EXPIRING MILES
It was inevitable, one of the longest hold outs from the expiring miles/points camp has joined the party. Canada’s largest loyalty program, Air Miles, has enacted an expiry rule of 5 years on their Reward Miles loyalty currency. Much like Aeroplan’s expiry rule of 7 years, Air Miles members will have 5 years from the month they earn a Reward Mile to redeem it otherwise it will expire. This expiry rule is different than inactivity rules where you don’t use your account at all (earn or burn miles) which is 24 months with Air Miles.
This change is really unfortunate as this was a key strength of the program but according to Air Miles, the majority of Reward Miles earned by its members are redeemed within that 5 year limit. The ones who may lose out here are the collectors looking to earn enough miles so their family can take a dream trip. Ultimately the landscape has changed for loyalty programs in Canada (and the world) and that has necessitated or accelerated the need for expiring miles. Loyalty programs need to show worth and profitability to their shareholders and carrying unused miles is a liability for the program. The term for having these miles removed without them being redeemed is called breakage and all programs count on a certain percentage of breakage. Knowing this, a loyalty program like Air Miles wants to create a healthy balance of breakage and keeping their customers engaged and happy. How can expiring miles keep a customer engaged? By having them redeem for rewards to use up miles that might otherwise expire. So while the member may not be getting the reward they initially wanted to get out of the program they are getting something. Typically these redemptions will be on merchandise or gift cards instead of travel and those catalog items tend to be have higher profit margins than travel so it is a win-win for the Loyalty company by keeping the customer engaged and making a healthy profit.
One question that does need an answer as I see it as a bit of a contradiction is that if the majority of miles that are earned are burned within the 5 year period than the amount of miles left on the books can’t be worth that much. Is the value of writing off those miles more than the potential loss of profit from collectors who are aspiring for a dream vacation that may switch to a program like Aeroplan because they will have 2 more years to earn miles? There will be other questions as well from our readers as I can guarantee most of you will not be happy with this rule based on the experiences with Aeroplan’s announcement of their expiry rules back in 2006.
For more on Air Miles Expiry please see here
INSTANT REDEMPTION
Also in today’s announcement from Air Miles on the changes of their program is the new Instant Redemption option called Cash Rewards. This option will effectively create a second account or an account within an account for Air Miles members to redeem instantly at Air Miles sponsors. This is key, you will only be able to instantly redeem at Air Miles sponsors and its makes total sense. Up to now, Air Miles members could collect at many sponsors but than redeem for items like Gift Cards for stores, restaurants etc that were not sponsors, so basically the non-sponsoring companies earned money from miles paid for by Air Miles sponsors and this practice had to be curbed by Air Miles to keep its sponsors happy (it may also explain the shrinking of the gift card rewards you can redeem for) Anyways, enough on that and more on how it works:
Essentially when the program launches, Air Miles members will have the option to run a ‘cash account’ in conjunction with their Air Miles Reward Miles account. When they open up this ‘cash account’ they will be able to choose what percentage of the Reward Miles earned will go into their ‘Mileage Account’ and what percentage will go into to their ‘Cash Account’. The ‘Mileage Account’ will be the legacy account that is used to redeem for travel, merchandise, gift cards and more via the Air Miles program while the ‘Cash Account’ will allow the Air Miles members to instantly redeem against a charge at a participating Air Miles sponsor. So if you have $10 in your Air Miles cash account you can redeem that against any purchase of $10 or more at the participating sponsor.
Some things to note, you will not be able to transfer miles between the ‘Mileage Account’ and the ‘Cash Account’ nor will you be able to initially fund your ‘Cash Account’ with your existing miles. Instant redemption will not be available until March of 2012 but the accounts can be set up right away so that you can start building up a cash balance to use when participating sponsors begin accepting the instant redemption. You will be able to modify your percentages as you go along and learn what amounts to each account work for you and of course you have the choice of only sticking with one. Personally, I don’t earn very many Air Miles to redeem for many things so I may move all my future earning to a ‘cash account’ for the instant redemption savings even though my rate of return will be lower than redeeming for travel, but like I said I don’t earn very many Reward Miles so I would rather get something than nothing.
For more on Air Miles Cash Rewards please see here.
Please comment below to tell us what you think of today’s announcement of the expiry rules and instant redemption options in the Air Miles program.
Comparison of Canada’s Three Main Travel Loyalty Programs Expiry & Inactivity Rules
Air Miles:
5 Years Expiry
2 Years Inactivity
Aeroplan
7 Years Expiry
1 Year Inactivity
WestJet
5 Years Expiry
No Inactivity rule (although WestJet does state that it can be 12 months at their discretion)