As airlines continue to search out new avenues of ancillary revenues they are becoming ever more creative. Passengers generally hate the idea of “nickel & dime fees” for things like checked bags but many of those same passengers love the idea of paying a bit extra on a flight to earn double or triple miles. Of course, the price point at which those miles are sold is often rather high (here’s an example from American Airlines; a similar story from the WSJ is here) but apparently there are enough folks out there obsessed with the idea of earning points that the airlines are ale to generate the extra revenue and not annoy their customers. Seems like a win for just about everyone.
Continental is joining the party in the next couple weeks; they’ve released the initial functionality of their product – OnePass Maximizer – onto their preview website that is open to a limited set of test users. Look for the new features to be live for everyone on continental.com on the 11th of September.
The regular award miles (“RDMs”) are priced at about 3 cents each, comparable to the the relatively overpriced rate that AA is selling their miles at. Continental is also introducing the ability to simply buy miles outright, up to 60,000 at a time. These miles are priced at 3.5 cents each so there is a premium to get there, but you also don’t have to buy a plane ticket first, so the value proposition is roughly comparable.
Unlike the other players in this space, however, Continental is selling more than just award miles. Customers who are so motivated can also purchase “Elite Maximizer” which includes elite qualifying miles (“EQMs”), getting passengers closer to elite status without requiring actually flying more.
The elite miles pricing is in addition to the RDMs so those miles are quite pricey. Assuming $239 for 5,291 miles in the example above, the price is only about 4.5 cents per EQM which isn’t horrible, especially considering how much higher airfares are this year than last. The problem is that you cannot buy only the EQMs. The total combined cost is much closer to 8 cents for both one RDM and one EQM. Valuing the RDMs at two cents each – which is actually probably a bit high on the buy side of the equation – means that the cost of the EQMs is five to six cents each. That’s not a very good deal at all. In limited situation where it is towards the end of the year and time becomes more valuable, maybe. But even then it is somewhat questionable if the points and status are really worth it if there wasn’t enough “natural” travel to get the status anyways.
There are some scenarios where Continental’s prices come down a bit – near 4 cents per EQM and 2.7 cents per RDM – but those are still not great price points.
In the end, the airlines are not offering these programs because they’re feeling generous. In certain circumstances, such as when US Airways runs a 100% bonus for purchased miles, the value proposition is somewhat reasonable. But for the most part these offers result in a less valuable approach than just buying the tickets outright. Buying 25,000 miles at 3.5 cents each is $875. In the vast majority of cases that one would be redeeming 25,000 miles for a ticket the actual cash cost would be well less than that, and that’s before things like the time-value of money are even considered.
Nice to see that they’re offering paths to incremental revenue that folks do not have to pay. Too bad they are such a bad deal for the customer. The fact that the airlines are realizing millions of dollars per month on these transactions speaks to just how obsessed with points the American public has become. Points are skewing buying habits even when they are not worth it.
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