Back by popular demand, I have another interview with the amazing credit card points expert, Jay Peay. If you missed it, here’s our first interview on maximizing the credit card points game. This time, we get technical. How can airlines afford to give people like Jay (and hopefully us now too!) free seats? How does it all work between airlines? Can you fly on one airline and redeem those points on another? Jay tells all.
I don’t understand–how can the airlines afford to give away international flights for free and how can the credit card companies afford to do this? Sounds too good to be true!
Airlines know different people are willing to pay different amounts for flights. In a fictional world, let’s say there’s a flight with 150 seats from JFK to SFO and there are 2 types of people: business and leisure. Business people are willing to pay a very high amount (because the company pays) and they don’t know their plans until just before they book. Say there are 10 of these people that would pay $1,000 per ticket. Leisure people are not willing to pay a lot but they make plans far in advance and there are much more of them, say 120 that would pay $100 per ticket.
Airlines develop advanced forecasting algorithms to try to predict how many customers are willing to pay what price. In our made up example, we already know that there are 130 people and 150 seats. The obvious choice is to offer fares for $100 if you purchase at least 14 days in advance. The 120 leisure people will buys those in advance without “diluting” the business people (who don’t know that they will be traveling yet). Inside 14 days from departure, the price is now $1,000 and the 10 business people buy those fares.
But what about the other 20 seats? These are basically “free” for the airline to give away. If you offer them in advance for anything less than $100, you’re are diluting the leisure people. And if you offer it for anything less than $1,000 inside 14 days you are diluting the business people. But airlines have creative ways of selling these seats. For example, the airline could package a $100 fare with a hotel, hide the breakdown of prices and market it to leisure people inside 14 days. Business people likely won’t bite.
Another option is to offer these seats to loyalty program members. Again, business people typically won’t bite. So if the airlines could forecast perfectly, they would know exactly how many seats to make available at the “saver” level to award programs. Of course, nobody can forecast perfectly, so the amount of seats available fluctuates daily (as well as intra-day as people book seats).
What’s up with airline partners? I can redeem miles from one airline on another? And I can earn miles flying one airline on another? When to what and why?
There’s two sides to this: earning and redeeming.
EARNING: There are 3 global airline alliances: Oneworld, Star Alliance, and Skyteam. On the earning side, you can typically earn miles in any airline program within the alliance for flying on flights operated by any airline within the alliance. For example you can “credit” your flight on Lufthansa to United’s program (both Star Alliance). Sometimes certain fares don’t earn full mileage, so be aware — most programs have an earning accrual table that tells you what earns what, and you can always change your frequent flier number associated with the ticket.
REDEEMING: Typically, miles with an airline from an alliance can be used for flights operated by any airline within the alliance. The miles are not transferred to the other airline (as often confuses people), but are simply used to book the flights. Delta has some notable exceptions, not allowing any redemptions in First class at all (only coach and business) and sometimes blocks availability on partners. Singapore sometimes blocks their own first class (suites) from other Star Alliance partners.
What does this mean?
Tip #1: Singapore Airlines miles. United’s program charges 45,000 miles for a roundtrip coach ticket to Hawaii from the US mainland on their own United flights. Singapore Airlines (a Star Alliance partner) charges only 35,000 miles for the exact same United flights. United charges a $75 fee if you book within 21 days; Singapore does not. United charges $200 to cancel the booking; Singapore charges something like $30. To book with Singapore miles you would call Singapore airlines and tell them what flights you want (with some airlines you can book partners online).
Tip #2: Airlines can also have partners outside of alliances. For example you can credit United, Virgin America, and JetBlue flights to Singapore airlines. So for example, if you fly a lot domestically, you don’t have to be loyal to United, you can fly the cheapest of those 3 airlines and accrue a balance in one program. Then use the Singapore miles to book any Star Alliance flight in international business class.
Beware that Singapore miles expire 3 years from date earned (each mile is tracked by date earned) which is different from most programs which extend the life of all miles by any account activity. There are also some hefty fuel surcharges on some redemptions, and it’s not always the best redemption (e.g. it’s 80,000 UA miles to Australia, but 95,000 + Fuel Surcharge in Singapore’s program.)
Tip #3: One other partner worth calling attention to is Alaska Airlines. I know, you probably don’t live in Alaska (or Seattle) and probably don’t fly Alaska so why do you care? Well, Alaska partners with both Delta and American so you can credit their flights to Alaska’s program (some fares only earn 50% mileage flown). Alaska miles can be redeemed at great prices on their bilateral partners such as Cathay (50,000 to Southeast Asia in Business, 60,000 to Australia), or Emirates Airline. Alaska also allows a free stopover on a one-way award, so you can book Fiji airways from LAX to Fiji, stop for 3 days, and then continue Fiji to Sydney, all for 55,000 in business. Alaska also has flexible cancel/change policies more than 60 days in advance. There are some negatives though…awards charts are very specific (e.g. you can only book Emerites awards from the US, and you can’t book AA transpacific), and you can’t mix and match partners. So even though Alaska partners with American and Delta you can’t combine them with Cathay. So you can’t do JFK-LAX (Delta) + LAX-HKG (Cathay). But you can combine Alaska’s own flights with partners.
If you think about your flying domestically, you can really accrue miles into just two programs: Alaska and Singapore and be somewhat indifferent to who you fly (i.e. go for cheapest).