Travel can be immensely rewarding. Getting the opportunity to see new places, meet new people, and have new experiences can be life changing. For many, the cost of travel feels prohibitively expensive and they think this is outside their reach. However, there is a way to effectively lower the cost of travel and / or significantly raise the quality of your travel for nearly the same costs using points and miles for travel redemptions. Most people can get much further than they realize, and I'm here to explain how you can too. In this post I'm going to give a basic introduction to loyalty programs and how to acquire points and miles.
Airlines and hotels award points and miles as part of their loyalty programs. A loyalty program is meant to provide incentives for you to keep your business with a single carrier or hotel chain. If you purchase often enough, you might get additional perks and incentives - such as priority seating for an airline or free breakfasts and room upgrades with a hotel. In most cases, the structure of the program is that you earn a set number of points or miles based on how much you spend at the hotel or airline. In other cases it's based on the number of miles flown. Different programs have different earning (and spending rates), but you can think of this as a percentage of your spend given back to you in the form of points and miles.
Credit Card Spending
There are other ways to earn points and miles, as well, though. The biggest one is on credit card spending. In fact in many cases this is where more people get points and miles than with actual activity with the airlines or hotels. Many cards offer big sign up bonuses and additional points / miles based on your credit card spending.
This is where all the travel perks on the credit card offers you see come from. Credit card companies charge merchants fees in order to accept credit card payments. Every time you use your credit card, the merchant (store, online retailer, etc) is paying a small fee (or passing it on to you). That fee is then split between the payment network (ie Visa, Mastercard, etc) and the issuing bank (Chase, Citi, etc). These banks also make money based on service fees, interest on carry-over debt, and other charges. It's really big money. Then the banks can purchase frequent flyer miles and points from the airlines to award to their customers. This is a HUGE revenue source for the airlines. Hundreds of millions or billions of dollars for the big guys. Ultimately, though, the net/net is that if you apply your spending correctly, you can often earn more points and miles from your credit card spending than from flying or staying at hotels.
The last major method of earning points and miles is for affiliate based earnings. Affiliate models can be thought of as simple "Finder's Fees". Someone that has access to an audience gets a "kick back" (often a fixed negotiated amount per successful customer acquisition) for driving that audience towards another company for consumer spending. In the case of points and miles, some companies will give you a portion of their affiliate fee in the form of frequent flyer points or miles. This is why you see airlines giving you miles for rental cars, for example.
This is also how frequent flyer based shopping portals work. Companies are willing to pay a price to have customers driven to their site, for example FTD.com. FTD makes plenty of money selling flowers, so they’re happy to pay other sites a little money to drive customers to their website. Shopping portals take that affiliate fee (for driving you to the FTD site), keep a small portion of it for themselves, and then buy points/miles to give to you. In effect, you're capturing a small portion of this affiliate fee back for yourself in the form of points and miles when you use these portals.
Purchasing Points & Miles
The last big method of accruing points / miles in loyalty programs is to buy them outright. Often the airlines and hotels will offer to sell you points for a fee. In practice this is often the most expensive way to acquire points and miles and is likely only to make sense during promotional periods AND for a specific redemption. It's rarely a good idea to acquire points unless you know you'll be able to redeem them for more than the purchase price, which usually only happens at the extremes on the redemption value (highest value redemptions like international first class airlines or top resorts and hotels) and the purchasing side (promotional sales where you receive additional bonus points / miles or can purchase at a lower cost).
That wraps up my introduction to points and miles on the earning side. Hopefully that sheds a little light on where these points and miles come from, why it makes sense for the airlines, hotels, banks, payment networks, and everyone else involved in this chain.
This is just the beginning, though. Once you have all these points and miles, how do you use them to travel better and more frequently? To find out a little more about redemptions and what you can use all these points and miles for you can read the next post in this series (still to come).