Two years ago I cashed in on over $1,500 in credit card rewards. Last year I upped the ante and claimed over $2,000 in rewards by taking advantage of several promotional offers and sign-up bonuses. This year I managed to blow those numbers out of the water as I earned $1,685 in straight cash, plus a host of Aeroplan miles from new credit card sign-ups.
I like a travel program that lets you use your points for purchases. That’s why I funnel most of my everyday spending onto my Capital One Aspire Travel World Elite MasterCard. But I also can’t resist new credit card promotions that offer juicy rewards and waive the annual fee in the first year. That led me to sign-up for three Aeroplan credit cards over the course of the year and earn 80,000 Aeroplan bonus miles.
Here’s a breakdown of my credit card rewards earnings in 2016:
- Capital One Aspire Travel World Elite MasterCard – $1,345
- WestJet RBC World Elite MasterCard – $300
- Amazon.ca Rewards Visa – $40
Total cash rewards earnings: $1,685
- TD Aeroplan Visa Infinite – 25,000 Aeroplan miles
- American Express Gold Rewards Card – 25,000 Aeroplan miles
- American Express Business Gold Rewards Card – 30,000 Aeroplan miles
Total Aeroplan miles: 80,000
I haven’t used these Aeroplan miles yet but I plan on cashing them in for a couple of flights in the new year. How much is an Aeroplan mile worth? This varies based on what you redeem, but a conservative value when it comes to redeeming for flights is roughly 2 cents per mile. That makes my 80,000 Aeroplan miles worth approximately $1,600.
Total credit card rewards earned in 2016: $3,285
Now the Capital One Aspire Travel World Elite MasterCard comes with a $120 annual fee (I have a grandfathered version from several years ago), and the WestJet RBC World Elite MasterCard comes with a $99 annual fee.
I (grudgingly) accept and pay these annual fees because Capital One still hands out a 10,000 mile anniversary bonus (again, grandfathered), which is worth $100, and WestJet gives me an annual round-trip companion voucher where my wife can fly anywhere in North America on the same itinerary for just $99.
The Amazon.ca Rewards Visa is a must-have anytime you travel to the U.S. or abroad, as it’s one of the only cards not to charge a 2.5 percent fee for converting your foreign currency purchases back to Canadian dollars. There’s no annual fee.
As for the other cards, I’ll likely cancel them before the annual fee comes due and then look for a couple of new offers to sweeten my rewards in 2017.
There has never been a better time to cash-in on credit card rewards. The competitive landscape means that credit card issuers have stepped up their game when it comes to bonus offers and base earning rates.
By making the most of the card I use for everyday spending, and then taking advantage of some timely credit card offers, I earned an incredible $3,066 in credit cards rewards, after paying annual fees.
On last night’s edition of CBC Marketplace – The People vs. Air Miles – I tried to help Air Miles collectors fight back against the loyalty company and redeem their reward miles before they expired at the end of the year.
We filmed the episode in Toronto four weeks earlier, but the day before it was scheduled to broadcast Air Miles threw a wrench into the plans when it announced an end to its expiry policy. CBC producers scrambled to alter the ending to reflect the latest developments, but that meant leaving a few items on the cutting room floor.
Here’s the full episode, in case you missed it last night:
Marketplace viewers got a glimpse into how Air Miles mishandled this entire situation; from the announcement made back in 2011 that was buried in a footnote of a completely separate press release, to its quietly moving gift cards for groceries, gas, travel, and entertainment from Dream Miles into Cash Miles, to disguising a high percentage of airline base fare as fees & taxes. The list goes on.
What didn’t make the show, but was discussed at length during filming, was just how much Air Miles’ management was involved in preventing collectors from redeeming their miles.
To better understand how this puzzle works, note that Air Miles is owned and operated by LoyaltyOne, which in turn answers to parent-company Alliance Data out of Texas. Alliance Data is a publicly traded company and regularly files earnings reports and transcripts from its earnings calls with analysts and shareholders.
As expected, there were some interesting tidbits gleaned from these reports. Here are some excerpts from Alliance Data’s Q4 2011 earnings call (note the timing as this was when Air Miles first announced its expiry policy:
On Breakage and Profitability
LoyaltyOne came in consistent with our expectations for the quarter as we had anticipated an unfavorable exchange rate environment and lower collector redemptions as a result of active program management.
For the quarter, revenue was down $10 million or 4% due to $2 million negative impact from exchange rates and a $9 million decrease in redemption revenue. The decrease in redemption revenue was due to a conscious effort by management to pull back the burn rate compared to the fourth quarter of 2010.
Pull back the burn rate? How can Air Miles’ management affect how its collectors choose to redeem their miles?
“As we’ve talked about in the past, management routinely pulls levers to keep the AIR MILES program tracking to a 72% ultimate redemption rate. As you can see on the chart, aside from 2010 which was somewhat of an anomaly, our burn rate has been below or at the ultimate redemption rate. As of December 31, 2011, 59.9% of all miles issued since inception of the program have been redeemed.”
So fewer than six in 10 reward miles earned by collectors have ever been redeemed. The difference, which Air Miles calls “breakage”, makes up a good portion of the company’s profitability. But what “levers” are they talking about?
“We try to keep the existing program with the burn rate of somewhere around 69% to 73%. That’s the range we’ll like to see it operate. Last year and fourth quarter of ’10, it was little bit rich. So, what we do is we actively controlled the program via the options that you can redeem or the pricing of the option to try to keep it in the band as we move up toward that ultimate redemption rate of 72%.”
On Cash Miles vs. Dream Miles
“During the fourth quarter we announced a program enhancement for AIR MILES, the addition of an instant rewards option. Collectors in the AIR MILES program, beginning in the first quarter of 2012 will have the ability to allocate some or all of their AIR MILES collected into this option. It will provide collectors with an instant liquidity at the point of sale with participating sponsors. Both the sponsors and collectors have been asking for this enhancement and we delivered.”
This is when the program was essentially divided in two: one system for collectors looking for instant redemptions, and the traditional “Dream Rewards” where collectors save their reward miles for years before redeeming for a big trip or high-end merchandise.
“We anticipate that AIR MILES earned under (the Cash Miles) option will have a shorter life, perhaps as short as 12 months, with only a nominal number going unredeemed. Profitability to LoyaltyOne for this option will be from the pricing of the redemptions or gross margins rather than the more traditional breakage. We estimate right now that the instant reward option will play about 12-month life versus our existing program, which has a 42-month life.”
The company is admitting here that its profitability on Cash Miles will not come from breakage, but from devaluing the reward miles in this category from 13-15 cents down to 10.5 cents. Interesting to note that Dream Miles have a 42-month life, which is shorter than the proposed 5-year expiry window.
“At the same time we announced that all existing and future AIR MILES reward miles will have a date stamp of five years. This is a common industry practice. The implementation has no immediate accounting impact to LoyaltyOne, rather it just expires miles already considered dead for accounting purposes. All this does is crystallize the breakage rate over the next several years.”
Air Miles has said that some of its collectors have earned reward miles since 1992 and never redeemed them. The company, probably correctly, believes those miles will never be redeemed and wants to get them off the books by officially expiring old miles.
The following year, Alliance Data reported a profitable year for its LoyaltyOne division after it had a lower-than-anticipated burn rate. Shocking! Outside of the very few collectors who keep up on the news, most collectors knew nothing about the expiry policy and just kept earning miles as they normally would. From the Q4 2012 earnings call:
“Our guidance for Q4 was approximately 65% burn rate, whereas actual was about 60%. Redemption activities steadily moderated as 2012 progressed. This unusual trend, which we now believe is behind us, was prompted by the announcement of a 5-year expiry program at the end of 2011. This triggered what we call a run on the bank in the first half of 2012, as certain collectors accelerated redemption activity into the first half the year, which normally would have occurred somewhat steadily during the year. The fall off of redemptions in the back half of 2012 was expected.”
What was widely rumoured, but not proven at the time of filming, was that Air Miles’ management was pulling additional levers beyond simply adjusting prices and the number of miles needed for rewards.
Indeed, that included deliberately hiding rewards from certain collectors under the disguise of “personalizing the rewards experience”. It was also suggested that Air Miles intentionally made its website slow and difficult to navigate by removing the search bar and disabling features such as A-Z categorization of merchandise and rewards, among other things.
Given their mandate to keep redemptions within a certain band to maintain profitability during the “run on the bank”, it makes you wonder whether something more deceptive and sinister was going on behind the scenes to create frustration for collectors. Think of the number of hours and days spent on hold with the Air Miles call centre or spent trying to navigate the website to find something useful on which to spend your reward miles. Incredible!
What happens next?
Obviously the proposed ban on expiring rewards points in Ontario had a wide-reaching effect and forced Air Miles to cancel its expiry policy. Alliance Data issued a statement on December 1st that offers a look at what might happen next, saying that LoyaltyOne will incur a one-time charge as a result of the cancellation of the expiry policy, which is anticipated to be between USD $180 million and $250 million.
“Going forward, LoyaltyOne will adjust the value proposition to collectors to offset the lost economics resulting from a reduction in the breakage rate estimate and to maintain, as closely as possible, the economics of the AIR MILES reward program prior to cancellation of the expiry policy.”
That echoes what the company said in an earnings call five years ago:
“You have to basically raise the number of miles constantly that people have to accumulate if they want to redeem instantly because it seems like if the sponsor is not paying more, the consumer has to.”
Interesting to note that Air Miles does not believe the proposed ban on expiring rewards points will impact LoyaltyOne’s practice of terminating a collector’s account and cancelling their Air Miles reward miles after two years of inactivity. That means collectors need to earn or redeem at least one reward mile within a two-year period or face losing their miles forever.
As The Globe and Mail’s Rob Carrick noted here, Air Miles has demonstrated some of the clumsiest brand management ever seen in this country. He’s right, this is no victory for Air Miles collectors. Expect more devaluing of miles in the near future.
As for the Air Miles loyalty company, it’s going to be a tough slog to try and repair its reputation after six months of brutal publicity, not to mention all of the collectors who wasted time rushing to redeem their miles for junk they didn’t want or need.