Dubai: Credit card rewards, specifically travel rewards, have helped save money on travel expenses, resulting in cheaper flights and hotel stays or luxury vacations that you otherwise may not spend on.
However, if you’re one of the many avid travellers worldwide whose travel plans were put on hold last year, you’re also likely to have had ample travel miles or points pile up on your credit cards. But now’s the time to start spending them, and not keep them stored up for future travel plans, caution experts.
Sophia Sanchez, travel planning manager at a UAE-based European tour operator, said that as travel continues to recover, a lesser-known fact among travellers is that ‘mileage rates’ are expected to climb as well. Let’s look at what this means and whether or not it will affect your finances.
Higher airfares generally lead to higher reward rates
“With more post-pandemic demand — especially from business travellers — airfares are also rising. As travel continues to recover, airfares should only continue to rise,” noted Sanchez, who went on to explain how credit card miles are affected as a result.
“Higher airfares generally lead to higher reward rates. With most airline mileage programs having switched to a dynamic award pricing system, now award mileage rates are based more on demand than a published mileage chart. So, when airfares increase, mileage rates do as well.”
So while inflation primarily applies to cash in your pocket, inflation can also impact the value of your travel rewards. A recent study by global lender Citi showed more travellers planning on using credit card points or airline miles to book their future trips compared to spending all their travel miles now.
‘Mileage inflation’: Should you be worried?
“As airlines and hotels continue to recuperate after the near travel halt during the initial pandemic shutdowns, they are looking for ways to eliminate this [above] risk off their balance sheet. The simplest way to do this is by charging more points or miles to book a flight or hotel room,” explained Sanchez.
“Also, banks nowadays are still offering incredible 100,000-plus point credit card welcome bonuses, and there will continue to be a lot of miles and points to be spent. So when there’s a lot of miles and a limited supply of awards, the result, moving forward, is likely to be ‘mileage inflation’.
To put it simply, cash prices (airfares) went way up this year and award prices (e.g., the number of miles needed to book a flight) also went up, triggering ‘mileage inflation’. If cash prices tumble again, this effect of boosted points and miles values could get erased. But travelers can get outsized value from their points and miles only if they can use them for high-value redemptions.
It is important to maintain a mentality of ‘earn and burn’, meaning that you aim to use the points nearly as quickly as you earn them
How can you avoid the rising cost of award travel?
So while this presents issues for travel providers as there are now numerous rewards that have been earned, but have yet to be redeemed, with more points and miles on their balance sheet, airline and hotel loyalty programs are incentivised to reduce the risk of outstanding rewards by devaluing them.
“Devaluation is an ever-present risk of earning travel rewards. So keep your account balances low by spending your rewards quickly and strategically in order to minimise the damage of devaluation,” agreed Dubai-based travel consultant Richa Dev.
“It is important to maintain a mentality of ‘earn and burn’, meaning that you aim to use the points nearly as quickly as you earn them. This will eliminate the risk of your points being devalued and keep more cash in your pocket.” One solution that both Sanchez and Dev offers to help avoid the rising cost of award travel is to earn ‘transferrable rewards’ instead.
“By earning rewards specifically tied to an airline or hotel, you are vulnerable to travel brands making adjustments to their loyalty programs. Transferrable bank points allow you to take advantage of different program’s sweet spots, ensuring you shell out as few points as possible,” said Dev.
To put it simply, hoarding points isn’t beneficial because it leaves you prone to factors that are out of your control like the above-mentioned ‘devaluation’.
However, experts advise to not cash everything out either, but rather try and strike a balance where you keep some of your points and miles around but also redeem some for cash or gift cards you can use today.
“One strategy is to have a lot of miles and points with different programs. You can think of travel rewards like different types of currencies – the more you have, the better your opportunities are for maximising value,” advised Dev.
“Earning points and miles is only half of the travel rewards journey, and it’s equally important to have a plan to use the rewards you earn,” advised Dev.
“It can make sense if you’re saving points for a specific trip, but make sure you cash in your rewards as soon as you can. Without a plan, you could see your trip cost more than initially predicted.”
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