Posted on April 8 by David Laidlaw
Currencies are mediums of exchange which allow individuals to obtain goods or services. Value is stored in the currency so that direct barter is not necessary for each particular transaction. In earlier commentaries, we have written about Bitcoin since it is a new electronic currency which has garnered attention over the past couple of years. However, there is another alternative category of currency that is far more prevalent. This currency is reward points or airline miles.
Frequent flier programs are worth billions of dollars and many travellers purchase their flights with award points alone. The airlines typically report that 5-10% of their seats are purchased with frequent flier miles in their financial filings.
Airlines, hotel chains and credit card companies have created these benefit programs to foster customer loyalty. Loyal customers are more likely to use that particular brand compared to others. Loyalty programs also enable extensive data collection. Interpretive algorithms then allow brands to craft individualized offers to their best customers which drives additional business.
Brian Kelly has built a business providing consumers advice on how to maximize the value of points through their purchasing decisions. His website is thepointsguy.com. The basic strategy is to register for as many rewards programs as possible and link those programs to a particular credit card account. The credit card is vital since it dictates the level of points earned depending on the particular type of spending. Different spending patterns indicate whether or not one card is superior to another. Someone interested in maximizing the efficiency of his or her gasoline purchases would use a different card from a consumer who wanted the best deals on luxury travel.
The complexity of the strategies is mind boggling. The “Beginner’s Guide” section of the website appears more similar to a PhD level course than an introductory class. Maximizing the benefits of one’s purchases requires very strong organizational skills and executive functioning.
In Up in the Air, a novel written by Walter Kirn and produced as a film in 2009, the main character, Ryan Bingham, strove to earn 1 million frequent flier miles while travelling for business. Ryan worked as a consultant helping corporate America downsize (read: fire) its workforce. Both the novel and the movie satirize the modern business consultant and the aimless life he lives with the symbolism of obtaining frequent flier miles as the ultimate fool’s errand.
My viewpoint is not as critical. From a financial standpoint, I believe there is value in making better purchasing and credit card decisions. We are all spending money daily, so there is no harm in doing it more skillfully. Using points may also allow someone to splurge for small luxuries for which he or she would not spend cold hard cash. However, a point of diminishing returns could be reached fairly quickly. I don’t believe personal spending should be increased just to get a better “deal.” Spending is spending and nobody saves money by spending more to get a lower price on individual items bought. Also, the amount of time spent to achieve a certain level of points could easily not be worth the time invested.