Unused Points and Miles Can Be Big Business for Hotels & Airlines

United's MileagePlus program drives billions in revenue

There's a lot of chatter in the points and mile world regarding maximizing the value of the benefits we accrue from travel.  There are two primary actions that can cause the value of your miles and points to go to waste: expired miles/ points and frequent travel program mile/point devaluation (when the travel provider raises point levels required for the same type of redemption).  The first is in your control while the latter is subject to decisions by the loyalty program management teams.  In both cases, loyalty program member behavior and executive management decisions can have a big impact on travel provider profits, to the tune of billions of dollars.

To illustrate the magnitude of the impact that loyalty program point expiration and devaluations can have, let's look at an example form United Airline's 2013 annual report:

When you fly on United, a portion of the price you pay is put aside in a deferred revenue account.  Put simply, this means that rather than treating it that portion of the ticket price as revenue when you fly your ticketed flight, part of the revenue from the ticket has to be put aside to cover the future benefit United needs to deliver to you when you redeem the miles you earned from that flight.  As of the end of 2013, United had $4.9 billion in deferred revenue put aside in account for future redemption of Mileage Plus miles.

Monitor your miles & points online so they don't expire

United also discloses that they assume that a certain percentage of miles earned will expire before used.  As of the end of 2013, United assumed that 20% of miles would go unused.  For every one percent of total earned miles that go unused, United banks an additional $57 million in profits.  That means that because on average, those of us that have earned United MileagePlus miles let 20% of them go unused/ expired, United is able to recognize an additional $1.1 billion of profit from their loyalty program (note: this doesn't represent annual profit, but full benefit over the life of the current pool of outstanding earned miles).  That also means that if United increases the miles required to redeem the same award by 20%, they would also in theory generate $1.1 billion of additional profit.

United's 2013 Annual Report: Deferred revenue from frequent flyer miles & mileage expiration assumption

So, the bottom line is that mileage redemption, or lack of redemption, can be big business for airlines and hotels.  Make sure you do what you can so that 100% of the benefit of your points and miles earned ends up in your wallet rather than in the earnings reports of airlines and hotel.  Don't let your accrued points and miles end up in that 20% pool that goes unused before expiration.