On the heels of the 2008 financial crisis, United Airlines was in free fall. After reporting a second-quarter loss of $2.7 billion, the company was facing massive layoffs and in desperate need of cash flow to lessen the damage. So it turned to Chase Bank. United pre-sold frequent flyer miles to Chase for a quick $600 million — enough wiggle room for the nation’s No. 2 airline to survive.
Pre-selling miles is a strategy that has worked for decades. But what happens during a global pandemic when travel grinds to a halt, causing multiple airlines to pre-sell miles and travel points, only for those points to sit unused? Inflation. The points begin to lose their value for the same reason the U.S. can’t simply print more money.
Prior to the pandemic, and before the airline industry received $338 million in public funding meant to prevent layoffs that happened anyway, airlines and banks had a symbiotic relationship in terms of pre-selling miles. Southwest, for example, could go to Chase Bank and sell hundreds of billions of its travel points for a quick billion dollars. What happens then? Chase has billions of miles it can dole out to cardholders with whatever terms the bank wants, explains Scott Keyes of Scott’s Cheap Flights.
Chase wants more people signing up for, spending money with and paying fees on Chase credit cards, so it uses the Southwest points to entice those potential new customers. “Southwest gets the quick injection of cash it needed,” Keyes explains, and “Chase makes a lot of money by getting people to sign up for the credit card.”
Keep in mind, too, that the miles have no real, regulated, locked-in value. “They’re just conjured up out of thin air!” Keyes says. “It’s not like frequent flyer miles are on a gold standard. It’s literally a fiat currency in the purest sense of the term.”
In normal times, the rates have stayed relatively stable. During a pandemic, when no one is traveling or spending money on new credit cards, things get a bit dicier. Suddenly, billions more miles are flooded into circulation, “and a lot of people have more miles that they can use to book flights with,” Keyes says. “More miles in the system leads to long-term inflation.”
Meanwhile, airlines still have the same amount of seats available, “and they don’t want to give away all their seats to these points that they’ve just thrown out into the ecosystem,” Keyes adds. “And the easiest way to restrict that, at least in the medium-term, is to inflate the award price and make it more expensive to fly.”
But this isn’t all coronavirus’ fault. For the past decade, Keyes says, airlines have shifted away from a “published award chart” with fixed costs for certain flights — such as 25,000 frequent flyer miles for any domestic flight — to a more dynamic system that’s more tethered to the cash value of the flight.
Had coronavirus halted flights five years ago, there’s a good chance you could’ve booked some super-cheap flights, but of course, that’s what the airlines were trying to avoid in the first place. Now, without a published award chart, it’s much easier for airlines to quietly change the cost of those flights.
That’s not to say points are totally worthless and that utilizing them for cheap flights is a thing of the past. In fact, Keyes says, cheap flights are still very much available. You just have to totally change everything you’ve learned about airfare up to this point, because the basic tenets of flight-pricing have flipped.
“Normally, in the before-times, booking a last-minute flight would be really expensive,” Keyes explains. “This is because business travelers tend to be the people who book those, and airlines know business travelers don’t care how much they’re paying, because the company’s paying. They’ll jack up the prices and gouge them as much as possible.”
In the past month, though, business travel is still very low, especially last-minute flights. “But leisure travel has started to pick up a little bit, especially from the bottom it had been, so instead of jacking the price on last-minute fares, they’ve slashed the price on last-minute fares.”
To that end, if you want to find a cheap flight, you’ll find it in a last-minute purchase, rather than purchasing tickets five or six months in advance. “There are more cheap last-minute flights available now than there have been in a long time,” Keyes says.
Basically, advanced bookings are few and far between. That makes sense: We have no idea how safe things will be later this year or even in 2021. Flights in the distant future, which used to be the cheap flights, are now expensive. Airlines know people buying six months in advance are “motivated travelers,” either business flyers who have an important meeting or people who might have a wedding or an event in the fall. As such, big travel times in the near future, like Thanksgiving and Christmas, are likely priced higher now.
But if you decide last-minute to see your parents next weekend, you could find a great deal, Keyes says.
If you’re not seeing major points inflation right now, that could change. When the airlines see a huge rush of people trying to book flights with miles, Keyes says, “they’ll say, ‘Oop, we gotta raise the prices, otherwise we’re going to have people flying for free instead of giving us new miles.’ And that’s when the inflation in the rewards points starts to happen.”
Does that mean you should cancel all travel plans for the rest of your life? Not necessarily — especially if you have points to spend. In fact, if you find a cheap flight, right now might be the best time to book given how desperate airlines are for business. “The upshot right now is airlines are being unusually lenient in their flexibility policies and not charging change fees,” Keyes adds. “They’re not doing it out of the goodness of their heart — they’re looking at how low their bookings are and trying to entice people to book new flights.”
At the same time, though, what’s the harm in arming yourself another excuse not to fly home for Thanksgiving?