New Power Couple: Manufactured Spend & Revenue Based Programs

As you may have heard by now, United “shocked” us all by changing the terms of how to earn miles on their flights starting March 2015. To be honest, I wasn’t too surprised when I heard about it but was kind of bewildered at how they blatantly copied the Delta Skymiles program. It’s almost like someone at United procrastinated on his/her project until 5 minutes before it was due and just went to the Delta site to copy their work. I mean, I always had a friend I could count on in high school to copy work from at the last minute too!

Before I get off topic, I want to start by saying that these devaluations might be a good thing. For the vast majority of people in this hobby, we do crazy things to earn points. We fly around in circles all over the country and even abroad just to gain miles and elite status which, I have come to despise after years worth of mileage running. However, now that United has closed down the need for mileage running, we are left with two options.

Option 1: Credit to another program

If you want to credit to another program in Star Alliance, it needs to be one that is close to or similar to what the United program offered. To me, the closest would be Aeroplan because it has roughly the same number of mileage redemption options and their charts are similarly aligned. However, United truly was the best program to use your miles in due to the fact that there were no fuel surcharges added on all Star Alliance carriers. With Aeroplan, a roundtrip business class ticket to Europe can cost close to $1000 on Lufthansa plus 90,000 miles! With United, you’d forego the fuel surcharge in exchange of using more miles. (115,000)

Option 2: Manufacture Spend

Now I admit, some people hate manufactured spending. I mean, if I looked at it from the outside, who would want to spend countless hours a week waiting in line with people like this:

The fact of the matter is that Manufactured Spend and credit card signups will be the bulk of where people who don’t fly frequently will earn miles. If you want to stay in this game, you need to understand where it is headed. When I used to book award tickets, the majority of people who wanted to use my services were people who were new to the game and had just signed up for the latest bonus credit card offers. These people didn’t mileage run but had balances over 500,000 miles at times. They didn’t get these by flying but simply being smart and playing the game that all of us talk about.

Whether its getting a family to Europe for the summer or going to Asia to see a few different countries, everyone has a story. For years, people who earned points with credit cards have been reaping the rewards that should have been available to those who truly flew frequently. Today, that has changed. It has always been and will continue to be about the money. Airlines will turn to people who spend versus people who aimlessly fly from Los Angeles to Chicago via Seattle, Dallas, Atlanta and Miami in one ticket. Today, a random person can earn more miles by spending $5,000 on a credit card versus someone who is flying 10 times cross country. Both of these miles also happen to have the same value if you don’t care about status.

It wasn’t until I started to Manufacture Spend that everything really came into perspective. It now costs pennies on the dollar to fly First Class and I don’t have to even step on a plane to earn miles. I have even gotten to the point of valuing goods as “this only costs 3 trips to CVS.”  This is where the problem lies and airlines like Delta and United are realizing it. As partnerships with credit card and third party companies increase, the need to credit people who fly decreases. I applaud both airlines for finally realizing that they should credit their most loyal paying customers. After all, they are the ones that deserve the sub par food, 1980′s style domestic first class seats, “priority” boarding and other “amenities” that are offered.

The biggest question on my mind is whether or not these programs will keep their award charts the same or change them. It will take a really long time for the average flyer to get 160,000 miles at the new revenue based model. That is unless, you’re a 1K who pays thousands for your airlines tickets. I believe that United will change their award chart and actually have two for United metal flights and partner flights.

I really do believe that the only way to sustain travel on miles for the average person is to either sign up for a billion credit cards or just do some manufactured spending. Now, Marathon Man might hate me for saying this but as I have said before, there is plenty to go around. It’s all about how we treat this next endeavor that matters. We need to collectively understand this hobby and help those who don’t. It will not only benefit us all but it will also make sure people don’t hand over gift cards to Wal-Mart cashiers asking what to do with them. It’s either that or jumping alliances to different airlines every year until eventually, they all go revenue based. It’s time to pick your poison and just stick with it. The game is changing and it is going back to the roots. Reward the people who actually need to fly and reward others occasionally by spending elsewhere.

What are your thoughts of where this game is headed? Am I wrong or did I miss anything in my thought process?

-BMG

 

About 

Tahsir Ahsan (Bengali Miles Guru) flies over 200,000 miles per year. He helps people redeem miles all over the world as co-founder and senior award expert at Award Magic. Be sure to #FlyWithBMG on Twitter

 
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  • Darth Chocolate

    Sooner or later the elite members who actually fly will complain to the airlines and CC companies about these people who are gaming the system. I know I have already brought this to the attention od DL and AMEX.

    The companies are currently clueless (after I emailed DL, they said that the most one could gain from their relationship with AMEX would be 40K miles through a bonus and hitting both spending thresholds). I sent them links from bloggers who brag that they can get Diamond Medallion status through MS by rotating into/out of CC and collecting multiple sign-up bonuses and also getting the personal and business DL Plat and Reserve cards. They were stunned.

    You folks who MS to scam the system and then bitch and moan about how you are not valued customers are a joke. So far this year, I have over $28K MQD on DL and I get a bonus of squat MQM. By the end of the year, I’ll be close to $50K MQD – which I’ll bet is more value to DL than the MS spend – for no extra benefit.

    Maybe if I’m lucky, I’ll qualify for the Delta 360 program (or whatever they call it). But the CC scammers/mileage runners will wonder how they too can qualify for this benefit without having to fly.

    The sooner they wise up to this abuse, the better. And I’ll do my part to make that happen.

    • Lumpy

      It’s silly to think that airlines don’t know what is going on. All airlines lurk on FT, and they attend the Freddie awards and are on first name basis with the bloggers. Delta thank you for your loyalty, but they also love the billions AmEx sends them.

    • Jason

      Another bitch.. who cannot earn and burn.. whining like a child. go away troll…

      • Darth Chocolate

        Look, dumb@ss, I have better things to do with my time than “earn and burn”. I Fly over 150K MQM per year and take 6-8 long haul trips per year. I also got all 4 segments upgraded on a DL award ticket over Memorial Day Holiday.

        Please explain how some putz with a CC should get priority over someone who earns status by actually flying. The more I hear you fools bitch about your bennies going away or being devalued, the bigger my grin.

        • Amol

          At a recent loyalty program conference, Avianca went so far as to call miles earned from buying miles/credit card transactions/etc as “good miles” and miles earned from flying as “bad miles” (as in, we want to increase the amount of “good miles” and decrease the amount of “bad miles”).

          No one is saying you shouldn’t get priority on a paid ticket. The article talks about earning miles … you’re going to be earning a lot more with MS than with flying and that’s true with older revenue programs like Southwest and Virgin America (unless you have an expense account, but then again, none of the multiple writers on this blog have that and we don’t write for that kind of audience).

          • Darth Chocolate

            OK, to put it another way, “good miles” are miles they give out that costs them nothing to print. And if it costs nothing to print, they force the company to improve their balance sheet by reducing the financial liability of those miles by devaluing the award chart.

            “Bad miles” are the miles they give away for flights – they have to provide a service – and while they do get revenue, it comes at a cost in fuel, gate fees, labor, etc.

            It is amazing how people who seem so savvy when it comes to gaming a system have such little grasp of basic economics.

          • sunglassesadvil

            Darth, they don’t “give out” those miles. They sell them. And they don’t necessarily have to devalue, since they already restrict redemption on the back end in terms of award seats released. Giving away more and more miles doesn’t cost them anymore if they don’t release anymore corresponding awards seats.

          • Darth Chocolate

            Sure, they “sell” miles given out as a bonus. Simply stated, they award miles and recieve some sort of cash compensation. They have no expenses (aside from administering the program), so these miles are the most profitable.

            If anyone gives out more of any commodity, they will inevitably become less valuable. The airline has to trade those miles for some good or service at some point, and they typically trade travel for the points. That travel has costs associated with it, and the airline has to keepp those on the books as a liability (because they have some value that they must pay to the members).

            One quick way to make the balance sheet look better is to devalue the miles by requiring more miles for travel.

            As far as releasing seats goes, the airlines charge more points near holidays and peak travel times. Personally, I have never had a problem redeeming Skymiles for travel – sometimes I spend more points and sometimes I spend fewer – but I generally always get a ticket.

            And there is a cost for carrying more miles on the books: it can (and in some cases does) affect the airlines ability to secure financing, it limits them in the capital markets and can make their stock somewhat unattractive by messing with the balance sheet.

            It is like printing more and more currency. Sooner or later, someone has to pay up.

          • sunglassesadvil

            Trust me, I fully understand the financial implications – I have an accounting degree so I’m right there with you. I’m not intimately familiar with the methods airlines use to value FF miles, so maybe you can help here. The vast majority of people out there don’t have much of a clue how to redeem miles effectively, so they either never actually spend those miles or redeem them at ridiculously low rates. In addition, a lot of awards seats are given out at the last minute for seats that would otherwise fly empty – this doesn’t cost airlines much other than the meal and additional fuel costs from the added weight. I’m sure all of this goes into the cost calculation, but I’m guessing outstanding miles are not valued as a very large liability. But like I said, I’m familiar with everything going into the valuation, so maybe I’m missing something here.

            However the airlines valuate the cost of miles, though, it doesn’t matter as long as airlines sell all newly created miles at a higher price than their corresponding balance sheet cost. I would be pretty surprised if the airlines are not already doing this, as it’s well-reported that FF programs are a profit center for airlines.

            You also didn’t really address my point about award ticket availability other than your own personal experiences being able to find awards on Delta. It might be true that availability has held strong on Delta (then again Delta awards are relatively worthless to begin with so I’m not sure how much worse they could have gotten). It’s well documented that other carriers, such as United, have shown a pretty big drop in saver award availability in recent years, largely as a result of credit card bonuses and MS. I’m not sure if this is the case on other airlines as well, but it certainly offsets the issuance of miles.

            I suppose in the end we’re speaking about the same thing – this is still a devaluation of miles. It’s devaluing them by making it more difficult to redeem them, not by actually changing the awards chart.

            And another interesting thing about what you said – you mentioned you are always able to redeem miles – makes me wonder why you are so angry at CC churners and MS. If you are able to redeem for awards you want, what does it matter to you what other people do? If they aren’t hogging up seats you would otherwise take, why are you so angry about it?

            The way I see it, if/when MS comes to an end, people will adjust and spend their time and energy elsewhere. But for now, more power to them – they’ve figured out how to make the system work best for them. No reason to get outraged over something that doesn’t impact you.

          • Darth Chocolate

            Essentially, I hate scammers. And folks who MS are, in my opinion, scammers. Scammers ruin it for everyone.
            As for the impact, yes it does affect me. Because when the airlines devalue, they do not differentiate. Granted, some of the changes DL has made are good for me; they might not work so well for the scammers – which is a net plus.

            I find it somewhat amusing that folks who scam through MS then bitch when something changes they don’t quite care for. Such as the new DL program. Or the lounge restrictions for CC holders. Damn, the whining about the “lost benefit” for those who essentially get all their travel for free was epic. So it costs $29 to bring in a guest – suck it up buttercup! The lounge thing affects me when I fly domestically with my wife. However, the restrictions are a net positive in that the lounges are measurably less crowded.

            Bottom line: if they can bitch and moan when they lose something, I can enjoy myself while I mock them.

          • sunglassesadvil

            Yea, I mean you’re definitely right re: devaluation of miles. It hurts from that respect. People who manufacture a ton of spend are really messing with us. But I don’t think that signing up for publicly-offered credit card bonuses is “scamming” as long as you are earning those bonuses through legitimate spend. If you can only hit those bonuses through MS though, I start to see your point. But I don’t really think it’s a scam to take advantage of bonuses through normal means.

            You also lost me with lounge access. Most CCs that offer lounge access have large fees (AMEX Platinum, United Club Card, AA Executive, etc. all have $450 or so fees). People aren’t getting lounge access for free with these – they often sign up for these cards specifically to get lounge access. Also, don’t you pay for lounge access anyway when traveling domestically? I didn’t think any American airline offered domestic lounge access for free at any status level – only for int’l flights. I know for sure that UA doesn’t, and I’m pretty confident DL doesn’t either. Maybe I’m wrong about that one though.

          • tahsir21

            Darth, thanks for your extensive commentary on this matter. To be honest, I wrote this post knowing you’d have some sort of input.
            I don’t blame you for feeling like you don’t get benefits. In fact, your constant vigilante work has actually paid off! They’re now making it harder for people to get these amazing benefits you speak of but also trying to reward the credit card companies that send them so much revenue. You see, credit card companies PAY airlines for miles, they don’t just get them for free. I’m not sure what you mean by good miles and bad miles as everything has a cost. If anything, they make more selling to credit card companies than with you. Say you spend $250 to fly somewhere. Not only do they have to pay for fuel and other staffing costs, they also have to pay you for your miles and the other awesome amenities you want. With CC companies, they just get paid to give out miles that people may wait to pile up.
            I guess I just don’t understand your hatred towards people who gain miles in some other way than how you do. It’s great and all that you got upgraded on memorial day weekend. I’m sure you were jumping for joy and hey, I would’ve given you a high 5 if I saw you. It’s just that most people who MS don’t care about a domestic upgrade. We pool our miles and redeem for cool trips around the world.
            I hope to have further discussions with you on this topic.

          • Darth Chocolate

            “It’s just that most people who MS don’t care about a domestic upgrade.”

            Tell that to Renee (the whiny bitch) over at Delta Points.

        • K2

          Would you like a cookie? Hello–you’re flying COMMERCIALLY. If you’re such a high roller, then you would fly private. Quit name calling and essentially “tattling” to the airlines. They are well aware. You are presenting yourself as the equivalent of an 8-year-old school girl complaining to her parents who already know what is occurring.

          • Darth Chocolate

            Hey, K2, ever price out what a private jet to Bejing costs? Of course I fly commercial, dumbass. And my employer pays for International Business Class so I only have to deal with cretins like you rarely.

          • K2

            Yes, I am the cretin. The person whose vocabulary does not require spewing profanity in each of my posts. You sound ignorant. Like I said before, if you were such a high roller not only would you fly private but the phrases “my employer” and “Business Class” would not come from your mouth. So small minded.

        • JEM

          The putz with a CC should get priority over you because the vast majority of the revenue that Delta gets from him doesn’t cost them fuel, FA salaries, gate agents, or special CSAs who handle whiny DMs. It’s nearly pure profit, and they’re more than happy to keep that revenue stream flowing.

          • Darth Chocolate

            Oh, so that’s why I pay 5X the price of coach to fly in Business Class. Damn, that is some pricey booze and chow!

            I’ll wager that they make more from me in pure profit with my $28K MQD (soon to be $35K) than the vast majority of CC scammers.

    • Geoff

      Yeah, I’m sure the airlines were stunned by your revelation about credit card/manufactured spend. I bet they never thought of it.
      Don’t flatter yourself.
      The carriers and their affiliated credit card companies know EXACTLY what is going on.
      The question is, why are you so bitter about the game?
      Jason is right, you are a troll. If you don’t like the way it’s played then don’t play it.

      • Darth Chocolate

        I do not play your game. I actually earn status by flying and paying for premium tickets. AMEX and DL are looking into this, and I would not be surprised that you may see the following in the not too distant future:

        1) Many CC issurers go to the 1 lifetime bonus per person model as AMEX has.

        2) CC issurers go to only 1 card (either business OR personal) per program.

        3) Airlines scale back bonuses further for CC holders – more “devaluations” like limited club access, no priority on upgrade lists, maybe even scaling back the MQM bonus for higher spend or increasing the MQD requirement for elite status – but they will keep the 1 free bag perk.

        I have seen improvements in the DL club experience over the past few months, with the clubs being much less crowded. So, much better for me.
        The more you bitch, the bigger my grin.

        • sunglassesadvil

          What do you mean they are “looking into” this? It should take about 10 minutes of reading blogs like this to realize how rampant this is. The CC companies all already know, so unless you can point to some other reason to expect a change other than a vague statement about them looking into it, I find this statement dubious.

          Also, AMEX differs from other CCs in the sense that the majority of their cards are charge cards, not credit cards. So they miss out on the hefty interest rates that people pay when they don’t pay off their cards in full. Sure, nobody who churns would do that, but enough people do that to continue to make these cards profitable. The interest rates are so onerous that they only need a small percentage to carry a balance before they can profit.

          • Darth Chocolate

            True, the AMEX Platinum Card is a charge card, but the AMEX Delta Gold and AMEX Delta Reserve are credit cards. They have hefty interest rates and that is the only way the CC companies make any money off of this.

            As far as getting multiple bonuses over multiple cards each year, AMEX has thankfully put a stop to that with ONE bonus on the first signup after 1 May. I think you will see other card companies follow suit.

            As for MS, the CC companies probably lose money on that end, and yu will begin to see more crackdowns by implementing measures such as cash advance fees for gift cards – and I will applaud when they finally do that.

            In addition, the real problem with MS is that it comes pretty damn close to crossing the line with money laundering laws. Now, you may not have any nefarious motives, but I do not know of any bank that would risk its charter by being an accomplice to felonies.
            Sooner or later the party will be over.

          • sunglassesadvil

            Definitely agree re: money laundering. And I’m not one to engage in MS – I earn enough miles through my regular spending, occasional signup bonuses (always for a card I’ve never had before), shopping portals, and travel. But I also don’t really see why you’re so angry that others engage in it. It’s great that you don’t have to to rack up miles, but if people wanna go that route and credit cards allow it, all the better.

            Again, I really doubt that CC companies aren’t aware of MS issues already. Yet we still see huge bonuses being issued over and over – notably the Citi AA card that allowed multiple applications for the 100k bonus. You really think Citi doesn’t realize this is happening? They must be confident enough that they will make money anyway. Either that or they are totally, totally incompetent, which doesn’t appear to be the case since Citigroup made a boatload of money last year.

          • Darth Chocolate

            Citi and others probably know it is happening, but they are looking to capture market. I’ll bet they are all waiting to see how AMEX’s restrictions play out, and if it does not hurt AMEX, you can be sure they’ll follow.

            As far as the airlines are concerned, the Delta rep I traded e-mails with did not understand the issue. I had to explain it to her – how there were some people using sign-up bonuses and MS to get DM status without stepping foot on a plane (4 cards with spend bonuses totaling 100K MQM, signup bonuses totaling 30K MQM, and meeting the $25K spend threshold, not to mention the approximately 250K redeemable miles).

            Thise are “customers” you do not need. They earn you minimal revenue and you supply free transportation and give them “status”. Then they bitch when upgrades don’t clear and whine if they are the least bit inconvienced. They are also typically the most obnoxious passengers on any given plane.

          • Geoff

            You’re just being obtuse now. You’ve become the Skip Bayless of Boarding Area. Just stop.
            Are you really calling or emailing Delta and explaining manufactured spend? Now you’re on a blog ranting about how unfair it is that readers might be using the system in a 100% legal way??
            Are you really that butthurt?
            You really think that the card companies and airlines are ignorant of CVS and One Vanilla(ex of Van Reloads)?
            Sounds like you need a nap little boy.
            BTW, your BIS miles are quite impressive…to no one.
            Stop your petulance.

          • Darth Chocolate

            WhoTF is Skip Bayless?

            And damn right, I communicate this to DL at least once per month.

    • Marc
  • Kathy

    What about United miles in my account. Do I need to use them asap?

    • Amol

      The changes announced today didn’t include anything about the award charts.

      • Scottrick

        However, United has not ruled out any changes in the future. One could argue that if miles are harder to earn, award availability may actually improve. I don’t think it’s worth changing your redemption strategy yet.

  • hiker_VA

    Yawn. The people earning all of their status with MS/CC aren’t flying as much as those of us who earn status by BIS miles anyway.

  • http://www.guyswhotravel.com/ Brad @ guyswhotravel.com

    The LAST thing you would want to do is consider crediting your miles to Aeroplan. Aeroplan now only credits 50% of the miles for the lowest fare classes on United (S, T, L, K, G, N). This is true for both redeemable AND status miles. One of many reasons why, even based in YYZ, I decided to ditch Aeroplan for United. Even with these latest changes, I don’t regret it. Here’s more on why I made the switch: http://www.guyswhotravel.com/entry/so-long-aeroplan-air-canadia-hello-united-mileage-plus

  • Scottrick

    Name calling is not permitted. If you have a criticism of the post, of other readers, or of airline/loyalty program customers in general, do it without crossing the line. I don’t enjoy waking up on my vacation and censoring more comments in one day than I have in the last two years.

  • Matt C.

    Good post. I don’t have the patience for manufactured spend, but most of my award flights have been on United partners from credit card bonuses and normal spending, not flight miles. If all of the carriers do go revenue-based, I think Scott’s previous article on the loss of loyalty and simply choosing the cheapest tickets at booking will start to prevail for many, including me, until some new disruptive program incentivizes people again.

  • shay peleg

    115k is only if you only fly on united (aka it sucks)

    • Scottrick

      I’m with you there. I’m focused on SQ, LH, and NH miles now for my Star Alliance awards. Those are the carriers I want to fly anyway. But I’ll accept the UA 787 and am still looking forward to BusinessFirst on LAX-PVG.

      • shay peleg

        Fly united if you want to be yelled at

  • peteryared

    They will obviously soon limit premium cabin awards to elites.

  • TravelBloggerBuzz

    Excellent! And I am not here for the back link!

  • Janice Chaka PHR

    It is very easy to talk about spending on credit cards and manufacturing spending but what about people who are not in the USA or just do not have access to cards?