Loyalty Program Devaluations Push Spenders Into Cash Back Credit Cards

Congratulations, you now have 180,000 points – but sorry, they won’t get you much more than one night of hotel, or a single flight. Despite a global pandemic and added competition from enticing cash back credit cards, a variety of airline and hotel loyalty programs continue to “devalue” their loyalty points.

All things in life encounter a tipping point, and for many consumers, loyalty programs may have pushed past equilibrium, and may be forcing the hand of the very customers they’re in desperate need of, to return to the simple, reliable method of earning cash back for their spending, rather than “points”.

There are exceptions, sure, but with uncertainty around future travel plans, many eager points enthusiasts are moving away from the promise of champagne in the sky, and back to real cash in hand.

Loyalty Program Devaluations Drive Away Key Spenders

Did you know that on average, loyalty programs are worth up to 3x more than the actual business they operate in support of. Planes, hotels and the things that come with them are expensive, but points and loyalty data are cheap. It’s been proven in recent valuations of United, American and many others.

One can’t exist without the other, but the belief that loyalty programs are a waste of time has been disproven during the pandemic, as airlines and hotels mortgaged their points programs to raise cash for the actual business. These days, they are the only part of the business generating cash.

But sadly, short sighted CEO’s and program leaders are trying to compensate for lack of cash elsewhere in the business by squeezing too much juice out of loyalty programs, which translates to making it harder for members to get great value for their points.

Squeeze much harder, and people may not bother with either!

That behavior seems to be driving people away from not only the business, but the loyalty program too.

Valuation of loyalty programs are often based on the lucrative credit card agreements they have, which earn the programs money every time you swipe your branded airline or hotel credit card, so driving people to clip their card and start earning with cash back may not be the brightest idea.

Hilton & IHG “Lead” The Way

Hilton recently launched enhanced bonuses on their US credit card products, offering up to 180,000 points as a welcome bonus. If that sounds like a lot of points, it should! In some loyalty currencies 180,000 points would be enough for multiple business class flights, or nearly a week of five star hotels.

Thanks to recent Hilton devaluations, it’ll get you one night at one of their highest tier properties, which in the last two years went from a maximum price of around 90,000 points per night, to 150,000 points per night.

As one data point, GSTP planned extensive coverage of these new increased bonuses, but couldn’t write any in good faith, with the “bait and switch” feeling caused by the heightened bonuses in the same week as a points devaluation.

The goal posts keep changing. Loyalty points are unregulated currencies, with no guarantees, and people are getting tired of it.

Not to be outdone, IHG recently made a similar “no notice” devaluation, which raised the price a hotel can charge per night in points, going well beyond previous highs. In the world of airline loyalty programs, stealth devaluations and the entire removal of goal posts has become the norm.

Regulation almost assuredly isn’t the answer, but voting with feet and wallets should be. When people have been pushed too far, and can no longer easily quantify value received from a credit card or loyalty proposition, versus cost to participate, it’s time to move on.

How does a flight on Delta between New York and London cost in business class using points? No one knows, because there’s no “baseline” value. The answer is whatever the computer offers for your dates and times, and that can range from around 80,000 points one way to 500,000. It’s quite hard to plan anything special.

To Delta’s credit, the airline has established a quasi “cash back” floor to their points, which allow people to get at least 1 cent of value per point, where 100,000 points is equal to $1000. That’s a meaningful “minimum value” indicator.

Cash Back For Cash Wins

It’s no secret that airlines and hotels are in dire financial positions for the most part, and that good deals for both flights and hotels are going to be around for years, until a meaningful comeback is in the cards on a global scale. Seeing scenes from around the globe, that may take longer than hoped.

That means aspirational experiences, such as business or first class flights, or five star hotels will be more affordable with cash now, than in the recent years leading up to the pandemic.

Spend more time staying on top of great flight and hotel deals, and you can get better value from cash back.

With more opportunities to earn meaningful cash back, via cards like Chase Freedom, Citi Double Cash, Capital One Venture, Bank Of America Rewards, Amex Blue Cash and other leading cards, and the flexibility of using the points whenever you want, for just about whatever you want in travel and other fields, many people are switching over from loyalty focused credit cards, to cash back wins.

Plus, this opens the avenue of using points more broadly, for things like offsetting the cost of an Airbnb, VRBO or other home stay options, which are rising in popularity.

Points programs with major banks like Amex, Citi, Chase and Capital One offer a hybrid of cash back options, but also the option to convert points into a variety of airline and hotel loyalty programs, rather than those which lock all the points earned via spending into only one specific loyalty program.

GSTP Take: Loyalty Is Earned

Once you’ve done a “bucket list” points redemption, like Emirates First Class or an overwater villa in the Maldives, you realize that “ease of use” and anything better than average is “good enough”.

Being able to book a nice hotel and save a bunch of cash with cash back, or points via a credit card portal, like Chase Ultimate Rewards or Capital One Venture allows you to use miles at decent rates, with no blackout dates, or only a limited number of seats.

I quite often use my points to cover some of the cost of my travels, rather than all, via credit card travel booking portals.

For example, I’ll use Chase Sapphire Reserve points at 1.5 cents per point towards travel, to make a $1500 business class ticket into a $500 business class ticket. 67,000 Sapphire Reserve Points will get me $1000 of value off any travel experience through Chase Travel.

I’ll take that ease over finding a points seat which earns nothing back any day. I’ve done the bucket list, and now just care about going when I want to go, at a price I can stomach. Since these purchases count as cash, I’ll still earn airline miles, so it’s not like I abandon loyalty programs entirely.

Sure, in a hypothetical world, I could get more value by saving my points for that one random date of a random month where first class is available, giving me almost 10 cents per point of value, but it’s usually not what I need, even if it’s always something people may want.

Hybrid Credit Card Programs Make Sense

GSTP has always advocated to put the lions share of spending into credit card programs, such as Capital One Venture Miles, Citi Thank You Points, Chase Ultimate Rewards or Amex Membership Rewards.

These programs can allow you to use points as if you’ve been earning cash back, but also to transfer to airline or hotel partners, when it makes sense to do so. Yet unlike any other options, the points rest safely in this “central bank” of sorts, safe from massive devaluation.

As Amex Platinum, Chase Sapphire Preferred (with $1000 in intro offer value), Capital One Venture and other cards take these hybrids to new heights, it’s getting harder and less reasonable to justify significant spending with cards from airlines or hotels prone to devaluation, often without notice.