November 28, 2021

Are Travel Credit Card Rewards Susceptible to Inflation?

Select’s editorial team works independently to review financial products and write articles we think our…

Select’s editorial team works independently to review financial products and write articles we think our readers will find useful. We may receive a commission when you click on links for products from our affiliate partners.

In the past few months, travel has been seeing a rebound with leisure travelers flying at near pre-pandemic levels, and both airlines and hotels struggling to keep up with demand. After more than a year of staying close to home, consumers are booking trips and redeeming the travel rewards they earned throughout the pandemic. 

According to a recent study conducted by Citi and The Harris Poll, 28% of travelers will be using credit card points or airline miles to book their next adventure. Echoing that trend, Josh Berwitz, senior vice president and general manager of business development and partnerships at American Express, told Select the card issuer is “seeing an uptick in cardmembers redeeming points for long-awaited trips.”

With an abundance of travel rewards issued during the pandemic, airlines and hotels alike are eager to eliminate these points off their balance sheets to reduce their risk. When consumers are holding onto a huge stockpile of points, it presents the looming possibility of big waves of redemptions — forcing brands to give up more airplane seats and hotel rooms to customers who aren’t paying cash. One of the best ways to eliminate points and reduce a loyalty program’s risk is by charging more for award redemptions. 

Inflation, or the decrease in purchasing power of your dollars, is a hot topic of conversation right now, and it can also apply to your travel rewards.

With a surge in demand for travel, consumers are now paying a premium in order to fulfill their wanderlust.

Here’s what you need to know about airlines and hotels devaluing their points and how you can best protect yourself from the rising cost of cashing in your rewards. 

Travel rewards are big business

Loyalty programs in the travel industry are massive, multi-billion-dollar businesses. It’s often difficult for airlines and hotels to truly differentiate themselves from their competitors, so they rely heavily on their rewards programs to retain customers. 

These programs are major revenue drivers, but they’re also expensive to run, and present a large liability on a company’s balance sheet. Consumers aren’t always consistent in how and when they redeem these points, and when billions of points sit unused, it’s a risk to hotel and airlines’ cash flow. 

There are currently $48 trillion dollars worth of unspent loyalty rewards globally, according to Forter, a e-commerce fraud protection platform. As many as half of those rewards are in accounts considered inactive. 

American Express cardholders have been saving up their credit card points for future travel, Berwitz told Select. In March 2021, the American Express Global Travel Trends survey found that 63% of consumers indicated they were saving up their credit card points for future travel. But when they go to cash in these points, they might find they’re worth less than before.

The travel industry hemorrhaged cash during the initial pandemic lockdowns, and some airlines were forced to mortgage their loyalty programs as collateral for loans to save their business. Months later, as travel has slowly returned, some airlines have made moves to mitigate their risk by devaluing their outstanding rewards. Earlier this year, for example, Southwest raised the prices on all award flights by roughly 6%.

It isn’t in the best interest of loyalty schemes to be forthright about devaluing their programs. So in many cases, they will do so with very little notice. Or, airlines or hotels will tell customers they’re making adjustments to their program by shifting pricing models. This is typically done when a brand goes from a fixed award chart to dynamic pricing, where the cost of a rewards ticket is based on supply and demand. The more demand there is, the more it will cost you in loyalty points. 

Here are some of the most recent devaluations, and how each program changed.

How to best protect yourself from travel rewards inflation

Airlines and hotels both play a delicate balancing act trying to retain the value of their loyalty programs while also remaining profitable. But as operating costs go up, brands sometimes have no choice but to charge more for their redemptions.

To avoid the impending doom of inflation eating away at the value of your travel rewards, here are two tips to keep in mind.

Earn transferable rewards, avoid brand specific points

Transferable rewards such as Chase Ultimate Rewards and American Express Membership Rewards are both safer options because they can be transferred to a significant number of different airline and hotel loyalty programs. This gives cardholders more options so they can take advantage of each loyalty program’s sweet spots and get the best value from their points as possible.

There’s less flexibility if you’re earning brand-specific points, such as Southwest Rapid Rewards with the Southwest Rapid Rewards® Premier Credit Card. You don’t have the option to redeem them for a different airline, so you’re stuck with using them within Southwest Airlines, no matter how devalued they become.

Earn and burn

Some points and miles fanatics love to brag about hoarding millions of points. But for the average consumer, sitting on too many points can leave you at risk of seeing your rewards lose value. Devaluations are an inevitable fact of travel rewards programs, and so the best way to avoid creeping inflation is to spend the rewards you have sooner rather than later.

Of course, it’s not advantageous to simply throw away hard-earned rewards on frivolous redemptions like gift cards or merchandise purchases that usually yield a lower value per point. But it’s important to remember why you’re trying to earn these rewards: to save money on the cost of travel and create memorable experiences.

The best travel rewards credit cards available

There are dozens of travel credit cards available, but some have rewards programs that are more susceptible to inflation than others. Cobranded credit cards such as the Delta SkyMiles credit cards and the Hilton Honors credit cards stand out thanks to their high welcome offers, but both offer fewer redemption options and therefore are more susceptible to inflation.

Frequent travelers might be better served choosing a general travel card. Here’s a list of some of the best travel rewards credit cards available, their welcome offers and the type of points they earn.

The Chase Sapphire Preferred is giving a record high 100,000 Chase Ultimate Rewards points after new cardholders spend $4,000 in the first three months of account opening. Ultimate Rewards points are transferable to 11 airlines and three hotel loyalty programs.

Read the full review of the Chase Sapphire Preferred Card.

The Chase Sapphire Reserve offers new cardholders 60,000 Ultimate Rewards points after spending $4,000 in the first three months of account opening. The Sapphire Reserve has the same travel partners as the Sapphire Preferred.

Read the full review of the Chase Sapphire Reserve card.

The Citi Premier card has a welcome offer of 80,000 Citi ThankYou® Points after you spend $4,000 in purchases within the first 3 months of account opening. These rewards can be transferred to 16 different airline loyalty programs. The card has undergone significant change this summer, including rewards changes and adding temporarily American Airlines to their list of travel partners.

Read the full review of the Citi Premier Card.

The American Express Gold Card has a welcome offer of 60,000 Membership Rewards® points after you spend $4,000 within the first six months from account opening. Membership Rewards are transferable to 18 airlines and three hotel loyalty programs.

Read the full review of the American Express Gold Card.

The Capital One Venture Rewards card is offering 60,000 bonus miles after spending $3,000 on purchases within the first 3 months of account opening. You can transfer Capital One miles to 16 different airlines and three hotel loyalty programs.

Read the full review of the Capital One Venture Rewards Credit Card.

Information about the Capital One® Venture® Rewards Credit Card has been collected independently by Select and has not been reviewed or provided by the issuer of the card prior to publication.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.