BBC’s video on Air Miles, my additions, and what beginners should learn from the examples

The BBC has a video report entitled “Do frequent flyer programmes offer value for money?“.  I imagine most of my UK readers have seen it, but have a watch if you haven't. I wanted to add my own comments and what beginners should learn from it.

The video was released in January 2012, just after British Airways consolidated the, somewhat-orphaned, Air Miles scheme and turned it into Avios in November 2011. They also changed the British Airways and Iberia air miles currencies to Avios points to unify all three programmes and allow instant transfers between the three. As a side note, because the conversion rates into Avios points differed from all three programmes, many hotels and transfer partners who only did a ‘find-and-replace' search on their own systems unwittingly created a wealth of arbitrage opportunities for consumers to exploit!

I should clarify something here. The scheme-no-longer is called “Air Miles” — capital A and M. The general currency used to describe frequent flier points is air miles — small a and m. The BBC doesn't really make this clear and confused even me, causing me to rewrite half of this post!

So onto the video. I'll skip the history lesson which covers the first 2 minutes or so and and start with the interview with Philip Walsh, the air miles aficionado. He spends 20 seconds to describe how air miles have influenced his life. He's bought things which he didn't need, changed supermarkets, took out insurance, mobile phone contracts etc.

This is entirely normal. 

The way the video presents him doesn't sound make it sound convincing, probably verging on lunacy. I go through the same process, but in my mind I'm always doing the maths of whether I can leverage a better value by buying a more expensive or unwanted product which gives me more air miles. Everyone else who is shrewd about air miles does the same

Starting at 3m 00s, Walsh starts to describe some stories of how people have lost out due to the change from the change from Air Miles to Avios:

The long-term transatlantic couples who were saving up all their air miles to visit each other only to find they can no longer do that because [the taxes] is something they can no longer afford

Sure they will have only gotten their air miles from shopping (since it wasn't possible to collect the old Air Miles from flying) but if the whole purpose is to fly to see each other, they could consolidate their old Air Miles with any British Airways air miles they had previously through Avios.

Also, taxes, fees and surcharges (TFC) are always applied to revenue tickets. Transatlantic journeys very frequently have base fares of ?50, with the rest being made up in TFCs. The earn/burn ratio for transatlantic flights  is extraordinarily favoured towards the consumer given the North American influence and competition. A key note to add here, try not to spend your air miles on long-haul economy tickets as the TFCs negate any savings. By paying the ?50 for the base fare instead of swapping 30,000 air miles or so (which I roughly value at 1p per air mile, so ?300 value or so), you earn instead of burn your air miles, since revenue tickets will gain you air miles. 

Yes TFCs can be hard hitting sometimes, but this change is something of an inevitability given the nature of loyalty programmes — companies will still screw you and dress it as an “enhancement” to their loyalty programmes. There are still plenty of opportunities though.

 

The couple in Northern Ireland who saved up air miles for their retirement plans

Never, ever, hoard your air miles for retirement. You need to understand that air miles are a currency that give no interest and will only devaluate. Think of them like gift cards. If your company one day decides not to accept them or goes bust, then you're shafted.

In theory a company can charge more in gift card value than cash as both are “consideration” in legal-speak, which is the valuable item (cash or otherwise) exchanged for a product or service (your flight) required to effect a contract. Air miles are also “consideration”, and so an airline can charge whatever it wants in mileage for an award ticket and still be on the right side of the law. You should therefore earn and burn your air miles as soon as possible. Same goes for any other loyalty programme currencies you own.

Ingrid Just, editor at Choice says

If you only fly at the pointy end of the plane and spend big dollars then FFPs might work for you… but if you're an economy [class] traveller that travels occasionally then you are better off shopping around for the really cheap fares.

Hmm…yes and no. I disagree with the “if you spend big dollars” part. The whole point of FFPs is to reduce your overall cost for the services you get in return. There are many resources on the net, including my blog, which aim to show how to best maximise your points, even for small spenders. This often means that you still spend less than an economy class fare for premium cabin tickets.

About flying at the pointy end of the plane, what she fails to mention about that is that hardly anyone flies regularly at the front using their own cash. These are business travellers who have the fare paid by their employers. So for these folks any air miles they get is worthwhile to them.

To make FFPs worthwhile if you are an occasional economy class traveller and you pay for your own ticket, you need to know which FFP suits your pattern. (Hopefully my blog can help you on that too!). But with the right methodology and selection of FFPs then you should be on the way to saving lots of cash. Think of it like a butcher owning a set of knives. To cut different things he will use different knives. Each butcher has a personal choice of knives, but there is one skill they all share in common — they learn to sharpen their knives very very carefully. So in the loyalty programme context, every traveller will need to select different FFPs to credit their air miles given the routes, airlines and cabin they fly. But the common skill is to understand how FFPs work in general.

Simon Calder talks about points inflation, which is pretty standard and I think I covered it above with the Northern Ireland couple and their retirement plans. so I'll skip this part.

Ingrid Just says that her company has done a review and concluded

you need to fly Sydney — Los Angeles round trip 13 times on Virgin as an entry-level traveller, and 7 times on Qantas

The key part here is entry-level, because part of maximising your air miles inevitably means selecting the FFP that allows you to get elite status quickly. Being a higher-tier member often gives 100% bonuses on all air miles earned, so you can see it automatically halves the required number of journeys, without counting the ones that are required to make you elite-status in the first place.

I'll make a bold claim here: if you are an elite status member, then typically you should aim to fly around 2-5 round trips to earn a reward ticket for the same round trip. Bear in mind, this only takes into account air miles earned through flying. Here's my credit card page which highlights some of the most powerful weapons in maximising air miles. You can easily earn between 1-3 trips off a single credit card when you trigger their sign-up bonuses. Some credit cards give the sign-up bonus for the first purchase of any value, so just head to your local supermarket and buy a pack of chewing gum or an apple. Big result.

Simon Calder says the best way to spend air miles is to upgrade from economy to business. Whilst this can be the way to maximise the value of your air miles, you need to be really clear on something. Most airlines will only let you upgrade from full-fare economy class tickets. These are the last-minute type fares which cost thousands of pounds. So whilst I might agree that upgrading your ticket could be the best way, you need to watch out for the Terms and Conditions of each FFP.

For me the most valuable uses of air miles are:

• upgrading into higher-cabins, subject to the airline allowing it on cheap fares. Usually the best value is upgrading from premium-economy to business class, or business class to first class.
• getting a premium cabin ticket outright.
• getting a last-minute award ticket as the cost of air miles will not change. You could be subject to late-ticketing fees though — check with your FFP.

I hope that gives some useful insight for the lesser-experienced air miles collectors. If anyone has anything to add, then please leave a comment below and let's continue our discussion. Thanks!