Six expert tips to diversify your frequent flyer points portfolio

Six expert tips to diversify your frequent flyer points portfolio

I’m incredibly fortunate to more or less advise people on miles and points for a living, and there’s one issue I’m noticing more and more lately — people are either diversifying their points (and I’m using the term “points” generically to refer to both miles and points) too much or too little.

And this is especially becoming a problem lately because we’re seeing more and more programs make huge devaluations, often with very little notice.

These devaluations really shouldn’t come as a surprise, as the travel world is almost in better shape than ever before.

Hotel occupancy is crazy high, and airlines are actually doing something called turning a profit, which was previously unheard of.

But the problem I find is that some people either put all their points “eggs” in one basket, while others put their points “eggs” in too many baskets.

I get emails from people with millions and millions of Membership Rewards points, while they don’t have points in any other programs.

No doubt they were feeling pretty bad about that a couple of years back when Continental OnePass was removed as a Membership Rewards partner, Aeroplan hugely jacked up award rates and added fuel surcharges to partner airlines, and British Airways also destroyed their award chart for longhaul redemptions for those in North America.

Then I’ll get emails from people that cumulatively have 300,000 points, but don’t have more than 50,000 points in a single currency, and are wondering why they can’t redeem for an international first class award ticket when they have 300,000 points.

As a result, a 50,000 point sign-up bonus on a credit card might not be worthwhile for you if it’s the only points you’d have in that currency.

So I figured I’d provide a few tips for making sure you’re neither under-diversifying nor over-diversifying your points.

I’ll provide these in the context of my situation, as an addictive points collector. Obviously the numbers would differ a bit if you run a business where you’re running a million dollars of spend through a credit card each month, for example.

1. Never have more miles in an account than you could reasonably burn in the next six months

I have a very simple self imposed rule — if an airline program’s points can’t efficiently be transferred to another program, I aim to have no more than enough points for two premium cabin tickets to anywhere in the world.

So generally that means I try to keep my points balances below 300,000 or so. That’s because I know that if a devaluation were to be announced, I could reasonably redeem those points before their value is reduced greatly.

That’s actually one of the reason I burn so many American miles for Cathay Pacific first class.

I fly American a lot, have a BankDirect account, and have earned a ton of miles through the sign-up bonuses on their credit cards.

2. Focus on programs with many transfer partners

If you’re going to rack up points without a short term use, accrue those points in a program with multiple efficient transfer partners.

By efficient transfer partner I mean when you can transfer points to another program and get at least as much value out of them as you did in the original program.

For me that includes Chase Ultimate Rewards, American Express Membership Rewards, and Starwood Preferred Guest.

All have multiple airline transfer partners that are actually often the best uses of those points. As a result I have no problem carrying balances of over 300,000 points in any of those programs.

3. Focus on programs that can be trusted

The most alarming trend I’m noticing lately are the number of program changes that are made without any sort of advance notice.

For a loyalty program this sets a horrible precedent. While it might sound cheesy, that’s why I believe that if you can’t accrue points in a program that has multiple efficient transfer partners, at least accrue them in a program you can trust.

For example, I trust Hyatt Gold Passport, because I trust the people that run the program. I think it’s a given that their top tier redemptions will be devalued eventually, because that’s a side effect of no blackout dates and high occupancy at hotels.

But I also know they wouldn’t “pull” a Hilton and literally slaughter their program overnight.

4. Focus on programs that don’t just have one “sweet spot” redemption

This really is the thing that came back to haunt me with Hilton’s recent devaluation.

Up until March, you could book four nights at any Hilton or Conrad in the world for just 145,000 points if you had one of their co-branded American Express cards.

I went from not caring about Hilton to having 500,000 Hilton points in my account in a matter of months — they were just so easy to rack up, and seemed so valuable.

And why wouldn’t I, when I could burn 145,000 points for four nights at the Conrad in Koh Samui, Hong Kong, or the Maldives?

And then they changed their prices for AXON awards, so that of those properties now cost 300,000 points for the same four nights — that’s more than double the previous cost!

But that’s what I was stupidly overlooking with Hilton when I became obsessed with them — there was one “sweet spot,” one thing worth accruing Hilton points over, and when that was gone, so was the value of my points.

Compare that to Starwood points, for example, which can be redeemed for cash & points at hotels, free nights, or converted into miles. The program doesn’t have just one “sweet spot,” and there’s value to that.

5. Think twice about programs you can’t get an aspirational redemption “out of”

Just because a credit card is offering a good sign-up bonus doesn’t mean it’s a good sign-up bonus for you.

When you see a good sign-up bonus on a credit card, objectively think about whether the bonus will actually get you closer to a redemption you’ve been wanting to make – and if it doesn’t get you all the way there, how will you make up the difference in points?

I’ll give two examples.

One is the Southwest Rapid Rewards Visa. It often has a big sign-up bonus of two free roundtrips, and to some that’s incredibly valuable. In my case, I prefer doing my domestic flying on American on revenue tickets, since I need those miles to requalify for Executive Platinum status.

So that’s not a card I personally apply for when the increased offers come around, though I realize why others find the card valuable.

Another example is the Alaska Airlines Visa. Alaska miles have become incredibly valuable lately due to their partnership with Emirates and that they’re allowing one-way redemptions with stopovers at half the cost of a roundtrip. And their credit card is tempting as well, and has a 25,000-30,000 mile sign-up bonus.

But if you want to redeem for Cathay Pacific or Emirates first class, what will you do to make up the difference in miles for what you need? Transfer from Starwood? Outright buy the miles during a promotion? Or get the business credit card as well?

There’s no right or wrong answer, but I think the value of miles varies hugely based on the increments you have.

For example, I might value 40,000 Alaska miles at 1.5 cents each, while I’d value 70,000 Alaska miles (enough for a one-way in Cathay Pacific first class from San Francisco to Hong Kong to Johannesburg with a stopover) at two cents each. Or something like that.

In my case it’s easy since I fly Alaska, so the miles I earn from the credit card complement the miles I earn through flying. But if you’re not a frequent Alaska flyer, it could be a different story.

6. Don't think of points as a commodity you should save long term

I’ve said this a million times before, and I’ll say it again, because it really is important.

I know tons of people that are saving points as a “retirement account” of sorts.

If that’s the approach you take, you’re much better off using a cash-back credit card, since money actually has a chance of growing in value over time when invested properly.

Points can’t be invested and never increase in value long term.

If you look at the award charts for just about any loyalty program you’ll see that over the past 5-7 years the cost of redemptions has probably increased an average of 50%.

Points are also much, much, much easier to earn than ever before, so that has to be factored in, but still, that doesn’t sound like a wise travel retirement plan.

This article was first posted on One Mile At A Time

Do you diversify your points to maximize their value? And if so, what's your strategy?

 

10 Comments

  • KG

    KG

    9 Sep, 2013 09:15 am

    Nice to see you on AUSBT Ben! Unfortunately your article is very much USA focussed (no critic, I realise it was published on your blog to start with) and for us here in Australia there is not much to diversify (specifically when it comes to credit card programs - how I wished we had the churn opportunities you guys have in the States!)

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  • russell

    russell

    9 Sep, 2013 11:13 am

    While the points are relevant, the examples not much so to the Australian market.We have no where near the options that you have in the US.

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  • Jon W

    Jon W

    9 Sep, 2013 11:29 am

    This would have been a great article (and still is for a US reader), but isn't really relevant to anyone reading in Australia. It would be great to see this kind of stuff tailored to the (far less generous and far fewer options) Australian market.

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  • tronixstuff

    tronixstuff

    9 Sep, 2013 11:37 am

    Surely... David - you can't be that desperate for content? 

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  • David Flynn

    David

    10 Sep, 2013 01:11 am

    Tronix: I don't regard any of Ben's advice as falling into the 'desperate' camp, and while Ben penned this for One Mile At A Time from a naturally Yank-centric perspective, I think the general guidelines still apply and the issues are worth raising for discussion. If I didn't, I'd not have asked Ben if I could run his article here.

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  • David Flynn

    David

    10 Sep, 2013 01:12 am

    PS Anybody who's keeen to write and contibute a similar piece from an AU perspective, you know my email address (oh, you don't? It's [email protected]).

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  • PLATY

    PLATY

    9 Sep, 2013 12:26 pm

    Thanks, Ben, I personally regard this an an excellent article.

    I agree with others to some degree the "rules" for the USA don't entirely translate to us in Australia. However, we are still left with some interesting choices, perhaps more than sometimes appreciated, at least in my own case, where I had been very much focused on the QF versus AA debate. 

    For example ,whereas it is tempting to invest in the QF FF program if you're an Australian-based  QF/OneWorld supporter, there is the alternative of doing an AA Platinum Challenge for OneWorld Sapphire and accruing miles to AAdvantage at the same rate as a QF Platinum (OneWorld Emerald) at 100% bonus on ALL OneWorld airlines not just AA and QF (like QF FF). The two huge benefits of going AA rather than QF is (1) redeemed points are worth much more than QF and (2) no fuel surcharges. So, you can go CNS-SYD-PER on AA for 17,500 pts in business class not 50,000! The sweet spots are longer and multi-sector routes in Australasia, and any international premium travel! BUT QF points are better used in the USA for shorter premium flights and QF points are needed if you want to fly on Emirates.

    Amex reward points will get you more if you an alternate to QF (or VA) in directing to AsiaMiles (Cathay), especialy for return or partner redemptions...

    Alaskan presents an alterate to AAdvantage if you want to (earn and) redeem onto some Emirates flights and again offers great value for long distance and many Australia-based sectors.

    Crucially, the AA and Alaskan examples present opportunities to purchase points at times at great discount (currently promotion with Alaskan to end September).

    Indeed, earning points the hard way aside, it is possible to rack up points in one or two transaitons for a first class return Australia-Europe for around AUD4000 in point purchases.

    Instead of earning points for hotel stays it is possible to earn directly into AA or some other schemes through PointsHound.

    In summary, I agree in principle that we are faced with more choices as frequent travellers thans may always be obvious. Given that much of the article offers some good guidance. There are limits in Australia, sure, like there are no SPG or IHG properties in BNE!

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  • PLATY

    PLATY

    9 Sep, 2013 12:28 pm

    Ooops, typo, meant to say I have been too focused on QF versus VA until recently!

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  • TheRealBabushka

    TheRealBabushka

    9 Sep, 2013 01:35 pm

    Interesting article to demonstrate the wisdom of tailoring content for target audience.

    We here in Australia have very little to work with compared to the United States and Europe. So an article like this tailored for the Australia-domiciled audience would be very bare.

    Is that also a reason why the Fin Review is rubbish compared to the Financial Times? :p

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  • Darkavid99

    Darkavid99

    13 Sep, 2013 11:22 am

    Its a good point not to horde your points in case of prgram changes or devaluations (Yes I happen to be a Hilton Diamond member, great for me), however I can hardly ever use my points. (I save them for international J or F as I believe this is by the far the best value per point and domestically all my flying is for work thus tax deductible, international holidays are not). I fly both Virgin and Qantas and have just under 1 million points with each airline. As 99% of my flying is domestic I dont see another option for points or should I be putting my credit card spend into a different program such as Singapore or Emirates? Both these airline are linked in with Qantas and Virgin anyway and I dont see another airline that has the coverage or quality of these that also flies direct out of Adelaide. Any advice here, anyone else have the same 'problem'?

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