Changing of the Guard?

For years, miles and points have been the best currency when it comes to travel. Cash back was always an after thought, but as banks increase the cash back earnings and airlines make changes, have we seen a changing of the guard?

Changing of the Guard?

Airlines Devaluations:

This shouldn’t come as a surprise to anyone, but airlines make “enhancements” to their programs yearly.  Well unless you’re Delta then you just do so when you want. With each passing “enhancement” we see less of a return with it comes to points/miles.

Sure, we can put our efforts into earning flexible currency, which do protect us. When all of those partners make changes, well you lose that benefit, no?

About a week ago, I read about Delta’s error in adding fuel surcharges on their award flights originating in the US to Europe. I’m not confident it was a true error, but I have no knowledge of this. I think we will see them roll this out within the next 6 to 8 month

Also, it seems the other US airlines love to follow Delta’s lead. I wouldn’t be shocked if both United and American make this same adjustment within a year of Delta making this possible change. It seems United follows first, then American but let’s see how long it takes them to roll this out.

Singapore Airlines just devalued their award chart and I am sure we will hear about a few more in the upcoming months. Including my hunch the Southwest Companion Pass is going to be harder to earn, especially with Southwest flying to Hawaii soon.

This calso omes after reading about British Airways and Flying Blue looking to make their award tickets revenue based. If that actually comes true, then we can probably kiss those sweet 4,500, or 7,500 Avios flights goodbye.

By airlines looking to change their awards based on the price of a ticket, this reduces their value.

Dynamic Award Travel

An increasing number of airlines are doing this and I believe this is the future of award travel. We can already see it happening and we will see more airlines tie the amount of miles needed for an award to the cost of a ticket.

This could be done in the model like Southwest or Jetblue, or it could even be done like Delta, where they use whatever they want for an award price. Either way, this isn’t going to be good, especially for you business class travelers out there.

This affects us coach travelers to a lesser extent, because we see devaluations at a slower rate. This doesn’t mean we aren’t going to be affected by this at some point. Especially with the rise of Basic Economy.

What is great about (many) award charts now, is the amount of miles will be X, regardless of the ticket price. Which also gives people/bloggers an inflated value to their points.

Remove the charts, or tie the points needed to the ticket and it won’t look as appealing redeeming for 1.5 cents per point for business class ticket that cost 187,000 points, right?

Sign-Up Bonuses:

Any person who plays this game or even thinks about playing this game will tell you the sign up bonuses are key. For some of these cards, a 50,000 points  is the same as spending $50,000 in a year, but they give you that after a $3,000 to $4,000 spend when you sign up.

As we see banks come up with more rules and restrictions, these bonuses are becoming harder to come by. There are still TONs of options out there, but in general things are becoming more difficult for approval. I hope you had your long term strategy in place when you were opening cards!

The Chase 5/24 rule, Barclay and US Bank are always tough, Bank of America seems to be harder on their new card. American Express has a whole team dedicated to stopping this, and don’t even try buying gift cards to meet your spend, those issues are well documented.

Take away the sign up bonuses, throw in dynamic awards,  and needing to spend $85,000 to earn business class ticket doesn’t sound fun.

Lower Ticket Prices:

I think we can really thank increased competition from lower cost carriers for this one.

Ticket prices are dropping, it seems always normal to find an airline ticket to Europe for $300-$400. When you look at recent deals to Asia as well, there are many sub-$500 fares from the US. Just over Black Friday, Emirates had a pretty good sale from New York to Athens for roughly $400.

If you look at website like Airfarewatchdog, Secret Flying, Airfare Spot, and others, they do all the hard work for you for finding great deals. You just need to jump on these when you see them.

These are for coach fares though, but I would think sitting in coach is worth it if it takes me to see a new place. Occasionally there are business fares, but most are coach.

Finding a good deal is no longer a difficult task. You can just go over to Google Flights, type in your airport, select the days you want to fly, and you can see prices across the world. This will show you the deals that you can take advantage of.

Cash Back Advantages:

The biggest down fall for cash back cards is the lack of a sign up bonus, or lack of a big sign up bonus. If you look beyond the sign up bonus, the daily returns can be quite large for cash back cards.

We now see cards like Alliant, or USAA (this option seems to be regressing though) where they offer a return greater than 2% on all purchases. Even the Discover It Miles offers 3% for the first year. When you stack this with a few cards like the Chase Freedom, Discover It, or other cards that earn 3%+ on purchases you really start to earn some serious cash back.

We can look at many scenarios, but the realization is cash back has made it’s way into the conversation of a superior option instead of points when it comes to travel.

I am sure many of you can pull out some redemption where you redeemed at 8 cent per point or more, but there are many cases where redemptions aren’t that high. I find those misleading because booking a one way international ticket is more expensive than booking a round trip, which skews your value.

The largest advantage for cash back, is the flexibility. More people are starting to use their points as a form of cash back. Use that great 1.5 cent per point option for that Chase Sapphire Reserve? What about that 50% (now 35% ) rebate on your Business Platinum? Those are using points in the form of cash back.

These options are becoming more favorable, because the cash value is pretty equivalent to the value you would get from transferring the points. But, it is a little easier to use your points as cash equivalents, plus you earn points for the ticket price.

Time to Crown New King?

This will be subjective for each person, but I don’t believe a majority of people use their points for business class travel. I think many people want to travel and want to find the most reasonable way to do it. Once you start getting into family travel, I am sure not everyone can fly up front.

The bonuses are what draws people into a card, but beyond that bonus I think the daily return on point cards is becoming less attractive than cash back cards.

Every couple of weeks we seem to hear about another devaluation and the increased number of flight deals. I see more “amazing” travel deals in my Twitter/Facebook feed now and it almost seems they are the new norm.

I believe cash back has become the better option. As we see more dynamic awards, points will lose more value when compared to cash back. This doesn’t mean points are completely useless (I would never say that).

Also, we are going to see more Premium Economy, as I think Business class becomes the new First Class and Premium Economy becomes the new Business Class. As this shift occurs, premium awards will not be as premium.

Conclusion:

Cash back cards have really stepped up their game and earning rates are high. Fares across the board have dropped, helping push cash back to the front of the pack.

Add in the fact we are seeing devaluation after devaluation we are seeing points lose their value. Add in more airlines are shifting (or wanting) to dynamic awards, your ticket is going to cost you more points.

The time has come to acknowledge that cash back has move in front of points for coach travel. I don’t believe we are too far away from seeing cash back become a better option for business travel.

Do you agree, has cash back become a better travel currency?

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