A big topic of discussion lately has been the concept of traveling on frequent flyer points, and while some are privy to the system many still seem to be unaware of the basics. Let’s change that.
For the uninitiated, “the points game” refers to the optimized collection and hyper-effective exploitation of the points and miles that come from airlines, hotels, and credit cards*. More elaborately, it is the process of accumulating the highest quantity of the most useful (more to come on what that means later) points as easily as possible. And conversely it entails redeeming rewards that consist of flights, hotels and other travel-related products for the least amount of those points as possible.
To be clear, this is not a new game; for as long as hotels and airlines have had half-decent marketing departments there have been programs in place designed to retain customers and reward loyalty.
Fun Fact: The earliest frequent flyer program that remotely resembles what we have today was launched by Texas International Airlines in 1979. And while another preceded this, TIA's was the first that used the concept of mileage to reward its passengers.
Back in those days the equation was simple – you received miles for flying on an airline then you turned around and spent those miles on the same airline. This worked well when fuel was cheap, tickets were expensive, and loyalty was appreciated.
The Paradigm Shift
But, as things go, those programs later (d)evolved into nothing more than just another budget that looks a lot better when there is a bigger number sitting on the profit side than on the loss. Spoiler alert, that's hard to accomplish when you're "giving away" lots of flights.
So, in order to manipulate this those same marketing departments wised-up and did three things:
1. They aligned themselves with credit card companies
Like Auburn University running a missed field goal back for a touchdown with one second left in the game - this was a game changer. Points truly became a “currency” and airlines/hotels started to generate *significant* revenue by selling billions of points in bulk to credit card issuers who then gave them to their customers in exchange for using their credit cards to make purchases. Consequently, in addition to giving flyers new ways to earn points, credit card issuers also marketed very lucrative sign-up bonuses. For certain points-junkies these are key to what transpires today.
Fun fact: In 2015 Delta Airlines' relationship with American Express contributed 2 billion dollars to their bottom line. This is not chump change.
2. They created alliances with other airlines
The formation of these alliances were a brilliant and logical way to allow customers to purchase a single ticket that encompassed travel across multiple different operating carriers. This resulted in an incredibly simplified travel experience from ticketing to baggage collection. Also, as what I can only imagine was an unexpected by-product, savvy frequent flyers could pick and choose which program they found the most value in, with the caveat being that it must be part of the same alliance as the operating carrier.
TL;DR: Instead of having to have your travel agent book separate tickets JFK-LHR on American and LHR-MUC on British Airways you could simply have American book the flights all the way through under one ticket.
3. They made rewards more expensive & harder to redeem
This is simple: higher price for flights = less people rewarding themselves = more seats for paying customers and more paying customers = more revenue. There was a little bit of overlap 5 or so years ago between 1 & 2 happening. Let’s call those the glory days and shed a tear when we remember the cheap and virtually readily available flights across the board.
Additionally, and building on the price increases that were discussed above, the difficulty in redeeming awards has skyrocketed. There are now hurdles like award charts, revenue or distance based rewards, phantom inventory, random programs in Egypt, plus a few external social influences (refer to any travel blog, Facebook group or frequent flyer forum for details) that have all severely impacted the ability to use points.
So when you add all of this up you end up with the modern day rewards program. A bank of points on one hand, and on the other a tool to use those points complete with a comprehensive set of complex usage/routing rules, dynamic and fixed prices (maybe), and varying end-products.
Whether you are a business owner with millions of credit card points, a consultant with a few hundred thousand, or a non-traveler who likes the occasional trip to Disney or Hawaii, there are ways to make your cost of business, luxury, or personal travel virtually free. But it sounds complicated, right? It is, and that's why a whole industry of "travel hackers" has organised to meet the demand.