Last Updated Jan 11, 2011 10:27 AM EST
Airline miles sound like a great idea – use your credit card, get free tickets! But while it's getting easier to earn airline miles, it's getting harder to spend them, according to CBS Travel Editor Peter Greenberg. MoneyWatch caught up with Greenberg recently to get his advice on how to make the most of your airline miles, and, more generally, how to satisfy your wanderlust at the best possible price.
MoneyWatch: Peter, the airlines pitch frequent flyer miles as currency – you can supposedly exchange them tickets. But when you actually want to book those tickets, it’s hard to find seats. Why?
Peter Greenberg: The bottom line is that the airlines are in the biggest money-making opportunity of their entire lives with their frequent flyer programs. The major airlines actually make more money with the frequent flyer programs than they do as airlines. The market value of American Airlines frequent flyer program is more than $6 billion — the market itself is $2.4 billion. What does it tell you? Airlines make a lot of money by selling miles to their miles partners — credit card companies, banks, et cetera — so you get a dollar for every dollar you spend — but guess what? The airlines don’t just print the currency, they’re in charge of the redemption. If they keep the redemption levels under 10%, that’s 90% return on investment. So we’re all mileage addicts — we love knowing how many miles we have. When you call the airline, the first thing they say to you is we don’t have seats at 25,000 miles, we have seats at 50,000 — that’s extortion. The actual math conversion is a little scary because 54% of all mileage earned is earned on the ground with those credit cards. Suppose they want to give you that 25,000 rewards, that means you spent $13,000 for that ticket.
MW: Why isn’t this market regulated?
Greenberg: It should be regulated, but it’s not because the airlines come under the protection of what? Deregulation. It’s similar to bait-and-switch. There’s not a single state that’s allowed to regulate the airlines.
MW: Okay, so if you can’t get tickets, should you spend your miles on magazine subscriptions? Upgrades?
Greenberg: If you use your airline miles for a subscription to Readers Digest, it just cost you $4,000. Instead, use a different strategy when flying: Be a contrarian traveler — don’t go point to point — think alternate cities — or pick an alternate route altogether.
Why would you spend another 15-25,000 miles to move up to the front of the plane? Just be happy you’re on board. The best use of your miles is to plan your travel 330 days ahead of time, be flexible, think alternate cities, routes, and you’ll get to where you want to go.
MW: So what are the best credit cards for accumulating miles you can actually use?
Greenberg: There are some credit cards out there — Chase, Capital One Venture Card — that have really good deals because you’re getting 1 mile per dollar you’re spending. It’s not about the miles or the points you have to redeem — you’re earning dollars in your account. When you get to a certain number of points, they’ll actually buy you the ticket — so you’ll get on the plane. Kind of like saying there are no blackout dates. You’ll be paying what everyone else is paying — but at least you’ll be on the plane.
MW: So should we stop trying to accumulate frequent flyer miles?
Greenberg: Continental and Southwest airlines are very good, transparent, they let you know right away when you get to that mileage level, and you can get a reward and go. Other mileage programs — I think the Pope would have a problem.
I was on the phone with one airline the other day, and I said — what miles do you have available on this flight to Rome in the next year. And the word that came back to me was “never.” Why? Because they can get away with anything they want under deregulation. You see when you have less capacity out there, there is no incentive for the airlines to displace the revenue passenger by giving you mileage when they can give the seat to people paying money. There is no regulatory agency out there saying they have to.
MW: But in theory, haven’t they already made money off of you?
Greenberg: What’s stopping them from wanting to make more money?
MW: Does it make sense to use miles to book a hotel room?
Greenberg: Frequent flyer point miles for hotel stays are actually quite robust now because there are fewer flights and fewer seats, and that means hotels are having much more difficulty filling their rooms. So guess what? Hotels are now in a much more generous mood when it comes to giving out frequent stay points.
Can you use frequent flier points for hotel points? Yes. It doesn’t mean you get better value, but at least you get a chance to redeem it. There are many more available hotel rooms than there are frequent flyer seats.
MW: So what advice can you give for getting a good deal on a hotel room?
Greenberg: Pick a location where they’ve just had a big sporting event, an Olympics or World Cup. Those hotels have taken a hit. They’re still trying to fill hotel rooms from Sydney in 2000 and Athens in 2004 — China in 2008 — it’s a buyer’s market for anyone who wants to go to any of those locations right now. South Africa — the World Cup lasted 3 weeks, now how do you fill those rooms?
MW: For readers who are planning ahead, when are the best times to plan a vacation?
The two best times to travel are what are considered ‘dead weeks’ — the week immediately following Thanksgiving— the fares are reflective of that, no one flies. Not just in this country but overseas as well. Also, the week immediately following New Year’s — the first week in January.
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