Why you should (or shouldn’t) become a point geek

Reward programs can be as frustrating as travel
Reward programs can be as frustrating as travel
Image: Luke MacGregor
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Once primarily an obsessive hobby for elite business travelers, point collecting has gone mainstream. It’s the latest Millennial trend story, featuring cash-poor point millionaires with twenty-nine credit cards, taking luxury trips to exotic places. The data suggest these stories aren’t anecdotal.

A recent Bloomberg story claims some airlines now get 50% of their income from selling miles to banks that offer airline-branded credit cards. Bloomberg estimates for airlines like American, loyalty programs are worth more than the market capitalization of the entire company. From the airline’s perspective, revenue from point programs has the added benefit of stability. Airline profits from selling seats are extremely sensitive to economic conditions, while contracts with banks for airline points tend not to change with market fluctuations.

Banks and airlines make billions off miles. But it’s worth asking if customers benefit, too. After all, the miles are not free. Airline credit cards can cost hundreds of dollars in annual fees. Maintaining a portfolio of a dozen or more cards can run into thousands of dollars every year.

Asset-wise, airline-point collecting is risky, because those miles can depreciate rapidly. The frenzy of high sign-up bonuses, and the double and triple (even 5-time!) point bonuses on some purchases feeds point inflation. The faster points accrue, the more point millionaires there are. But the number of ways to spend those points remains fairly limited. In this environment, a modest 100,000-point balance can’t offer the same purchasing power it did ten years ago.

Generally there are two categories of seats you can buy with mileage: saver and standard. Whether or not the credit card fees are worth it often comes down to if you can use the points to buy saver seats, since they typically require as little as half the miles of a standard reward seat. And when saver seats are available, they are usually in limited supply—more point millionaires mean more competition for the high-value reward tickets.

It is often possible to find cheap, saver seats, but it poses a large opportunity cost in term of time. You can book a year in advance, but even that offers no guarantees because even far in advance there are few saver seats. In fact, more saver seats open up closer to travel. But if you wait until later on, you likely will end up investing hours of research every time you fly, in addition to a substantial fixed cost in learning routes, airline rules, and even different planes, all to maximize the odds of winning super-saver fares for the whole family. Just like a home day-trader competing against a professional active managers, serious point play is not for the casual traveler.

Given the risks and escalating fees and time commitment, it seems there is a near-bubble frenzy on all sides in the market for miles.

But mile programs can still pay off if you enjoy the game. The research is time-consuming, and it’s really just an illusion of free travel, but some people love it. Finding that last saver seat, even if it means a stopover in Reykjavik on a New York-Madrid trip, offers a sense of control in a world that feels increasingly unfair. It is like solving a puzzle that pits you against the corporate overlords at the airline (never mind they make a mint off the programs). Die-hard enthusiasts swap strategies at conferences and meet-up groups (often in airports). Being a point-nerd offers a sense of community, the intellectual satisfaction of thinking you have outsmarted the system, and trips to Bali. But it is not free in terms of time or money.

For most people point collecting is hard to justify in terms of card fees and time spent. Like playing the market, lots of people end up losing, even if they think they are winning.