The earn and burn fallacy. Shall we give hoarding and cherry picking a try instead?

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earn and burn“Don’t save your money. Spend it as fast as you can.”  Can you imagine anyone giving that advice?  And, if they did, would you listen to them?  No way.

What if the types of things you would blow your money on were likely to become more expensive next year?  Doesn’t it make sense to spend all of your money now on concerts, restaurants, clothes, whatever, since it will all likely become more expensive next year?  Sure you could save your money and earn a piddling interest rate, but price increases are likely to far outpace your meager returns.  Go for it now!  Spend it all!

Of course, the above is terrible adviceEveryone knows that the prudent thing to do is to save money for future needs.  However, when it comes to miles and points, conventional wisdom says the opposite…

Conventional wisdom in the miles & points world tells us that we should “earn and burn”.  That is, we should spend our points and miles quickly after earning them because award prices are likely to increase in the future.  Isn’t that similar to the poor advice suggested above?

The advice to “earn and burn” has become so ingrained into the miles & points culture that it is seemingly never questioned.  I think it’s time to question it!

Devaluations happen

The driver behind the “earn and burn” advice is the expectation of devaluations.  There’s no question that points and miles frequently devalue in a number of ways:

Miles and points enthusiasts get burned by devaluations like those described above.  They worked “hard” (often by signing up for credit cards and visiting Walmart) to earn all of those points and miles, and then they feel like they’ve been slapped in the face by the same companies that they’ve been so loyal to.  That promised dream vacation will now cost 30% more, 50% more, maybe even 100% more than before.

So, the advice makes sense, right?  Spend your points and miles before the next devaluation or else you’ll get burned too!

Deals remain

One thing often overlooked by conventional wisdomers is that amidst the wreckage of even the most severe devaluations there are often bright spots. Some deals remain intact or, often, new deals appear.  Here are a few examples:

  • When British Airways announced a huge change to their frequent flyer program in 2011, One Mile at a Time said “it’s time to burn those British Airways miles now.”  If you took that advice and used your miles for a great trip or two, that’s great.  But, some people may have regretted listening to that advice once details of the new distance based program became known.  It was absolutely true that international premium cabin awards became exorbitantly expensive under the new program. However, short distance economy flights became markedly cheaper.  It became possible to book some one-way flights for as little as 4,500 points.  The “devaluation” really exchanged one type of sweet spot redemption for another.
  • Hilton’s devaluation was a massacre on the high end, but actually good for those seeking low-end hotels.  Many low-end hotels became less expensive for points redemptions year around.  And, many mid-tier hotels became seasonally cheaper.  That is, Hilton introduced seasonal award pricing and, in the off season, some mid tier hotels became a bit cheaper than before.
  • United’s changes were drastic for many routes, but not all.  While most international business and first class partner awards increased in price anywhere from 25% to 87%, premium awards to Central and South America were barely affected at all.  With a few exceptions, economy awards held stable.  And, notably, premium awards between Australia (Oceana) and South Asia, North Asia, and the Middle East became cheaper.

After each of the massive devaluations shown above, opportunities remained for getting equal or better value today than before.

Opportunity knocks. Are you ready?

I won’t question the conventional wisdom that says that, on average, the value of points and miles decreases over time (due to devaluations like those described above).  But, it is also true that every now and then unforeseen opportunities arise.  And, often, the only way to take advantage of them is to have points ready for action.  Here are a few recent examples that come to mind:

  • Delta award sale to Europe: In August, Delta held an unannounced award sale on winter flights to Europe.  The remarkable thing about the sale was that Delta had also increased award availability on certain routes.  Finding round trip saver-level international business class awards for four people is often nearly impossible.  During the sale, on certain routes, it was easy.
  • OneWorld business class sale: Last week, a number of British Airways deals converged for two days and made it possible to buy round trip business class tickets to Europe dirt cheap (you can read the story here).  The one hitch: you needed to have British Airways Avios points at the ready in order to take full advantage of the opportunity.
  • Saver level award availability: Every now and then people discover wide open saver level award availability on certain routes.  A recent example was when AA released huge amounts of premium cabin award space on flights to Santiago, Chile and to Paris, France.

In each of the above examples and in countless other short term opportunities, only those with a stash of miles (or transferable points) could take advantage of these deals.

The cost of earning and burning

If you follow the practice of earning and burning points and miles, its inevitable that you’ll miss out on opportunities to get outsized value for you points.  Something will come up like one of the opportunities described above, or an unexpected travel requirement, and you won’t be ready.  Suppose, for example, you suddenly need to fly somewhere tomorrow.  Paid ticket prices would likely be sky high.  And, perhaps you have a stash of United miles remaining, but only the expensive “Standard” awards are available.  Then you find that AA has saver level flights.  You could have booked the $1,000 round-trip ticket for 25,000 AA miles or as few as 9,000 British Airways Avios, but you don’t have either of those currencies available.  Instead, you book the flight with 50,000 United miles.  That’s still better than paying $1000, right?  Yep, but then maybe you want to plan another trip and you find that United has saver level award space for that one.  Perhaps you would have had enough miles… If only you hadn’t spent them…

Opportunistic hoarding and cherry picking your currency

My general approach to earning points and miles is to go for the low hanging fruit.  What, there’s a 100K credit card offer for Membership Rewards?  Great, sign me up!  Hold on, I can earn 50,000 AA miles or ThankYou points by signing up for a bank account?  Awesome, let’s do it.  My US Bank FlexPerks card gives me 3 points per dollar for charitable donations?  Guess which card I’ll use for donations and Kiva loans?  Citi gave me a retention bonus of 2 extra points for all spend?… Guess which card goes to the top of my wallet?

This scattershot approach to earning points and miles leads to a nice result.  When it comes time to plan a trip, I have the luxury of using whichever points currency is most valuable for that situation.

I’ll use Avios, for example, for short non-stop flights.  If I’m looking, instead, to buy an economy ticket and the price happens to hit a sweet spot in the FlexPerks award chart, I’ll burn those points.  Otherwise, when flying American Airlines, I look to pay with ThankYou points (except when the ThankYou search engine doesn’t work!) because my Prestige card makes my points worth 60% more towards AA flights.  When booking international premium awards, I hunt for award availability across all airlines, and then I find the airline mile currency that can be used for that award at the lowest price.

When looking for hotels, I’ll try first to identify where I want to stay.  If it’s a chain hotel, I’ll see if award space is available.  If it’s not a chain hotel, maybe Orbitz will let me use my accumulated Orbucks to pay.  How about a B&B?  Fine, I can pay with a card like the Capital One Venture or Barclaycard Arrival Plus and then use points to offset the charge.

On average, I believe that hoarding and cherry picking results in better value from your points than earning and burning even with devaluations taken into account.

Safe investments

There’s no question that some points and miles are safer investments than others.  Transferable points programs probably carry the least risk.  If one transfer partner devalues, then there should still be plenty of others to fall back to.  I’ll happily earn and hoard Ultimate Rewards, Membership Rewards, ThankYou Rewards, and SPG points all day long.

At the other end of the spectrum are the points that expire with no way of keeping them alive other than spending them.  Programs like this are unusual, but they do exist.  Choice Privileges points, for example, expire after a set amount of time regardless of whether you have new activity in your account.  In such cases, I would be willing to redeem these points for less than their top value just to ensure that some value is received.  This becomes especially true as the expiration date nears.

What if the opportunities stop?

Some will say “No, Greg, you should earn and burn now because opportunities for earning and burning may all go away in the future”.  Hmmm.  Yes, I can imagine a day when all of the easy opportunities for earning points goes away.  In some cases, for example, credit card companies are cracking down on “churners” (people who sign up for cards over and over).  Chase, for example, has started denying most applications for their Sapphire Preferred and Ink Plus cards if they see on your credit report 5 or more credit card applications in the past two years.  Amex has taken a different approach: each person can get the signup bonus on their personal cards once per lifetime.  If you’ve already earned the signup bonus for the SPG card, for example, you can’t get a signup bonus again even if you closed that card 15 years ago.

What about “burning” opportunities?  Will they all go away?  Sure, many opportunities will become more expensive, but I have a hard time imagining a future where none of the loyalty programs will offer outsized rewards.  Whenever airlines and hotels have excess capacity, they have the opportunity to foster brand loyalty cheaply.  Why would they all stop doing that?

I think its very unlikely, but if we see a day where earning points and miles in large quantities has become almost impossible, then what?  I expect that the point hoarders will be very happy that they didn’t earn and burn!

The case for “earn and burn”

There is at least one situation in which I’d argue in favor of the “earn and burn” strategy…

Some people save up for years for the perfect trip that never happens.  There’s too much to do.  The kids are too small.  The kids are in school.  There’s not enough time.  Whatever.

Don’t be that person.  As I proved recently (see: “One day in Beijing. Fewer words, more photos”), you don’t need to wait for the perfect opportunity.  You can get a lot of enjoyment from very short trips.

People get stuck thinking that there’s no point in going to this or that far away place unless they can spend weeks exploring.  When are you ever going to have weeks to spare?  Instead, I think that a much better approach is to go while you can, and realize that you can always go back.

Points and miles make it possible to fit travel into the nooks and crannies of your schedule.  If it takes an “earn and burn” mentality to get you to actually do it, then that, in my mind, is a good thing.

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