15. The Value of Transferable Points Currencies

Welcome to Point Me to First Class, the only show for employed professionals, entrepreneurs, and business owners who are looking to optimize their higher-than-average expenses to travel the world. I'm your host, Devon Gimbel, and I believe that your expenses are your greatest untapped asset if you know how to leverage them. Ready to dive into the world of credit card points and miles so you can travel more, travel better, and travel often? Let's get started.

Hello everybody. I hope you're all doing amazing. Today, I want to talk to you all about the value and importance of transferable points. The reason I've been thinking about this is because something happened recently in the points travel world that was not a good thing and that highlights one of the downsides of points in general as a form of currency. 

What happened is that earlier this month, United Airlines, without any advance notice to its frequent flyer program members, increased its award prices pretty much across the board for economy and business class flights on United as well as partner operated flights on international flights. 

What this means is that it now costs more points for basically any international award flight booked through United. Not just a little bit more. Most award prices increased by about 33% with this current devaluation, but some increased in price by more than 55%. So an economy flight from the US to Europe that used to cost 30,000 United Miles now costs 40,000 United Miles. A business class flight from the US to Europe that used to cost 60,000 miles now costs 80,000 miles. 

Those points price increases are even worse if you're booking a flight on one of United's partner airlines like Lufthansa or Swiss Airlines where the points price for award tickets went up between 39 and 47%. If that sounds like a lot, that's because it is. After increasing the price of award flights to and from Europe, United then followed that up by increasing the points price for flights basically everywhere else as well. 

While this particular example of a points devaluation happens to involve United Airlines, this is by no means a unique situation. Particularly if you've been in the world of points travel for a few years or longer, you'll know that airline frequent flyer programs do this sort of thing. They reevaluate their award prices and change them, usually by increasing them sometimes by a little, sometimes by a lot, sometimes with advanced warning, and sometimes with no warning, like what we saw with this most recent devaluation through United.

So the first thing that I think is relevant to know is that if you're newer to collecting and using points and miles for travel, the question is not if airlines will raise their award prices on flights or change their programs in other disadvantages ways. It's more a question of when it will happen. I don't mean for that to sound all doom and gloom because there still are a lot of great opportunities to use points for travel. 

But this most recent points devaluation makes it a good time to talk about one of the best ways that you can protect yourself against collecting a form of currency, which points are, that isn't an entirely stable form of currency. So let's look at who gets disproportionately negatively affected when an airline undergoes a points devaluation, and then talk about what specifically you can do to mitigate the impact of this type of thing before it happens. 

Because even though we don't know exactly what it will look like the next time it happens, it is highly likely that in the future, another points devaluation will occur. Whenever a loyalty program makes these types of changes that effectively decrease the value of their points or miles, you will be disproportionately negatively affected if you have all or a majority of your points within that one loyalty program. 

Now, that may sound obvious, but let me break this down a little bit more. Points come in two main types. They're either fixed, or they're transferable. Fixed points currencies are points or miles that you earn within a specific airline or hotel loyalty program that can only be used or redeemed for travel within that program. United Airlines miles are a perfect example of a fixed points currency. So are American Airlines miles, Delta miles, Alaska Airlines miles, or Emirates miles, and so on. 

Within hotel loyalty programs, big hotel chains like Hyatt, Hilton, and IHG also have fixed points. When you earn Hyatt points, you can only redeem them for stays at Hyatt properties. You cannot book a Hilton hotel stay with Hyatt points or vice versa. When you earn miles or points within a specific airline frequent flyer program, those miles and points are fixed within that program. Meaning you cannot move those miles out to a different airline in order to book points flights. 

It doesn't matter how you earn these airlines specific points or miles. It can be from actually taking a paid flight with that airline. It can be from earning miles through a shopping portal or dining program affiliated with that specific airline, or it can be from putting spend on an airline specific credit card like a United credit card or a Delta credit card. 

Once you earn miles within a specific airline frequent flyer program, those miles live in that program and can't be moved anywhere else. So when you go to redeem those miles, your options will be limited to using them within that specific airline frequent flyer program to book flights, either on the operating airline itself or on one of its partners. 

For United Airlines, that means that any United Miles you have can be used to book a flight that is operated by United or any of the airlines that it partners with like Lufthansa, Turkish Airlines, or Austrian Airlines as long as those partners have released award flight space to United. 

But here's where things get sticky if you've a lot of miles that are sitting in an airline specific frequent flyer account, like United. Number one, if and when that airline decides to reevaluate their points prices for flights, which basically always means they devalue their points by raising the points prices for flights like we just saw with United. Then all of those miles that you have in your airline account suddenly are worth less, potentially a lot less. That is really disappointing when it happens. 

Number two, even when that airline frequent flyer program has not devalued their points, having a bunch of fixed points or miles that are tied to a specific airline frequent flyer program limits your options for using points or miles for flights. The reason that having fixed points or miles currencies is limiting is because in order for you to be able to use your airline specific miles to book a flight, there has to be award availability present within that specific frequent flyer program. 

You can have 300,000 United Miles, but if you want to fly from the western US to Southeast Asia, and United doesn't have any points flights available for you to book the days that you want to travel, or if they do but they're charging 400,000 miles for a round trip business class flight then you don't have any other options. 

It doesn't matter if a different airline like Singapore Airlines has a round trip business class flight available to book for 214,000 miles. If you have United Miles or any other fixed points or miles currency, you're limited to using your miles on whatever flights are available to book through the specific airline program that you have your miles with. 

The opposite of fixed points or miles currencies are what are called flexible or transferable points currencies. Transferable points currencies are the points that you can earn in one of five main bank points ecosystems. There are Chase Ultimate Rewards points, American Express Membership Rewards points, Citi Thank You points, Capital One points, and Bilt points.

Flexible or transferable points are earned by points earning rewards credit cards issued by these main banking systems. Unlike fixed points, they don't live in a specific airline or hotel loyalty program. Instead, transferable points live in your credit card account. 

What makes transferable points so powerful is that you aren't limited to using them through one single airline or hotel loyalty program when you want to redeem them for travel. They're called transferable points because you can actually transfer them out of your credit card account and into the loyalty account of any airline or hotel loyalty program that is a partner of the type of transferable points that you hold. 

Each of the major transferable points currencies has a menu of multiple airline and hotel loyalty programs that you move your points into in order to book flights or hotel stays. So instead of earning miles within a single airline frequent flyer program, like United, and only being able to use those miles to book flights through United's program. 

When you have transferable points like Chase points, you actually have access to transferring those points out of your Chase account and into 11 different airline frequent flyer programs. American Express has 17 different airline transfer partners that you can transfer your Amex points to in order to book and award flight using points. 

So one main advantage of earning transferable points over fixed airline or hotel specific points is that it allows for diversification of your points currencies. When all of your points or miles are concentrated in one airline or hotel loyalty program, the negative impact of a points devaluation within that program is high because you don't have anywhere else that you can use those miles.

In contrast when you have points in a transferable points currency, like Chase points or Bilt points or Capital One points, the negative impact of a points devaluation in one airline or hotel program is much lower because with your transferable points, you still have access to 10 or more other airline or hotel programs where you can use your points. This is the same exact concept as having money to invest and putting all of it in one single individual stock versus investing it in a total stock market index fund.

When all of your money is invested into a single individual stock, the impact of that stock losing value is much, much higher than if you've invested in a total stock market index fund where the impact of that one company losing value is balanced out by the performance of all the other stocks in the fund. 

So compared to fixed points currencies, the transferable points currencies have the advantage of diversification when it comes to the number of airline or hotel loyalty programs you have access to in order to use your points for travel. That diversification is protective in the event that one airline undergoes a points devaluation because you can instead use your transferable points with the other airline transfer partners of your transferable points currency.

What is better than earning a bunch of United Miles is instead to earn a transferable points currency that has United Airlines as one of its transfer partners, but also has access to a bunch of other airlines as well. For example, both Chase Ultimate Rewards points and Bilt points can be transferred to United Airlines, but they can also be transferred out to an additional 15 other airlines between the two of those programs. 

So the impact of this recent devaluation of United Miles by United is much less significant if you have Chase points that can be used to fly to Southeast Asia through Air Canada Aeroplan or Singapore Airlines, or if you have Bilt points that can be transferred to American Airlines to book flights, for example.

Here's another way to think about this. Having airlines specific miles that can only be used within that single airline frequent flyer program is like needing a coat but only having a single store that you have access to, to go shopping at, like say Neiman Marcus. Neiman Marcus may be a great store. But if you can only shop there, your options for a coat are going to be limited by their inventory and whether they have the coat you like in your size. 

Furthermore, if shopping at Neiman Marcus is your only option, you won't be able to price compare if you do find a coat that you love because buying it from Neiman’s would be your only option. You would just have to pay whatever Neiman Marcus is charging for that coat if that's the one you want. 

But instead, imagine that equidistant from your house as Neiman Marcus, there's an entire huge shopping mall that has tons of stores, including Neiman Marcus, but also Macy's, Nordstrom, Bloomingdale's, and some smaller specialty clothing stores. If your options are to go buy a coat either by shopping at Neiman Marcus by itself, or by heading the other direction to the mall where you can shop at Neiman Marcus but also 10 other stores that carry coats, the likelihood of finding what you want is much higher at the mall. 

Also, if three different stores at the mall carry the same coat that you want to buy, you have the added advantage of price comparing and buying it at the store that's offering it on sale or at the best price. The same thing holds true with award flights that can actually cost different amounts of points when booked through different frequent flyer programs. 

Now, I recognize that the vast majority of us probably don't do any shopping in real stores anymore and instead prefer to order everything under the sun from Amazon or other internet retailers. Ideally through an online shopping portal to earn extra points and to pay with gift cards that we've purchased at grocery stores or office supply stores for added points earning, but you get the idea. Transferable points currencies have an advantage over fixed points currencies because they offer more flexibility when it comes to the ways that you can use them to book flights. 

Finally, transferable points currencies have the added advantage over fixed points currencies have oftentimes offering higher points earning potential with their rewards credit cards than using airline or hotel specific credit cards. That's because outside of using an airline specific credit card for airline specific purchases, like buying flight tickets, airline specific credit cards tend to have pretty abysmal points earning potential. Often offering only one point per dollar spent on almost every category of spend. 

This is in contrast to transferable points currencies that have a plethora of rewards credit cards that allow you to customize a credit card portfolio to take advantage of cards that offer two, three, or four points or more per dollar spent on a much larger range of expenses than airline specific credit cards offer. So even if you are loyal to United Airlines, for example, you can actually earn more Chase points with Chase Ultimate Rewards points earning credit cards and then transfer those points to United than you could earn by putting all those same expenses on a United credit card. 

So here are the key takeaways from today's episode number one, the value of points in miles is not guaranteed. Airline and hotel loyalty programs periodically do review and consequently lower the value of their points or miles, making it more expensive for you to use points or miles to book flights or hotel stays. United is just the latest example of a loyalty program devaluing their miles. 

Number two, given that loyalty programs can and most likely will continue to reevaluate and potentially devalue their points and miles. For most people, it is better to focus on earning flexible or transferable points currencies, rather than fixed airline or hotel specific points currencies. 

That is because number three. Flexible or transferable points currencies have the advantage of diversifying your points portfolio so that individual loyalty program devaluations have a smaller impact on your overall ability to get great value from your points, and have the advantage of having more flexibility by giving you lots of airline and hotel options where you can redeem your points for travel rather than being limited to having your points fixed to a single loyalty program. 

Finally, number four, flexible or transferable points currencies have the added benefit of oftentimes allowing you to earn more points for the money you're already spending than putting those expenses on an airline or hotel specific credit card that tend to have lower points earning ability. 

So, friends, if you currently have the majority of your points or miles in a fixed points currency that is tied to one specific airline or hotel loyalty program, and especially for those of you who have the majority of your points in United's frequent flyer program and maybe acutely feeling the sting of their recent devaluation, I hope today's episode will help you to strategize your points plan moving forward by highlighting the importance and the strengths of transferable points currencies. I'll see you here again next week.

Thank you for joining me for this week's episode of Point Me to First Class. If you want more tips on turning your expenses into travel, visit pointmetofirstclass.com to learn more. See you next week.