Sunday, May 4, 2008

Why it's unwise to stash away frequent flier miles

By Mike Grasso
(reposted from March)

If you think the interest rate on your savings account is bad, take a look at the rate of interest you earn on frequent flier miles; none. Mastering the art of miles accumulation through travel or everyday chores such as shopping, eating out and drying cleaning is great, but if you simply let your miles build en masse without redeeming them, you're loosing value day after day.

Allow me to illustrate: Visualize your mass of miles as a lake, with a constant flow of fresh water (miles) pouring in. The lake is enormous, with plenty of room to waterski, fish and swim. You have bragging rights to this heap of water. It's all yours! Your earned it. But then suddenly, the dam that has kept all the water (your miles) in place, begins to let the water drain out. Sometimes the release is a few drops, other times it seems the water is pouring over the dam. In this analogy, the dam is the frequent flier program, or more specifically, the airline running the program.

You see, for every opportunity the airline offers you to accumulate miles (inflow into the lake), the airline equally controls the value and redemption opportunities of miles (outflow from the lake.)

How it works: Airlines are slimming down. They are thinning domestic flight schedules, forcing more passengers on fewer flights. The end result is fewer seats available to use your hard earned frequent flier miles on.

How it works: Each year airlines review their program and adjust the miles requirement for certain trips. With few exceptions, 25,000 miles is the standard in earning a free trip within the domestic U.S. But, the airlines have hiked up mile requirements for flying first class, or flying to some international destinations. When was the last time you heard of an airline lowering the miles required to earn a free flight? So as your mountain of miles grows, the airline simply changes its policy on how many miles are needed for redemption.

How it works: Many airlines such as United and American now charge a fee for redeeming your miles "last minute." So if you're having difficulty finding a seat in advance (for the reasons stated above), you might find a seat open up a week or two before the departure date. It's yours - but that free trip will actually set you back $50-$75 for booking "last minute."

Be Smart:

  • Don't spread your miles across many different airlines. Find a favorite airline or alliance and stick to it the best you can.

  • Don't let your miles sit stagnant, use them before they become devalued.

  • If you can't find seats available to use your miles on, keep trying. Seats sometimes open up in the overnight hours when temporarily held tickets never get purchased.

  • Monitor inFLIGHTout, flyertalk or other travel blogs to keep aware of pending changes in frequent flier programs

  • Maximize your mile redemption's; on International flights, some airlines allow a free stop-over or open-jaw routing.