According to a new ValuePenguin study, a massive number of unused airlines rewards miles that went unused in 2020 could cause issues for consumers as travel begins to ramp back up in 2021.
The firm found that the U.S.’ top five most valuable airline loyalty programs (Delta Air Lines’ SkyMiles, American Airlines’ AAdvantage, United Airlines’ MileagePlus, Southwest Airlines’ Rapid Rewards and JetBlue’s TrueBlue) ended 2020 with a combined balance of $27.5 billion in unused loyalty program miles—up $2.9 billion from 2019.
Since COVID-19 essentially brought air travel to a halt starting in March of last year, amid lockdowns and border closures, most people were unable to travel and therefore couldn’t redeem their accrued loyalty points. And, airlines largely paused their usual expiration policies for customers’ earned miles in light of the crisis.
Because rewards redemptions represent losses on their overall balance sheets, airlines view outstanding miles as “liabilities”, which they’d prefer to minimize as they try to bounce back from the financial blight brought on by COVID-19.
In 2020, between American, United, Delta, Southwest and JetBlue, liabilities spiked 11.6 percent from the prior year. As a point of reference, liabilities among these five rewards programs had grown by just 3.7 percent from in 2019 from the previous year.
LendingTree’s chief credit analyst Matt Schulz expects to see travelers trying to use up those points this year. “I think we’re going to see a whole lot of people burning through a whole lot of miles pretty darn soon,” he said. “That may not be the best news for the airline industry, which is desperate to get as many paying customers as possible onto planes as soon as possible, but it is the reality.”
At the same time, loyalty program members earned only around half (53.8 percent) the rewards in 2020 as they had the previous year—$6.8 billion worth of miles compared to $12.6 billion in 2019. Since not many were actually flying, so many of those likely came from purchases on credit cards that offer co-branded airline rewards points.
Members also redeemed far fewer of their rewards miles than they typically do: 11.3 percent of available miles, which is only about one-tenth of their combined earnings for the year. That’s down significantly from more normal percentages, such as 30.5 percent in 2019 and 30.3 percent in 2018. And, customers redeemed only 57 cents for every dollar’s worth of miles earned in 2020 across the five most valuable programs, down from 90 cents in 2019 and 92 cents in 2018.
“It’s clear that most people didn’t use airline-specific miles at all in 2020,” Schulz said. “It simply wasn’t an option for most Americans. People were a bit more likely to have used bank-issued points and miles, such as those from Chase and Capital One, but that was in part because card issuers gave cardholders more options, like using them to pay for groceries and other such necessities.”
The value of rewards points in their members’ accounts is one of the main liabilities that airlines carry on their balance sheets, ValuePenguin explained. Because of that, and especially as they look to increase revenues during times of financial uncertainty, airlines may soon reduce the value of those rewards, or reinstate expiration policies on members’ earned miles to lower those liabilities.
Luckily, the Delta, United, Southwest and Jet Blue rewards programs do not expire loyalty members’ earned miles after a set period of inactivity on the account, though American Airlines still does. While American and others paused expirations during the pandemic, customers can expect to see mileage expiration policies to restart fairly soon, ValuePenguin advised.
The firm also recommends that loyalty program members not hold onto their rewards miles for too long, as airlines have a history of devaluing their miles, meaning that the rewards points you’ve been saving up may suddenly become worth less than they were the day before.
“Ultimately, this glut of miles might end up leading to more devaluation,” Schulz said. “That would help airlines as they continue to try to recover financially from the devastation wrought by the pandemic, but it would not be great news for consumers.” When it comes to the question of when to redeem miles, “The best advice is always to use them sooner rather than later,” Schulz advised. “Airline miles tend to lose value over time, and that’s certainly likely to be the case in the near future, so when in doubt, use them.”
That may not be quite as easy as it sounds, since airlines downsized both their fleets and personnel numbers amid COVID-19, and will only gradually be ramping their operations back up as demand increases. ValuePenguin’s report suggested that it may prove harder to use your miles with a higher-than-average number of flyers looking to book available seats as things start picking up, so it would behoove rewards members to stay flexible in terms of travel planning.
