There may be momentum behind the travel industry's recovery, but plenty of uncertainty is still ahead. Now is not the time to drive customers away with sneaky, overnight devaluing of loyalty points.
With most travel companies expecting a flood of demand this summer, loyalty program experts caution it may be the right time to cash out points before airlines and hotels devalue them.
Airlines like American, United, and Delta used their loyalty programs as collateral to refinance and raise money during the pandemic. Hilton pre-sold $1 billion worth of loyalty points to American Express last April to generate cash during the worst financial point of the pandemic. Travelers continued to add more points with branded credit card purchases over the last year when most people avoided flying and weren’t redeeming miles.
But moves like these flood the market with more points, and eventually the laws of supply and demand will kick in: More points in the market means they’re going to be worth less.
“All these programs will devalue,” Brian Kelly, founder and CEO of the Points Guy, said Wednesday at Skift’s Loyalty and Subscription Summit. “Consumers are more concerned than ever about the long-term value of the points. Use them now, and don’t look back.”
Southwest Airlines dropped the value of its Rapid Rewards points by 6 percent earlier this month. More companies could follow suit. The devaluation threat comes as economic trends point to travel boom times ahead.
The discussion took place the same day Skift Research released its March Travel Tracker survey, which showed 45 percent of Americans expect to increase their travel spending — the highest amount seen since February of last year just before the pandemic.
“People are willing to spend more to go on vacation because they have missed it so much,” said Audrey Hendley, president of global travel and lifestyle services at American Express. “We’re hearing people say, ‘I want to spend a little longer time, I might bring more people with me on the trip because I want to reunite with my family, and I want to make up for the lost ground that I’ve had in the last 12 to 18 months.”
Sixty-three percent of consumers surveyed say they are saving their credit card points so they can go on a vacation once they feel comfortable traveling, according to the American Express 2021 Global Travel Trends report. A third of consumers in the survey responded they will likely use more travel credits or points to pay for all or part of a trip this year compared to pre-pandemic times.
Devaluation to some of these loyalty points may be looming around the corner, but going too far could lead to members switching loyalty at a time when the recovery underway is still volatile. Greater transparency about when a program may devalue its points is key in maintaining loyalty.
“I think consumers just want to be treated fairly and not with stealth devaluations or taking away a perk overnight that someone has been dreaming to use,” Kelly said. “You can cause quite a bit of disloyalty with these inevitable changes.”
Southwest’s rationale for devaluing its program was that it had been three years since the last decrease. But that logic doesn’t mean customers will accept it. Not only could it drive members away from one loyalty program, it could even send some customers out of the loyalty experience entirely.
“For people who are planning these dream trips, when the goalposts keep moving, what’s going to happen is people are going to just switch to cash-back credit cards, where you can get 2 percent cash back and not have to deal with, you know, your hopes and dreams being shattered,” Kelly added. “It’s a concern.”
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Photo credit: Airlines and hotels risk driving customers away if they go too far with devaluing their loyalty points. Pexels / Pixabay