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Are travel credit card rewards inflation sensitive?

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Travel has rebounded in recent months, with leisure travelers flying to near pre-pandemic levels, and airlines and hotels struggling to keep up with demand. After more than a year of staying close to home, consumers are booking trips and redeeming the travel rewards they’ve earned throughout the pandemic.

According to a recent study by Citi and The Harris Poll, 28% of travelers will use credit card points or airline miles to book their next adventure. Echoing this trend, Josh Berwitz, senior vice president and general manager of business development and partnerships at American Express, told Select that the card issuer “is seeing an increase in the number of cardholders redeeming points. for long-awaited trips “.

With an abundance of travel rewards issued during the pandemic, airlines and hotels are eager to wipe these points off their balance sheets to reduce their risk. When consumers hold onto a huge stockpile of points, it presents the looming possibility of big waves of buybacks – forcing brands to cede more plane seats and hotel rooms to customers who don’t pay cash. One of the best ways to eliminate points and reduce the risk of a loyalty program is to charge more for rewards redemptions.

Inflation, or the dwindling purchasing power of your dollars, is a hot topic of conversation right now, and it can apply to your travel rewards as well.

With an increase in the demand for travel, consumers are now paying extra to satisfy their urge to travel.

Here’s what you need to know about airlines and hotels that devalue their points, and how to best protect yourself against the rising cost of collecting your rewards.

Travel rewards are big business

Loyalty programs in the travel industry are massive multi-billion dollar businesses. It is often difficult for airlines and hotels to truly differentiate themselves from their competitors. They therefore rely heavily on their rewards programs to retain their customers.

These programs are important income generators, but they are also expensive to manage and present a significant liability on a company’s balance sheet. Consumers don’t always know how and when to redeem these points, and when billions of points go unused, it poses a risk to hotel and airline cash flow.

There is currently $ 48 trillion in unspent loyalty rewards worldwide, according to Forter, an e-commerce fraud protection platform. Up to half of these rewards are in accounts considered inactive.

American Express cardholders have saved their credit card points for future travel, Berwitz told Select. In March 2021, the Global Travel Trends American Express A survey found that 63% of consumers said they were saving their credit card points for future trips. But when they go to cash in those points, they might find they are worth less than before.

The travel industry hemorrhaged money during the initial pandemic shutdowns, and some airlines have been forced to mortgage their loyalty programs as collateral for loans to save their business. Months later, as travel slowly returned, some airlines took steps to mitigate their risk by devaluing their exceptional rewards. Earlier this year, for example, Southwest increased prices on all award flights about 6%.

It is not in the best interest of loyalty programs to outright devalue their programs. So in many cases, they will do it with very little notice. Or, airlines or hotels will tell customers that they are changing their schedule by changing pricing models. This is usually done when a brand changes from a fixed reward array to dynamic pricing, where the cost of a reward ticket is based on supply and demand. The more demand there is, the more it will cost you in loyalty points.

Here are some of the more recent devaluations and how each program has changed.

How to best protect yourself from travel premium inflation

Airlines and hotels both play a delicate balance in trying to retain the value of their loyalty programs while remaining profitable. But as operating costs rise, brands sometimes have no choice but to charge more for their buyouts.

To prevent looming inflation from eating away at the value of your travel rewards, here are two tips to keep in mind.

Earn transferable rewards, avoid brand specific points

Transferable rewards such as Chase Ultimate Rewards and American Express Membership Rewards are both safer options as they can be transferred to a number of different airline and hotel loyalty programs. This gives cardholders more options so they can take advantage of the strengths of each loyalty program and get the most out of their points.

There is less flexibility if you earn brand specific points, such as Southwest Rapid Rewards with the Southwest Rapid Rewards® Premier Credit Card. You do not have the option of exchanging them for another airline, so you are obligated to use them within Southwest Airlines, regardless of their devaluation.

Win and burn

Some points and miles fanatics love to brag about accumulating millions of points. But for the average consumer, sitting on too many points can put you at risk of your rewards losing value. Devaluations are an inevitable fact of travel rewards programs, and therefore the best way to avoid rampant inflation is to spend the rewards you have as soon as possible.

Of course, it’s not beneficial to just throw away hard-earned rewards on frivolous exchanges like gift cards or merchandise purchases that typically earn a lower value per point. But it’s important to remember why you’re trying to earn these rewards: to save money on the cost of the trip and create memorable experiences.

The best travel rewards credit cards available

There are dozens of travel credit cards out there, but some have rewards programs that are more sensitive to inflation than others. Co-branded credit cards such as Delta SkyMiles credit cards and Hilton Honors credit cards stand out for their high welcome offers, but both offer fewer redemption options and are therefore more susceptible to inflation.

Frequent travelers might be better served by choosing a general travel card. Here is a list of some of the best travel rewards credit cards available, their welcome offers, and the type of points they earn.

The Chase Sapphire Preferred is offering a record 100,000 Chase Ultimate Rewards points after new cardholders spend $ 4,000 in the first three months. Ultimate Rewards points are transferable to 11 airlines and three hotel loyalty programs.

Read the full Chase Sapphire Preferred Card review.

The Chase Sapphire Reserve offers new cardholders 60,000 Ultimate Rewards points after spending $ 4,000 in the first three months. The Sapphire Reserve has the same partners as the Sapphire Preferred.

Read the full Chase Sapphire Reserve card review.

The Citi Premier card offers a welcome offer of 80,000 Citi ThankYou® points after spending $ 4,000 on purchases in the first 3 months after opening the account. These rewards can be transferred to 16 different airline loyalty programs. The card has undergone significant changes this summer, including rewards changes and the temporary addition of American Airlines to their list of travel partners.

Read the full review of the Citi Premier card.

The American Express Gold Card offers a welcome offer of 60,000 Membership Rewards® points after spending $ 4,000 within the first six months of opening the account. Membership Rewards are transferable to 18 airlines and three hotel loyalty programs.

Read the full American Express Gold card review.

The Capital One Venture Rewards card offers 60,000 bonus miles after spending $ 3,000 on purchases in the first 3 months. You can transfer Capital One miles to 16 different airlines and three hotel loyalty programs.

Read the full Capital One Venture Rewards credit card review.

Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.


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