays” or “there’s only one seat with points”. Everyone who plays “the points game” has watched for years as airlines and hotels made it harder to extract what you want, instead moving to a system where points redemptions allow them to offload excess inventory, on their terms. Many now say, why bother?

To put it as simply as possible: the best credit card points can now work like cash, allowing you to use them to book anything you want at a respectable points rate, and airline miles or hotel points rarely – if ever – work the same.

The counter point to all of this is the aspirational, outsized value which still exists in certain airline programs, at least for the time being. Credit card points offer a fixed rate when you redeem them, whereas airline miles or hotel points can fluctuate in terms of what they cover, since they’re not often based on a cash price, but rather a set value. They can sometimes be poorer value than redeeming credit card points, or they can be far greater.

If you know what you’re doing, you can win bigger than any straight forward cashing in of your credit card points directly through your credit card company.

The simplest air example is ANA First Class: you never ever find these tickets between New York and Tokyo, or London and Tokyo for under $10,000 a pop. You can however use Virgin Atlantic Flying Club miles to book it for 120,000 miles round trip. That’s a value of nearly 9 cents per mile, which is about 7.5 cents greater than the best credit card redemption. To book the same thing using points from the most generous credit card program redemption, you’d need to use around 700,000 points instead.

A simple hotel example is the Park Hyatt New York: the Park Hyatt in New York requires 30,000 points per night to book, or a minimum of around $1000 per night. If you were using your credit card points directly to cover the stay, you’d need around 70,000 per night, but if you transfer your Chase credit card points to Hyatt, you can get it for 30,000 points, regardless of cash cost. Again, the only drawback is needing to navigate blackout dates, which doesn’t happen when you treat points like cash.

The obvious answer here would be to transfer the credit card points into Virgin Atlantic miles, rather than use them directly. 120,000 versus 700,000, isn’t quite a fair fight, especially when you have the choice. The same goes for transferring credit card points to Hyatt, where 30,000 and 70,000 are a no brainer…

But unfortunately, as airlines see loyalty programs more as exploitable revenue streams than a means to reward loyalty, the “oh my, that’s a great deal” values are dwindling, which is effectively doing the credit card marketing work for the credit cards, without firing a single shot.

The harder an airline or hotel makes it to extract great value from the points, the more consumers will happily take a fair, easy, no complication value to simply burn through their points when and how they please. It’s on their terms, and people like that.

I can explain to my dad how to login to his Amex, Chase, Capital One or Citi account online and run a flight search and press “pay with points” far easier than I can tell him how to create a Virgin Atlantic account, search on United.com for seats on their partner ANA, find available dates using miles, and then call Virgin to book, after linking his new Virgin account to one of those banks first, of course…

As airfares continue to reach record lows, like business class as low as $1300 round trip to Europe, and economy under $250, the easy values for credit card points are everywhere. If airfare continues to drop, expect credit card points to continue to bring better and better value.

Plus, you earn airline miles back when you use credit card points directly, whereas you don’t if you transfer them to airlines and redeem.

Credit card companies continue to buy miles and points from airlines and hotels, which is effectively what they’re doing whenever they allow you to transfer points out of the credit card program. Airlines and hotels rely on this steady stream of revenue from points sales, so it will be interesting to see how the status quo will be maintained.

Airlines and hotels will soon be faced with either continuing to make points cheaper, to encourage more credit card companies to buy them, or make them more expensive and aspirational, so that they can drive up the values again, and give a competitive reason for people to choose theirs. At the moment, they’ve left a lot to be desired…