Why will there always be another deal?

I like to say that “every deal dies, but there will always be another deal.”

I think most travel hackers of ordinary intelligence understand why every deal dies. If you think of each deal as being designed with some average cost per user in mind, then the two inputs are the expected total cost and the expected total number of users taking advantage of it. If and when a company realizes those expectations were wrong, they look for ways to bring it back into balance, either by reducing the cost per user (devaluations and fee increases) or reducing the number of users (shutdowns and per-user limits).

Obviously this can take a long, long time, either because of incompetent program management, government regulations, or simply low uptake. Even a program that’s hemorrhaging money on a per-user basis can last for a long time if so few people know about it that it takes the company months or years to notice. If a promotion was the brainchild of an ambitious middle manager, they may even realize it’s over-budget but delay admitting they were wrong as long as possible — time that belongs to us.

That crude model (deals die faster the sooner and more expensive they end up being) doesn’t explain the other side of my formula: there will always be another deal. If every deal dies, then one thing you might expect is that the people who kill them will learn from experience and get better and better at developing deals that are more profitable for their companies than they are for us. The people who pitched unprofitable deals will get fired or reassigned (or promoted) to a role where they can do less damage.

But that hasn’t happened. I’m hardly an “old-timer” compared to some folks in the community, but in the 15 years I’ve made it my hobby, for every deal that has died (that I know about — an important caveat in a tight-lipped community) another deal has come up. Sometimes the new deal is less profitable and sometimes it’s more profitable, but it’s always there.

Some people don’t notice this because for a casual travel hacker, especially people who “just have one deal,” the end of their first deal is the end of their travel hacking career. For a lot of people who started around the time I did, that deal was easily-purchased and -liquidated Vanilla Reload cards at bonused merchants like office supply stores and drug stores. For others it was when money orders became too onerous to purchase at Walmart with prepaid debit cards.

I have a family member who earned the Southwest Companion Pass for 3 or 4 years using signup bonuses and manufactured spend. He saved tens of thousands of dollars on Southwest flights, and when he lost access to those deals he said “that’s it for me” and walked away. And good for him!

“When the fun stops,” as the Vegas casino industry slogan says.

It is extremely profitable to borrow, lend, and use money

Travel hacking is a middle-man business. What drives the creation of new deals in the American market is that the “middle” is enormously profitable, so there are plenty of slices of it to cut off.

A popular article circulated back in 2024 laying out one part of that process, specifically about credit card rewards. I don’t know the author and can’t vouch for the specific numbers he uses, but the general idea is obviously correct:

“The heaviest credit card spenders…are wealthy and sophisticated. They use credit cards primarily as payment instruments. Issuers compete aggressively for their business, which is quite lucrative. This is not because they pay much in interest, because while they have higher headline APRs they only rarely revolve balances. It is because ‘clipping the ticket’ via interchange on a high volume of transactions is an excellent business to be in.”

It’s a cliche that "every business has to accept credit cards now,” but that isn’t true. There’s a beloved grocery store in Wisconsin that only accepts debit cards and, for whatever reason, Discover credit cards.

What people really mean is that most businesses choose to accept credit cards in order to stay in business, that is to say, in order to turn a profit, ideally as large a profit as possible. A business that didn’t accept credit cards would have fewer customers, but that would be an obvious tradeoff to make if businesses were consistently losing money on credit card transactions.

The reason businesses accept the interchange fees they’re constantly complaining about is that businesses are very profitable. Credit card processors take a piece of that profit, credit card companies take another, and there is still enough left over for us to take yet another piece of it in the form of third-party and in-store rewards.

As long as business is profitable, there will always be excess inventory

It’s an old cliche that a plane ticket is a product that becomes more and more valuable over time (since last-minute bookers are more and more desperate as seats get scarcer and scarcer) until it expires worthless (when the plane takes off with unsold seats). But while airline tickets, rental cars, and hotel rooms are convenient illustrations, the same process applies to virtually all retail inventory.

The most expensive day to buy new clothes is at the beginning of the season, because that’s when clothing companies know the clothes are most valuable to you. The cheapest day to buy new clothes is during end-of-season sales when stores are trying to unload spoiling merchandise from the previous season.

It’s true in technology, too: Apple charges the most for new smartphones and computers on the day they’re released, and eventually starts giving them away to clear their shelves before the next generation of hardware is released. A two-generation-old iPhone is as worthless a use of shelf space as a two-week-old banana or a flight that departed two weeks ago.

All inventory is constantly spoiling, and all companies are desperate to get rid of it the second it hits their shelves.

What would really stop new deals from arising?

In one sense, these laws are relatively constant under capitalist conditions. Grocery stores in Europe have loyalty programs because their bananas spoil just as quickly as ours do and they too need to get them off the shelves before they expire worthless. That’s what those weekly grocery advertising inserts have always been for. Grocery stores give away turkeys around Thanksgiving because they don’t want to be left with frozen turkeys the day after Thanksgiving, when Americans stop eating them.

Airlines and hotels in Europe are just as eager to get paid something - anything! - for their last-minute vacancies as ours are, so they operate loyalty programs and let people redeem their points for spoiling inventory. Hotel Tonight is still a going concern after all these years.

But the variations you see across borders do illustrate how conditions would need to change to keep new deals from coming up.

• Interchange fees. The fees merchants pay when you swipe rewards-earning credit cards pay for the benefits we receive. But they also pay for the rewards programs we take advantage of being worth operating in the first place. Lower interchange fees would cause credit card companies to reduce points earning as a first-order effect. But they’d also reduce the total number and the price of points credit card companies are willing to buy from their travel partners, and reduce the value of the partnership to those travel partners. American Express is Delta’s biggest customer because they know they can resell the points they buy from Delta to us at a profit thanks to interchange fees. If interchange fees dropped, they’d sell fewer points to us (for example, by changing earning rates) and buy fewer from Delta.

• Profit margins. I have a relative who worked at Best Buy in the early 2000’s, and he used to rave about his employee discount. He bragged about how he could get us 80%, 90%, or 95% off. But that’s not actually how the discount worked. It was what he called a “cost-plus” discount, so he paid 5% over the amount the stuff cost Best Buy wholesale. For screws, cords, wires, all the stuff that littered the aisles of Best Buy back in the 2000’s, it really was a 95% discount because Best Buy didn’t pay anything for that crap. But if you asked him about a new refrigerator, the discount was just 2-3% because the manufacturers of heavy residential appliances drive a harder bargain with Best Buy than the manufacturers of cheap plastic crap do.

Conclusion

The reason I say there will always be another deal is that I don’t see any chance that any of these conditions will go away in the American market any time soon.

Meaningful credit card rewards would go away overnight for most retail customers if the government capped interchange fees, which is why there is a credit card industry lobbying campaign to make sure that doesn’t happen, with the support of consumer-facing ghouls like Gary Leff.

But no part of this system functions without the very high profit margins of the US retail sector. No matter what you’re discounting, there’s no business in any industry that can afford to sell everything it makes for less than it paid for it forever. Fortunately, those very high profit margins are the backbone of the US economy and we have an economy-wide, all-of-government effort to ensure they stay as high as possible as long as possible.

And that is why even when a deal gets so profitable, so popular, so saturated that a higher-up does finally decide to kill it, it has never given me the slightest reason to believe there won’t be another one, because the underlying conditions that gave rise to deals in the first place have not changed.

Interchange fees make generating credit card transactions just as profitable as ever, and profit margins make it as profitable as ever to get people in your store, taking spoiling inventory off your hands.