The Rising Cost of Reward Travel at U.S. Airlines

The cost of reward travel at U.S. airlines has seen a significant increase since 2019, impacting the value of frequent-flyer points. According to a recent analysis by consulting firm IdeaWorks, the lowest daily average price of tickets purchased with points or miles has risen by 28% in March 2024 compared to March 2019, surpassing inflation rates. This surge in reward prices has outpaced the overall inflation rate for domestic airfares as well, showcasing a concerning trend for consumers.

Factors Contributing to Inflation in Reward Travel

IdeaWorks president Jay Sorenson attributes the spike in reward travel inflation to the high adoption of co-branded airline credit cards by consumers. This increased demand has prompted airlines to raise their reward prices, ultimately impacting the affordability and value of using frequent-flyer points for travel. Consumers are facing challenges in maximizing the benefits of their loyalty programs due to these escalating costs.

In its analysis, IdeaWorks evaluated reward travel pricing across six major U.S. airlines, including American, Delta, United, Southwest, Alaska, and JetBlue. Southwest emerged as the carrier with the lowest reward prices but has witnessed a doubling in its average daily one-way fare over the past five years. American, on the other hand, reduced its reward prices by 25% during the same period. United’s redemption rates were found to be the highest among the airlines examined, indicating varying approaches to reward pricing strategies.

While Southwest offers the lowest reward prices, American now leads in the value of frequent-flyer points, with each AAdvantage point being worth 1.4 cents for lowest-fare ticket rewards. This represents a significant increase from their 2019 value, highlighting improvements in the reward value offered by American. Southwest Rapid Rewards points follow closely behind at 1.2 cents, while United MileagePlus points have the lowest value among the airlines at 0.7 cents. The disparity in point values reflects the overall reward value and purchasing power that members can derive from loyalty programs.

Enhancing Reward Value for Consumers

In an effort to enhance the reward value for consumers, airlines have adopted various policies around reward accrual based on fare types. Southwest, for example, does not offer basic economy fares but provides higher reward values for flight purchases. United and Delta have implemented different approaches to awarding points for basic economy purchases, resulting in varying reward values for consumers. These nuanced policies impact the overall effectiveness of frequent-flyer programs for travelers seeking to maximize their benefits.

Complexity of Award Tables

Award tables for flight purchases can be complex, with airlines utilizing different algorithms to calculate rewards based on fare classes, loyalty status, and credit card usage. The intricacies of these reward structures can make it challenging for consumers to assess the true value of their frequent-flyer points. Moreover, airlines that offer lower reward values for base fares may not necessarily provide equally low values for premium fares, further complicating the reward redemption process for travelers.

The rising cost of reward travel at U.S. airlines poses challenges for consumers looking to maximize the value of their frequent-flyer points. As airlines continue to adjust their reward pricing strategies, travelers must navigate complex reward structures to make informed decisions about their loyalty program usage. By analyzing the factors contributing to inflation in reward travel and understanding the varying approaches taken by different airlines, consumers can better position themselves to leverage the benefits of loyalty programs amidst an evolving landscape of travel rewards.