If US Bank is trimming the fat, is Flexperks Travel Rewards next?

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Plenty of digital ink has been spilled about the May 28/31 Club Carlson devaluation, including here, and there's not too much left to be said. However, one thing has been bugging me about the way Club Carlson has been talking about the change: they refer to it on Twitter as the "Visa announcement."

To explain why this has been nagging at me, it helps to think about how these co-branded credit card partnerships work. There are three independent corporate actors in any co-branded partnership. In the case of Club Carlson:

  • Visa processes transactions. Visa owns and operates a worldwide network of point-of-sale terminals, for the use of which it charges merchants every time a Visa credit or debit card is used as a form of payment. It rebates part of those fees to US Bank in exchange for Club Carlson cards being issued on the Visa payment network.
  • US Bank extends credit. US Bank timely pays merchants for the services rendered, and keeps track of customers' charges. If the customer fails to pay their balance in full and on time, they also get to charge the customer interest on those purchases.
  • Club Carlson sells Gold Points to US Bank, and operates a hotel loyalty program.

With respect to the last-night-free benefit, the question is, who was paying the cost of those bonus nights?

One possibility is that Club Carlson was paying for those nights. They could have been reimbursing their participating hotels the full negotiated rate for Gold Point redemptions, and simply been eating the cost of the last-night-free benefit, in exchange for selling more Gold Points to US Bank and their customers.

The other possibility is that US Bank was paying. They may have agreed to buy additional Gold Points at whatever fixed rate they negotiated with Club Carlson, such that Club Carlson was made whole for however many last-nights-free we redeemed.

The way that the changes have been communicated, and Club Carlson's framing of the change as a "Visa announcement" leads me to believe the latter option is more plausible. And that feels like bad news.

US Bank is terrible at predicting the costs of their rewards programs

There are two ways for a bank to predict how much a rewards program will cost before launch.

One method is to look at a static picture of how your current customers spend their money. A certain amount on gas, a certain amount on groceries, a certain amount on clothes, a certain amount on tuition. You can then design a rewards structure that will be competitive with your rivals, while turning a healthy profit for yourself.

Another option is to look at the dynamic effects of the rewards program itself. It may be that offering 5% cash back in a certain category will make your customers divert more of their spending to that category than they were before the rewards program was introduced. This is much more difficult, since every bank treats information about customer spending behavior as a closely guarded, proprietary secret.

To date, US Bank appears to have exclusively used the former method. When they first introduced the Cash+ card, it had no limits on 5% cash back earnings, and no limits on the $25 bonus for redeeming more than $100 in cash back. What were they thinking? Well, they were calculating their costs based on the existing spending pattern of their customers, without taking into account the dynamic effects of 6.25% cash back in super-exploitable categories like department stores, home improvement stores, and others.

This is the best explanation of the Club Carlson devaluation

It's become a cliche that the last-night-free benefit at Club Carlson properties was "too good to last." But to a travel hacker, it's obvious that it was too good to ever get started! And yet it did. Why? Because US Bank looked at a static picture of the distribution of the length of award stays and decided they could afford to pay for the last night, without considering how that distribution would shift once the last-night-free benefit was introduced.

Once they came to terms with the fact that the number of 2-night stays shot up ten or one hundred times, they had to make a decision, and the decision was to end the benefit.

This may spell trouble for Flexperks Travel Rewards cards

I write about the US Bank Flexperks Travel Rewards card a lot because I love it: 2 Flexpoints per dollar spent at gas stations or grocery stores each month and 3 Flexpoints per dollar spent on charity, each worth up to 2 cents for paid airfare.

The trouble is that, for redemptions on airfare, it is almost mathematically impossible for US Bank to be turning a profit on this product.

Technically the worst redemption in the program would be redeeming 20,000 Flexpoints for a $201 ticket (since for cheaper tickets a 1-cent-per-point cash back redemption would be better); that would generate a hair over 1 cent per point, or a hair over 2% cash back at gas stations or grocery stores.

At 2% cash back, it's possible for the Flexperks Travel Rewards card to be turning a profit.

But besides those marginal airfare redemptions of $201 to $266, the second-worst airfare redemption in the program would be redeeming 30,000 Flexpoints for a $401 ticket, which would yield 2.67 cents per dollar spent at gas stations or grocery stores, or 4.02 cents per dollar spent on charity. And remember: that's the second-worst airfare redemption in the program. Every other airfare redemption (of points earned in bonus categories) is costing US Bank more than that.

And, as unbelievable as it sounds, if you spend at least $24,000 on the card per cardmember year, you also don't have to pay an annual fee! You'll earn 3,500 bonus Flexpoints you can redeem against your annual fee. You can even make the redemption online.

Keep your expectations low and your balances lower

I do my best to redeem my miles and points as fast as I earn them, and that's as true for US Bank Flexpoints as it is for any other rewards currency. As long as a currency is in the hands of the bank, airline, or hotel, I have no control over its value. Once I've redeemed it and, even better, once I've traveled, it's not something that can be revoked or devalued.

Note on booking Delta flights with Alaska miles

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One of the great things about Alaska Airlines' Mileage Plan program is the ability to both credit paid flights operated by American Airlines and Delta Airlines, and redeem Mileage Plan miles for flights on either carrier (when low-level space is available).

I wrote back in February about free award changes and redeposits being a great benefit of Alaska MVP Gold and MVP Gold 75K elite status, since it applies to award bookings on partner airlines as well. In March, when I went to use that benefit again, I encountered an unexpected snag, one it's vitally important to be aware of if you use Mileage Plan as your primary frequent flyer program, as I do.

Delta enforces stricter fare construction rules on Alaska awards than on their own members

In the pre-2015 days of award charts and the deeply broken Delta booking engine, to piece together an international award trip you had one option: search leg-by-leg for low-level award space, then plug each leg into Delta's multi-city search tool.

With the improvements to the SkyMiles booking engine, and loss of stopovers, that's not only unnecessary, it's counterproductive. While before you could book low-level awards by stringing together low-level segments, now Delta will sometimes show different award availability for non-stop flights than for connecting itineraries. Here's an example of a flight from Boston to Detroit with availability only at the 20,000 SkyMile level:

And here's a connecting itinerary with the same 10:30 am flight — but now it's available at the low level:

If you want to fly to Detroit, and aren't checking a bag, you could of course book the connecting flight and get off in Detroit, although there are some risks to hidden-city ticketing. If you don't actually want to fly to Detroit, then if you're booking with Delta SkyMiles this doesn't affect you; just search for and book the connecting flight.

Here's the problem: when I attempted to book the same itinerary using Alaska Airlines Mileage Plan miles, the Alaska website returned the following error:

When I spoke to an Alaska representative about the issue, she looked into it and explained that Alaska could only book Delta flights when there was low-level availability on each component flight of an itinerary — even if Alaska's website shows space on the composed itinerary, and even if Delta is willing to book the complete itinerary for their own members.

Conclusion

It's hard to say in the abstract how big a problem this is or will become. For now, on most flights, most of the time, Delta award space on each leg of an itinerary roughly corresponds to the award space for the entire itinerary, and this problem doesn't arise.

On some itineraries, some of the time, especially when connecting through one or more Delta hub, this will be a huge problem since it will completely prevent an award from being booked with Mileage Plan miles at any price.

In any case, it's an issue anyone using Alaska Airlines' Mileage Plan as their primary frequent flyer program should be aware of.

The May/June Club Carlson devaluation makes it just another middling hotel loyalty program

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Before I get to the meat of my analysis of Club Carlson’s recently-announced devaluation, allow me to briefly mention my general approach when it comes to credit card rewards:

  • I prefer cash above all other rewards currencies. I can use cash to pay my expenses, save for the future, and of course pay for travel out of pocket;
  • There are times when earning rewards currencies besides cash can reduce the cost of a flight or hotel below the cost I would incur making a similar reservation with cash;
  • If those situations occur frequently enough in a specific credit card rewards program, I’ll consider prospectively earning those rewards instead of cash.

The point is that my default mode when earning rewards currencies through credit card spend is cash back, and other loyalty currencies need to offer consistent, out-sized value in order to earn my business. Since the least valuable point is always the one you don’t redeem, I also make sure to redeem my hotel, airline, and proprietary credit card rewards points approximately as quickly as I earn them.

Consider the US Bank Flexperks Travel Rewards credit card. By earning 2 Flexpoints per dollar spent at "grocery stores" or "gas stations” each statement cycle, and redeeming those points for up to 2 cents each towards paid airfare, you might think that a return of up to 4% is a no-brainer (and, indeed, I do earn and redeem a lot of Flexpoints).

But last month I took a $500 voluntary denied boarding voucher on an American Airlines-operated flight. The next time I make a paid American reservation, I’ll use that voucher instead of up to 30,000 Flexpoints. Suddenly I have 30,000 more Flexpoints than I would have otherwise!

Sure, I can redeem them for 1 cent each in cash back, but that’s still a $33 loss compared to putting the same $15,000 in gas station or grocery store spend on my Barclaycard Arrival+ card (or, given the categories, another even higher-earning credit card like my Chase Ink Plus).

The Club Carlson credit cards used to offer consistent, super-sized value

The tool I use to analyze the value of hotel co-branded credit cards is the "imputed redemption value” of award reservations made with the chain: that’s the value you’re implicitly putting on a hotel redemption when you earn enough points through manufactured spend to make an award stay instead of earning cash back with the same spend. The last-night free benefit of the Club Carlson credit cards produced extremely low (that’s good, remember) imputed redemption values for stays of at least 2 nights:

The only other hotel program which I have found to offer consistent value compared to cash back is Hilton HHonors, when you manufacture gas station and grocery store spend with the Surpass co-branded American Express card. While their 2014 devaluation dramatically raised the points cost of their properties, the exceptionally high earning rate of 6 HHonors points per dollar leaves relatively reasonable imputed redemption values, especially on stays of exactly 5 nights, when elites can take advantage of the 5th-night-free benefit:

As I wrote on Friday, Wyndham’s new rewards program, which will, starting May 11, 2015, offer free nights at all participating Wyndham properties for 15,000 Wyndham Rewards points, has a single imputed redemption value. Manufacturing a single night at their properties will cost $166.50 in foregone cash back:

 

Club Carlson’s program will be fine, if you really want to stay at Club Carlson properties

I have a commenter who always pokes fun at me when I talk about staying at dumps like the Radisson Blu es. Hotel, Rome or Radisson Martinique on Broadway just because the last-night-free benefit made them so cheap.

The fact is, I’m a poor person, so if I want to travel as much as I do, I need to do it cheaply. The Club Carlson credit card helped me do that. New York’s an expensive place to stay, and while I could always transfer Ultimate Rewards points to Hyatt and stay at one of their Manhattan properties, those points have an extremely high opportunity cost since they can also be redeemed for cash or paid airfare, or transferred to the right partner at the right moment. The Martinique made sense for me as an (admittedly run-down) alternative.

But beginning June 1, Club Carlson will not offer the outsized rewards that justified manufacturing thousands of dollars per month on their co-branded credit card. Here’s a side-by-side comparison of the imputed redemption values of Club Carlson stays and their competition, with the cheapest, second-cheapest, and most expensive stays highlighted in green, yellow, and red:

Note: For Hilton I used a synthetic "mid tier" value of 45,000 HHonors points, which does not actually exist on their award chart; they have an even number of hotel categories.

As the chart clearly illustrates, at bottom-, mid-, and top-tier properties, Club Carlson is consistently the cheapest or second-cheapest chain to manufacture stays of less than 5 nights (top-tier, 5-night Hilton stays do clock in cheaper at $281, as shown in the chart further above), even without the discontinued last-night-free benefit.

The problem is that in exchange for your Club Carlson points, you’ll have to stay at Club Carlson properties, and many Club Carlson properties are dumps. Unless you have a clutch of Club Carlson properties you visit regularly, or a specific property you have your heart set on visiting, it no longer makes sense to manufacture large numbers of Club Carlson Gold Points speculatively.

If you feel like it, buy 3 domestic nights each year for $326.40 (or $351.40)

The Club Carlson co-branded credit cards still offer a single, specific value proposition:

  • the US Bank Club Carlson Premier Rewards card has an annual fee of $85, while the Business Rewards card has an annual fee of $60;
  • each year you renew your membership with either card, you receive 40,000 Gold Points;
  • starting June 1, 2015, each year you spend $10,000 with the card you receive a free night at any Club Carlson property in the United States.

Since the earning rate of the card hasn’t changed, all this adds up to paying $222 in foregone cash back and a $60 or $85 annual fee, and receiving 90,000 Gold Points and a free night in the United States. Even if you have to manufacture an additional $2,000 in order to “top up” your Gold Points to 100,000 each year, you’ll end up paying $266.40 in foregone cash back, for which you’ll receive at least 3 nights at any US Club Carlson property (there are no domestic Category 7 hotels).

Since my partner and I visit Chicago at least a couple times per year, I’ll probably do exactly that, paying $108.80 per night for an annual 3-night stay at the Radisson Blu Aqua Hotel Chicago in downtown Chicago, which is a lovely hotel we’ve stayed at many times before (using the last-night-free benefit, of course).

By way of comparison, the imputed redemption value of the Hilton downtown Chicago properties (ranging from 40,000 to 60,000 HHonors points, depending on the season) is $118 to $178, while a reservation at the three Category 4 Hyatt properties in downtown Chicago would cost 15,000 transferred Ultimate Rewards points (worth $150 in cash).

Conclusion

The Club Carlson last-night-free benefit was so lucrative it justified a lot of otherwise-bizarre behavior. At the end of May, it’ll be gone, and Club Carlson will be just another middling hotel chain, packed with dilapidated, aging properties and struggling for relevance.

It sure was fun while it lasted, though!

Yes, the new Wyndham Rewards program will be great

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I saw yesterday morning that Shawn at Miles to Memories had taken a crack at comparing the much-beloved Club Carlson rewards program with the just-announced changes to the Wyndham Rewards program, effective May 11, 2015.

There are many methods of comparing co-branded hotel credit cards. Personally, I prefer using a metric I call "imputed redemption values:" the amount of cash back foregone by using a hotel's co-branded credit card instead of a 2% or 2.22% cash back card.

The method isn't perfect (it ignores points earned on paid stays and elite-qualifying nights and stays) but it has two key benefits: it makes co-branded hotel credit cards directly comparable; and it gives a rough guideline for how much your typical room redemptions should cost to make hotel points worth manufacturing at the expense of cash back.

For example, here's an imputed redemption value chart for Club Carlson, in which I've helpfully included the last-night-free benefit:

This chart illustrates the decreasing impact of the last-night-free benefit on longer stays.

By contrast, here's an imputed redemption value chart I whipped up just now for Wyndham Rewards' revalued post-May 11, 2015, program, using the Barclaycard no-annual-fee co-branded credit card earning 2 Wyndham Rewards points on all purchases:

Stating the obvious

A glance at the charts shows that, unsurprisingly, It's still true that if you're staying exactly two nights somewhere with a Club Carlson property where you'll be happy staying, those two nights will always be cheaper if manufactured with a Club Carlson credit card than with a Wyndham Rewards credit card (or any other hotel's co-branded credit card).

Some people take vacations of more or fewer than 2 days

But if you're staying a single night, your last-night-free benefit is worthless. If you're staying more than 2 nights, and especially if you don't have a second Club Carlson account you can use to book alternating pairs of nights, the last-night-free benefit rapidly loses value.

Wyndham and Club Carlson have different property footprints

This works in two different ways. First, Club Carlson and Wyndham properties are located in different places. If you want to stay where a Wyndham property is located, you need to use Wyndham points or cash. If you want to stay where the Club Carlson property is located, you need to use Club Carlson points or cash.

Second, the distribution of properties within category bands is different. In a city with exclusively high-category Club Carlson properties, Wyndham stays are more likely to be cheaper (except on two-night stays, as mentioned above), while areas with low-category Club Carlson properties will have relatively expensive Wyndham properties.

The important thing to note here is that these distributions are not random. It is knowable (or at least predictable) in advance whether you're going to be visiting areas with relatively expensive or relatively cheap Wyndham properties (for example by looking at your travel pattern for the previous few years).

In other words, you don't need to decide between Club Carlson and Wyndham in a vacuum: you can make an educated guess about how well each program will work for you based on your actual and planned travel.

Club Carlson properties are wildly inconsistent

I'm checking in for a 2-night Club Carlson stay this afternoon. A few days ago I checked out of another 2-night Club Carlson stay. I had a 2-night Club Carlson stay in Rome in January. Last year I had several 2-night Club Carlson stays in New York City.

Suffice it to say, I love Club Carlson's program, and I love the last-night-free benefit.

With that out of the way, let's be honest: Club Carlson properties can be pretty terrible. The Radisson Blu in Rome has a great location right by the train station and a great breakfast buffet, and it costs just 44,000 Gold Points per 2-night stay (about $98 in foregone cash back per night). But I'll never stay there again; it's a dump.

Of course, readers have also shared wonderful experiences at various Club Carlson properties. The point is simply that locking yourself into Club Carlson because it's the "best" rewards program requires you to be indifferent to the quality of the properties themselves.

As travel hackers, we can hold ourselves to (at least slightly) higher standards than that!

Conclusion

The Wyndham Rewards co-branded credit card paired with the May 11, 2015, revaluation of the Wyndham Rewards program will make Wyndham Rewards stays in areas with high-category properties in other chains the cheapest or second-cheapest to manufacture, depending on the length of your stay.

However, whether it makes sense to prospectively manufacture large numbers of Wyndham Rewards points will still depend entirely on the distribution and quality of Wyndham and other hotel properties in the areas you actually intend to visit.

What's the point of class-of-service bonuses?

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With the 2015 division of US airline loyalty programs into revenue-based (Southwest, Delta, United) and distance-based (American, Alaska) models, deciding on a primary carrier and loyalty program has become a game with multiple moving parts. While loyalty programs have always been confusing, evaluating a loyalty program now requires prospectively considering:

  • your average cost per mile flown each year. If it's over the break-even point with Delta and United, you may be better offer continuing to credit your flights to them. If it's less than the break-even point, you'll be better off crediting your flights to a distance-based award program;
  • how much of a premium you're willing to pay. How much more expensive are the typical American or Alaska flights out of your home airport? Are you willing to drive to a more distant airport in order to credit miles to a distance-based carrier?
  • how much you value elite benefits. Crediting paid American and Delta flights to Alaska, as I do, means foregoing upgrades and same-day travel benefits on those flights. Likewise high-level elite status with either airline – but not Alaska – comes with regional and global upgrade certificates that can move you from economy to business class (or first class in American's case) on paid international flights.

In my case, taking all those factors into consideration, I decided to go with Alaska Airlines Mileage Plan as my primary airline loyalty program. That's principally because my flexible schedule means I'm always paying as little as possible for airline tickets, and redeeming miles for award flights whenever possible. My cost per mile flown would generate a trivial number of redeemable miles each year, while crediting flights to Alaska will continue to produce a noticeable number of miles.

All this was on my mind this week when I called into Delta to add our Alaska Airlines frequent flyer numbers to our first class tickets returning from New Orleans. In Delta's revenue-based model, those tickets would earn 1,715 SkyMiles for a general member or 2,401 SkyMiles for a Silver Medallion.

In Alaska's distance-based Mileage Plan, they'll earn 2,495 miles: 1,426 base miles and a 1,069-mile class-of-service bonus (we'll earn additional bonus miles as Mileage Plan elites, as well).

Thinking about this raised a seemingly-obvious question: what's the point of class-of-service bonuses, anyway?

Premium fares are more expensive because they're premium

In principle, passengers might be willing to pay more for premium fares for a number of reasons: full-fare economy tickets are freely changeable or refundable; business and first class fares include free checked bags, meals, drinks, and more comfortable seats or beds.

Of course at the other end of the spectrum Delta's cheapest "E" fares don't even include the ability to choose your seat.

The point is, why would airlines feel the need to bundle bonus frequent flyer miles into premium fares, when the fares are already higher because of manifest differences in the product being sold?

The way I see it, there were two possible reasons.

People are suckers

No one's ever gone broke underestimating the intelligence of American consumers. Every day I'm sure consumers buy more expensive tickets than they actually want or need in order to earn bonus frequent flyer miles, the value of which doesn't come close to making up for the difference in prices.

I bought our first class tickets using US Bank Flexpoints, so I was going to be paying the same 20,000 Flexpoints per ticket as long as the total price didn't exceed $400. Delta was selling a "G" class fare for around $300 and an "A" class fare for $392. Using Flexpoints, it was a no-brainer to choose the "A" fare, since it will earn 40% more Mileage Plan miles. I wouldn't have done the same if I were paying with cash, but are there consumers who would? Without a doubt.

People take advantage of corporate travel policies

The other explanation is that the individuals who accrue frequent flyer miles for trips paid for by their companies lobby for corporate travel policies that allow them to book premium fare classes. In other words, class-of-service bonuses pit the individuals doing the traveling against the companies that pay for it.

I'm not questioning that there are individuals who really do need fully flexible tickets. A consultant who truly has no idea how long an assignment will last springs to mind as the classic example.

But when refundable flights cost 3 or more times as much as non-refundable flights, simply not knowing if you'll have to return Friday or Monday isn't an excuse; the company would be better off booking two (or three!) non-refundable flights, while the employee doing the flying would much prefer the class-of-service bonus earned on a single changeable/refundable fare.

Enjoy class-of-service bonuses while they last!

While class-of-service bonuses are a scam, that doesn't quite do justice to the situation. Class-of-service bonuses are a scam because frequent flyer programs (and loyalty programs in general) are a scam. They exist in order to cloud consumers' judgment and earn excess profits on top of what airlines or hotels would earn providing commodity travel services.

Travel hacking has been the recognition of exploitable elements of systems designed in their turn to exploit travelers. Revenue-based programs are targeted at one of those exploitable elements (mistake fares and mileage runners), but commodifying frequent flyer programs into a simple rebate scheme will also be clarifying for passengers who mistakenly thought they were the beneficiaries of the airlines' largesse.

In the medium-term, it'll of course be interesting to see if and when American Airlines and Alaska Airlines follow suit. Until then, I'll be happily earning miles based on distance flown and enjoying class-of-service bonuses when – and only when – it makes sense to.

Onward from Madrid, Dublin, Berlin

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Last week I wrote about the three transatlantic British Airways partners that, due to the distances involved and the fact that taxes and fees are low on these routes, make even post-devaluation Avios redemptions competitive with cash or (depending on your other balances) award redemptions using other loyalty currencies. Those routes again are:

These redemptions — even post-devaluation — are great values in business class compared to cash (between 2.45 and 9.8 cents per Avios) and decent values compared to other airline miles. If nothing else, you should be aware of them because it's an additional option if you can't find award availability on your first-, second-, or third-choice airlines.

Judging by the comments to that post, you might think travel hackers are indifferent to this problem, on the grounds that it's better to build a trip around award availability on airlines you actually want to fly.

But for people with more restricted schedules (not me, but my understanding is this applies to most people in the working world), being aware of as many options as possible maximizes the chances of scoring a cheap award flight instead of being stuck paying retail to sit in economy.

A whole different problem, however, is the very real issue that you may not want to go to Ireland, Germany, or Spain!

Searching for cheap onward connections

A good first stop when thinking about Avios redemptions is the Wandering Aramean's Avios Map. Type in an airport code and you'll see all the possible non-stop Avios redemptions. Be sure to cross-check those flights with Google Flights or another flight search site, however; Seth's data are often out of date or inaccurate.

The Avios Map tool has two drawbacks: it doesn't show the taxes and fees for the route, and it only goes up to the 12,500 Avios distance band (so flights between New York and Germany don't appear, even though they're terrific values on airberlin). Still, if you're piecing together a multi-stop itinerary, you're likely sticking to shorter routes anyway, since Avios prices increase so rapidly with each additional leg and distance band.

After finding the routes you're interested in, plug them into British Airways' Avios calculator (and Iberia's if your flight is operated by Iberia) and look for the taxes and fees you'll incur. Don't forget to check the return as well; departure taxes vary wildly between airports.

This is basically brute force work, but if you're rich in Avios (or cheap Ultimate Rewards points), it's also a great way to travel around the world for next to nothing.

A few fun finds

These are literally just the first couple of options that jumped out at me in 30 minutes of clicking around using the exact procedure I described above:

  • Berlin-Abu Dhabi. 12,500 Avios in economy, 25,000 Avios in business (will be 37,500). $48.24 in taxes and fees outbound, $21.78 in taxes and fees return. From Abu Dhabi, continue on Etihad virtually anywhere in the world.
  • Dublin-Prague/Vienna. 7,500 Avios in economy, 15,000 (unchanged) Avios for intra-Europe business class. $51.90 in taxes and fees outbound from either, $68.25 return from Vienna, $53.86 return from Prague.
  • Madrid-lots of places!

Take Iberia everywhere, but beware Iberia weirdness

Once you get to Madrid, you have a ton of great options, but you need to beware of Iberia's intense weirdness. For example, here's an Iberia-operated flight to Tel Aviv booked with British Airways Avios:

Here's the same flight booked with Iberia Avios:

I'm not going to get into an argument about whether 7,500 Avios are worth more or less than $45.59 (more), I'll just point out that this Iberia flight, unlike ones departing New York and Boston to Madrid, incurs more taxes and fees using Iberia Avios than British Airways Avios.

When the Iberia devaluation takes place on April 1, and the British Airways devaluation on April 28, 2015, it'll become even more important to check, every single time, which currency makes your awards cheaper overall.

Here's another cool option to Moscow's Domodedovo airport, booked with British Airways Avios:

And the same flight booked with Iberia Avios:

Conclusion

Obviously these flights are only a small sample of those operated out of Berlin, Dublin, and Madrid by British Airways partners, but I hope they illustrate the possibilities of plugging together Avios flights as a way to navigate to, from, and around Europe. If you spot any other long-distance, low-fee gems, feel free to share them in the comments!

Fun with post-devaluation Avios for premium cabin redemptions

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In the last few years we've been flooded with airline rewards program devaluations. A few examples:

  • On the earning side, we've seen revenue-based earning on Delta and United. Alaska also reduced earning on Delta-operated flights, leaving American (and for the next few weeks US Airways) and the Alaska-American partnership the last major domestic distance-based loyalty programs.
  • On the redemption side we've seen increased United partner award costs, Delta's multiplication of award levels and close-in booking penalties, and British Airways' April 28, 2015, move to increase business and first class partner award redemptions from 2 and 3 times the cost of economy awards, respectively, to 3 and 4 times.

That last devaluation — increasing by 50% and 33% the cost of British Airways Avios redemptions in business and first class, respectively, got me thinking: when are Avios redemptions still cheaper than other alternatives?

The question is interesting because British Airways is by far the oneworld member it's easiest to earn miles with, as a transfer partner of both Chase Ultimate Rewards and American Express Membership Rewards, both of which offer bonus spending categories that make it easy to get big point balances with relatively little manufactured spend.

American Airlines, the other main oneworld member airline for US residents, is a transfer partner of Starwood Preferred Guest, but earning Starpoints is laborious at just one Starpoint per dollar spent with their co-branded American Express card and a transfer ratio of 1 Starpoint to 1.25 AAdvantage miles (if transferred in blocks of 20,000 Starpoints).

The big three transatlantic Avios routes

There are three transatlantic routes which, due to the distances and airlines involved, are often cited as key Avios sweet-spot redemptions:

  • airberlin flights between New York City and Dusseldorf or Berlin, Germany;
  • Iberia flights between Boston or New York City and Madrid (after transferring Avios to the Iberia Plus program);

  • Aer Lingus (not a oneworld member, but a British Airways partner) flights between Boston and Dublin, Ireland.

All three partners charge low or no fuel and carrier surcharges, and are on the higher end of their respective Avios distance bands such that your Avios take you farther than on comparable transatlantic routes that happen to be slightly longer.

Since these three redemptions are among the most popular routes for Avios redemptions, I thought it'd be interesting to compare similar redemptions using other points currencies (and, of course, cash).

Iberia: Boston and New York to Madrid

At 3,410 (Boston) and 3,589 (New York) miles in length, economy tickets on these routes cost 20,000 Iberia Avios each direction on flights operated by Iberia. Business class tickets currently cost 40,000 Iberia Avios, but on April 1, 2015, "Off Peak Season" redemptions will go down to 34,000 Iberia Avios each way in business class, and "Peak Season" redemptions will go up to 50,000 Iberia Avios each way in business. Learn more about peak season pricing here.

Outbound award flights incur about €76.20 ($80.83) in fees and charges, and the return costs about €110.53 ($117.25) in fees and charges. A brief scan of roundtrip business class fares shows nonstop business class flights from New York costing from $2649 and from Boston costing from $4672 (one-way fares are the same or higher), so in cash terms a roundtrip Iberia Avios redemption would yield:

  • BOS-MAD: 6.58 cents per Avios (Off Peak Season), 4.47 cents per Avios (Peak Season);
  • JFK-MAD: 3.6 cents per Avios (Off Peak Season), 2.45 cents per Avios (Peak Season).

Those are pretty good redemptions!

Of course, it's cheating to compare these redemptions to cash fares. We're travel hackers; we don't pay retail.

From the New York area, here are the additional non-stop, roundtrip business class award redemption options:

  • Delta. From 125,000 SkyMiles plus $52 in fees;
  • United. From 115,000 Mileage Plus miles plus $52 in fees;
  • American. From 100,000 AAdvantage miles plus $52 in fees.

From Boston, Iberia operates the only nonstop flight, so American (or, for the next few weeks, US Airways) miles are the only domestic airline miles you can redeem for that route.

airberlin: New York to Dusseldorf and Berlin

At 3,749 (Dusseldorf) and 3,968 (Berlin), these flights are knocking on the very top of the same band as the Iberia flights discussed above. They cost 20,000 British Airways Avios each way in economy, and 40,000 Avios each way in business. On April 28, 2015, business class redemptions will go up to 60,000 Avios each way.

Outbound flights incur $5.60 in fees and charges, and return flights incur $88.17 in fees and charges. Nonstop, roundtrip business class flights from New York City to Dusseldorf start at $3,067, while flights to Berlin start at $3,065. If we split the difference we get an Avios redemption rate of 2.48 cents per Avios for roundtrip itineraries in business class.

Besides Avios redemptions on airberlin, here are the other options on these routes:

  • United operates a flight between Newark and Berlin. 115,000 Mileage Plus miles and $89.80 in taxes and fees.
  • Lufthansa operates a flight between Newark and Dusseldorf. As a partner award, business class flights cost 140,000 United Mileage Plus miles and $91.90 in taxes and fees.
  • American (on airberlin). 100,000 AAdvantage miles and $91.90 in taxes and fees.

Aer Lingus: Boston to Dublin

Sneaking in at 2,993 miles, this route is pretty much what Avios were designed for. Economy flights cost just 12,500 Avios each way, and business class flights currently cost 25,000 Avios, going up to 37,500 Avios on April 28, 2015.

Outbound flights incur $34.17 in taxes and fees, while the return flight costs $74.08 in taxes and fees. Nonstop, one-way business class fares cost from $3,709 (this is the only route of the three discussed here with one-ways for half the cost of roundtrips). That gives you an Avios redemption value of between 9.7 and 9.8 cents per Avios. That preposterously high Avios valuation is actually borne out on this route, since I could identify no other airlines operating flights on this route.

However, Aer Lingus is a partner of United, as well as British Airways, which means it's technically possible to redeem Mileage Plus miles for the same route for 70,000 miles each direction in business class. In reality, since United and British Airways are both transfer partners of Chase Ultimate Rewards, it's literally never worth transferring points to United instead of British Airways in order to book the same Aer Lingus award reservation.

Analysis

As a transfer partner of all three major flexible points currencies, we're always going to be eager to redeem British Airways (or Iberia) Avios when possible, since they're so easy to acquire. With that in mind, here's the breakdown of these three key routes to Europe (all figures are roundtrip):

  • Aer Lingus between Boston and Dublin. Avios are a no-brainer, since this is British Airways' lowest transatlantic distance band, and any region-based airline partner is going to charge far more for the same flights. Even if you're flying on to mainland Europe, Dublin's a great place to start your itinerary, since you can get there for just 75,000 Avios roundtrip in business class.
  • airberlin between New York City and Berlin or Dusseldorf. Unless you're flush with American Airlines AAdvantage miles from credit card applications, you'll want to take advantage of the luxury of choosing between United, Lufthansa, and airberlin availability. At 115,000, 140,000, and 120,000 Ultimate Rewards points, respectively, all are great choices on this route.
  • Iberia between Boston or New York and Madrid. From Boston, this route is a no-brainer, since it's the only non-stop route to Madrid. From New York, again unless you're flush with AAdvantage miles, you'll want to look at your mileage balances and enjoy the luxury of choosing between Delta-, United-, and Iberia- operated flights between New York and Madrid, which clock in at 125,000 SkyMiles, 115,000 Mileage Plus miles, and 68,000-100,000 Iberia Avios, respectively.

Conclusion

I don't pretend that this analysis is definitive. I'm omitting important issues like transfer bonuses between Membership Rewards and British Airways that could substantially drive down the cost of even longer-haul flights on these carriers.

However, I've never seen a comprehensive analysis of the miles and cash cost of these routes before, let alone one taking into account the April, 2015, devaluations of both Iberia (April 1) and British Airways (April 28), so I'm happy to provide a first step in that direction.

Thoughts and criticism are, as always, welcome in the comments.

Understanding Alaska Airlines Mileage Plan earning activity

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I like to think there's a difference between loyalty programs that are confusing and those that are merely complicated. It's confusing how many Delta SkyMiles an award ticket will cost because Delta continually obfuscates and changes the number of SkyMiles required, while it's merely complicated to figure out whether a British Airways Avios redemption is cheaper when broken up with an intermediate stopover.

Since I'm relatively new to crediting paid fares to Alaska Airlines Mileage Plan, I wasn't familiar with their system of elite-qualifying-mile bookkeeping. I know that many of my readers are in the same position I am, aiming to keep or reach elite status with Alaska, so I thought it would be useful to share what I've found so far.

Crediting American Airlines flights to Alaska Airlines Mileage Plan

From the Alaska Airlines website, here are the rules for crediting American Airlines-operated flights to Mileage Plan:

"Elite Qualifying Flight Miles: Earned flight miles and premium cabin bonuses on American count towards Elite Status.

Economy Class Cabin: Earn actual flight miles* flown in B, G, H, I, K, L, M, N, O, Q, R, S, V, W, X or Y classes of service.

Business Class Cabin: Earn actual flight miles* flown in C, D, I, or J classes of service, plus 25% Bonus Miles.

First Class Cabin: Earn actual flight miles* flown in A, F, or P classes of service, plus 50% Bonus Miles.

*Earn 500 minimum miles on flights less than 500 miles. Actual miles flown = 1 mile per flight mile flown. O class of service accrues for flights taken on or after February 1, 2015. Miles may not be earned for tickets flown in E, T, U or Z classes of service. Some deeply discounted, and industry fares are ineligible to earn miles."

Since my American Airlines flights last week have finally posted to my Mileage Plan account, I can report that while these rules are followed, their application is unnecessarily opaque.

"Earn 500 minimum miles on flights less than 500 miles"

Here's the flight I was rebooked on from Reno to Los Angeles:

Since the actual miles flown was under 500 miles, I should have earned 500 miles, plus 625 bonus miles as an MVP Gold 75K elite. Instead, I was credited with the 390 miles actually flown and the "Bonus" column was "topped up" with the missing 110 miles, leaving me with the correct total number of miles.

"Earn actual flight miles* flown in A, F, or P classes of service, plus 50% Bonus Miles"

As I mentioned in a previous post, for my flight from Los Angeles to Dallas I was booked into the first class "F" fare bucket, which earns 50% bonus miles when credited to Alaska. Here's how that flight posted to my Mileage Plan account:

Here the third column reflects the number of miles actually flown, and the fourth column includes both the 50% class of service bonus and the 125% MVP Gold 75K elite status bonus. Importantly, the class of service bonus does not increase the base mileage to which the elite status bonus is applied: both bonuses are applied only to the base number of miles actually flown.

"Earned flight miles and premium cabin bonuses on American count towards Elite Status"

Here's where things get tricky: your total number of elite-qualifying miles is the number of actual miles flown (the entire third column), and the portion of the "bonus" column that represents 500-mile minimums and class of service bonuses.

The best way to illustrate this is another example. Here are all five paid flights I've credited to Mileage Plan this year:

And here's what my tier status counter looks like:

The elite-qualifying miles shown represent the sum of my actual miles flown (4226), the part of the "Bonus" column representing my 500-mile-minimum "top up" (501), and the 50% class-of-service bonus I earned on my flight from LAX to DFW (618).

Conclusion: Alaska Airlines elite-qualifying-mile earning is unnecessarily complicated, but fair

While I was credited with all the redeemable and elite-qualifying miles I was due for the 5 American Airlines flights I credited to Mileage Plan, Alaska doesn't make it trivial to verify those numbers. With just 5 flights I could check their math manually, but when that number gets up to 20 or 30 I'll be left taking their word that my miles are being allocated correctly (or keep my own running tally).

Yet another loyalty program trap: airline companion tickets

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In the last few weeks I've done a bit of a deep dive into the annual free night certificates offered by various co-branded hotel credit cards (IHG (and here), Marriott, Hyatt), with the general theme that a single annual free night certificate has to be looked at in the framework of your overall miles, points, and travel strategy.

For example, a $75 Hyatt free night certificate can either save you 8,000 Ultimate Rewards points if redeemed as part of a short Category 2 stay (good deal!), or cost you tens of thousands of Ultimate Rewards points if you let its presence in your account convince you to spend your vacation at a Category 4 Hyatt property rather than, for example, a Club Carlson property where your last night (or every other night, depending on your credit card portfolio) is free.

In other words, it's not enough to say the Hyatt Visa Signature credit card gives a free night when you pay the $75 annual fee. That "free" night might be very cheap or very expensive, depending on your travel plans and overall miles and points strategy.

Are airline companion tickets too good to be true?

Many airline co-branded credit cards offer an annual companion ticket, which are (with a few important exceptions) valid for economy travel in the continental United States and Canada, on flights operated by the issuing airline (excluding their partners and, in US Airways' case, their own sister airline American).

Here's a quick glance at some of those companion tickets:

  • Barclaycard US Airways MasterCard (for new and current cardholders in 2015 only): $99 plus taxes and fees for each of up to two companions traveling with the cardholder, when the cardholder purchases an economy ticket fare of $250 or more. Valid in the continental United States and Canada. $89 annual fee. You must pay with your US Airways MasterCard.
  • Barclaycard American Airlines Aviator Silver MasterCard (beginning in the second quarter of 2015): $99 plus taxes and fees for each of up to two companions traveling with the cardholder, when the cardholder purchases a ticket for $250 or more. The cardholder must spend $30,000 each cardmember year to receive the companion tickets. $195 annual fee.
  • Bank of America Alaska Airlines Visa Signature: $121 for one companion to travel with the cardholder, when the cardholder purchases any economy ticket. Valid systemwide on flights operated by Alaska Airlines. $75 annual fee. The primary cardholder must be traveling or the ticket must be booked with a card in the primary cardholder's name.
  • American Express Delta Platinum (economy) and Reserve (economy or first): pay only the taxes and fees for your companion when purchasing a ticket in eligible fare classes. Valid in the continental United States and Canada, except for residents of Hawaii, who can originate there. $195 (Platinum) or $450 (Reserve) annual fee. The terms and conditions state that the ticket must be paid for with your American Express Delta Platinum or Reserve card, although a reader reported that he was able to use a different American Express card.
  • Chase British Airways Visa: you pay only the taxes, fees, and fuel surcharges for a second award ticket in any class of service booked entirely on British Airways-operated flights, originating in the United States. $95 annual fee. The primary cardholder must be traveling.

Who are companion tickets right for?

I often write that there are only two reasons to even consider using travel-rewards-earning credit cards, rather than earning a straight 2% cash back using a card like the Fidelity Investment Rewards American Express:

  • You travel for work and have reimbursable business expenses;
  • Or you manufacture spend furiously.

That's because even if you (not unreasonably) value Membership Rewards, Ultimate Rewards, or Citi ThankYou points at more than 1 cent each, you have to earn a huge number of them to "make up" the $95, $175, or $450 annual fees incurred by premium rewards-earning credit cards.

The same logic applies to companion tickets. If you're reimbursed by your business or employer for your travel expenses, then the annual fees of these credit cards really might be cheap methods for bringing a travel companion on a domestic trip with you.

That's because when the cost of the revenue ticket is taken out of the equation, the credit card annual fees may be a relatively small fraction of the cost of paying for a second revenue ticket: $217 (Delta Platinum) is 25% of a $868 ticket, $210 (US Airways) is 25% of a $840 ticket, $196 (Alaska) is 25% of a $784 ticket. While those hypothetical prices are currently high for leisure fares (I haven't paid $784 for a domestic ticket in years), if your travel companion wants to come with you on a route heavy with business travelers, they're not inconceivable.

The problem with companion tickets

With that out of the way we can come to the crux of the problem: companion tickets are a bad deal because they require you to purchase a revenue ticket directly from the airline.

And if you're a travel hacker, that's vanishingly unlikely to be the cheapest method of buying tickets — even revenue tickets. Leaving award tickets completely aside, here are a handful of straightforward methods for buying revenue tickets on the cheap:

  • Redeem US Bank Flexpoints at up to 2 cents each, earned at up to 3 Flexpoints per dollar spent on charity. Maximum discount: 83.3%.
  • Redeem Citi ThankYou points at up to 1.6 cents each on American Airlines or US Airways flights, earned at up to 3 ThankYou points per dollar spent at gas stations. Maximum discount: 83.7%.
  • Redeem Chase Ultimate Rewards points at up to 1.25 cents each, earned at up to 5 Ultimate Rewards points per dollar spent at office supply stores. Maximum discount: 46.3%.

Compare that to a revenue ticket purchased directly from the airline, and a companion ticket paid for with your annual fee plus any required taxes, fees, or co-pays. Even the unusually high prices I cited above (with savings of 75% on the companion ticket compared to revenue fares) produce savings of just 37.5% when you're forced to buy the first ticket at retail price.

Exceptions worth considering

While the Bank of America Alaska Airlines companion ticket and the British Airways Travel Together ticket do have to be booked directly with their respective airlines (over the phone, in both cases), the terms and conditions of the tickets do not require them to be booked with the corresponding credit card. That means you can use a Barclaycard Arrival+ card to pay for both tickets, potentially securing a discount comparable to what you'd get booking using a more lucrative points currency.

Personally I prefer to use my Arrival+ miles for non-chain hotels and taxi and Uber rides, but if you're earning them cheaply enough, an Alaska Airlines or British Airways companion ticket might make sense — again, depending on your own miles and points strategy.

Is the Marriott Rewards Premier Visa free night certificate worthless?

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It's perfectly natural, when you're deeply involved in a hobby like travel hacking, to develop some intuitions that guide your decision making, shortcuts that let you quickly decide whether a given award redemption actually saves you money compared to other obvious alternatives.

One thing I love to do here on the blog is to dig into those intuitions and make sure the numbers behind them really do make sense.

Since this week I've been hammering on the Chase IHG Rewards Club and Hyatt Gold Passport co-branded credit cards, and the value of their annual free night certificates, I thought I'd finish out the week discussing a card I actually have (against my better judgment): the Chase Marriott Rewards Premier Visa card.

The card has an $85 annual fee, and each year cardholders receive one free night certificate, valid at Marriott properties in Category 5 and below. The certificate can be redeemed for any room that has standard award availability.

What I want to know isn't whether the free night certificate is worth $85, but rather whether it's worth anything at all. That is to say, based on the actual distribution of hotels within Marriott's reward categories, can I consistently expect to redeem my free night certificate at properties I actually want to stay at?

The release of Marriott's 2015 hotel category adjustments provides a good occasion to apply some data to this question.

Methodology

I travel primarily for leisure, primarily to cities, and want to stay as close to those cities' downtowns as possible. Marriott has a huge footprint of downtown hotels in cities around the world, so the question is how many of those hotels will be in Category 5 or below for reservations made after March 19, 2015.

Marriott Rewards divides the globe into 11 regions. For each region, I picked the 5 largest cities by population, and simply noted whether there was a single downtown hotel in Category 5 or below.

Results

This is the answer to a very specific question: how many of the top five cities by population in each Marriott region have a downtown Category 5 or lower property? In two cases, the definition of "downtown" is clearly disputable, which earned Seoul and Paris 0.5 points each.

  • United States: 1/5 (Houston)
  • Africa: 2/5 (Cairo and Alexandria)
  • Asia: 3.5/5 (Shanghai, Karachi, and Beijing. Seoul is a megalopolis which earns the Courtyard Seoul Times Square half a point)
  • Australia and Pacific Islands: 0/5
  • Canada: 3/5 (Toronto, Montreal, Ottawa)
  • Caribbean: 1/5 (Santo Domingo)
  • Central America: 1/5 (Tegucigalpa)
  • Europe: 1.5/5 (Madrid. Paris is a megalopolis which earns the easily accessible Category 4 and 5 properties half a point)
  • Mexico: 2/5 (Mexico City and Puebla)
  • Middle East: 2/5 (Riyadh and Ankara)
  • South America: 1/5 (Bogota)

Of 11 regions, and 5 cities per region, only 18 have Category 1-5 Marriott Rewards properties, or roughly 33%.

On the one hand, that's preposterously low to speculatively pay $85 on the off chance that a free night certificate in such a city will prove valuable.

On the other hand, if one of those cities is one you regularly need to stay at, you're in luck: the Chase Marriott Rewards Premier card will give you a free night there.