Would you buy a $45,000 car with a credit card to get the frequent flyer points? Would you spend $250,000 in a year to enhance your status on an airline?
Although these are different phenomena (one shows the power of ‘getting something for nothing’, the other what people are willing to pay for premium services) both show how deeply mileage mania has hooked the traveling public.
Let’s look at “status” first. Delta and American Express announced that as of January 1, 2018, you'll have to spend $250,000 a year on the Delta American Express credit card, in order to ‘waive’ into the airline’s Diamond Medallion frequent-flyer status.
The other way to achieve this kind of status, of course, is to fly’ into it by putting your butt into an expensive airline seat for many flights and hours. Frequent flyers do exhibit this kind of paying loyalty to their favored airlines. A 2014 Australian study of 3300 members of one frequent flyer program showed that a large proportion of leisure and business travelers admitted a willingness to pay a higher fare (an average premium of 8%) to fly with the sponsoring airline because of their loyalty membership.
(Full disclosure: I own stock in American Express, Visa and Southwest Airlines.)
Certainly Diamond Medallion status is tempting. Perks include unlimited complimentary First Class Upgrades, priority waiting list, companion upgrades, priority boarding, Delta Sky Club membership, plus waiving the penalties plebeians must pay, like baggage costs or same-day standby fees. But $250,000 in spending to get there? As the previous spend requirement was $25,000, this is an order of magnitude ‘enhancement’.
Fliers are reacting as you might expect. One wrote on Twitter, “Absolutely & utterly ridiculous increase for Amex spend!” Another wrote, “This'll be my final year with Delta and Amex.”
But to the airlines, such co-marketing programs—and the dollars they bring—are critical. One analyst claims the frequent flyer programs of airlines like American and United are worth more than the airlines themselves. And American recently stated that 87% of their customers fly once a year or less.
The story of the man who put a $45,000 car on his credit card to get the points again shows how deeply the points and miles “hobby” has penetrated our consciousness.
Chris Mixter, 39, an IT consultant from Virginia, was an experienced mileage user who had never bought anything more expensive than a refrigerator on his United MileagePlus Explorer Visa. His idea: use the card to pay the entire purchase price of a new 2018 Honda Odyssey minivan, $45,000 including extended warranty. The potential haul: with United miles worth about 1.5 cents each, about $675 in frequent flier credit towards a birthday/anniversary trip to Italy
Why not? After all, in 2015 an art collector reportedly bought a $170.4 million Modigliani painting on his black AmEx to rack up points. One difference: Liu Yiqian is a billionaire.
But Mixter’s points plan didn’t work as smoothly as the art collector’s. He had to call five dealerships before finding one that would do $45,000 on the card. Then he had to call the card issuing bank, Chase, to increase his limit. The dealership didn’t charge him an additional fee for using a credit card because “I think they were willing because it was a 2018 car, and I wasn’t getting any discounts,” Mixter said.
According to Marketwatch. Mixter had to scramble after he made his purchase. He didn’t have the cash to immediately pay it off and didn’t want to pay 17% a month interest. He ended opening three new credit cards offering 0% APR for up to 14 months, and shifting the balance from his United card to the new cards.
All for $675 worth of frequent flyer points. Comments on the story were uniformly negative. Commenters suggested that by paying full price, not pitting the five dealers against each other to get the best deal, buying an extended warranty, not negotiating, not considering used, probably paying a higher price as the dealer had to pass along the card transaction cost, and so on, Mixter had bought himself a costly vacation.
So by being willing to sacrifice time, comfort, points, perks and “status,” do the much-derided Millennials actually have it right? (“Basic Economy will be the very last group to board, thank you!”) Their reward? An affordable flight to their desired destination.
