As Summer Travel Heats Up, Are Gift Cards and Membership Reward Points Plunging in Real Value?
We’re entering the Dog Days of Summer across the country. Record heat has been gripping the West Coast. I’m roasting in Phoenix, Arizona, where the temperature consistently remains in the mid 100’s.
But as Private Hudson from James Cameron’s “Aliens” said, just before his marine squad was slaughtered in a nuclear reactor area: “At least it’s a dry heat!”
So here I am, in my late 50s, divorced, out of shape, cramped in a one-bedroom apartment and craving a respite from the unbearable heat.
My mind wanders to my unused stash of membership rewards points from my various credit cards, and the additional miles and qualifying credits for airlines and hotel chains that I pray haven’t expired during my COVID travel hiatus.
It sure would be nice to use them to get a free getaway to a cooler climate or coastal city. Alas, there are plenty of obstacles to this plan.
And whether you’re a wealth management professional thinking about your last hurrah for the summer, or a financial advisor who gets questions from clients about when and how to best use cash value consumer tools, these are some relevant thoughts for your consideration.
Supply Chain Shortages
It’s no secret that those who have been lucky enough to hold their job through the pandemic are eager to use both accumulated PTO time, savings and reward points before the summer fully ends.
But not so fast, happy campers! In case you’ve missed it, there are some serious supply chain shortages that are still impacting day to day life for businesses in the hospitality and travel sectors:
- Rental car shortages causing some tourists to go as far as renting U-Haul trucks
- Staffing shortages in all sectors from hotel cleaning services to airline pilots to kitchen staff
- Food and material shortages including computer chips, steel, rubber, and plenty of others
Here’s How It Affects YOU
But how does this impact my reward points and gift cards, you might ask?
Well, cruise lines, airlines, and especially rental car companies liquidated their inventory during the pandemic while their products were being underutilized. It was their way of mitigating overhead cost to survive. At the same time, many hotels and airlines boosted cash reserves during this time period by raising the volumes of gift cards sold to consumers and points awarded to partners.
The benefits of gift cards are fairly straightforward for both parties; the seller gets liquidity now for a service provided in the future (if the purchaser remembers to use the gift card) while the purchaser usually gets a discount on future services or a quick and easy gift for someone. The idea of loyalty points may be more foreign and nuanced.
The way this tends to work is a company has a sort of “currency” that is used to book a service through them. Typically these points are earned through loyalty programs directly from the company, but it’s also quite common for companies to have cobranded credit cards that allow people to accumulate the same loyalty points through everyday purchases.
Further, there are often promotions and sign up bonuses that offer larger lump sums of loyalty points when certain conditions are met. Think along the lines of spending $3,000 within the first three months of opening a new credit card.
It’s All About Real Purchasing Power
As we are beginning to see with many other commodities due to the Federal Government monetary policy during the pandemic, these travel redemptions are also subject to demand-pull inflation.
In the case of a pre-purchased gift card, your real purchasing power may decline as the result of the huge surge in post-vaccination summer travel, competing for the limited available rooms and flights.
As for points and miles, because the companies know the significant amount of floating points out on the market, they may be incentivized to restructure their reward redemption policies to require a higher point threshold or implementing dynamic point systems that differentiate between peak/off peak redemption rates. Ultimately, this leads to the devaluation of the loyalty program points.
The post-pandemic world will surely bring sweeping changes to the travel industry. Prior to the pandemic, regular business travel gave certain locations very steady and reliable cliental. The massive halt in business travel and the shift to telecommuting has reduced the need for this type of travel.
Many airlines diverted routes from business hub to business hub in favor of routes to getaway vacation destinations.
We are slowly returning to the office, and even more slowly returning to business travel, but it is fair to question if we will see the same levels from the 2010s anywhere in the near future – Especially with the delta variant of the COVID virus causing new infections to surge throughout much of the country.
For wealth management professionals, or the clients that financial advisors serve, if the question comes up about whether you should redeem accumulated rewards points or gift cards, you should go for it! As of right now, you could be looking at a significant drop in the real value of these consumer instruments.
James Miller, Contributing Editor & Research Analyst, Wealth Solutions Report, can be reached at ContributingEd@wealthsolutionsreport.com