Yesterday, I put out the sad news about PremierMiles conversion changing from 1:1 to 2:1 and also the relatively minor devaluation of using PremierMiles as cash for booking tickets.
I have a feeling I should lay out an educated guess about why conversion options are being hit more than the use as cash. This, is all a result of inflation over the years, as well as the foreign exchange movements over the years.
First, about the inflation. I know inflation does not directly impact the price at which conversions should happen, and loyalty programs regularly adjust their redemption rates to account for inflation. However, maybe the price at which the loyalty programs sell to banks and other establishments also changes over a period of time. Citi may have found it difficult to keep the rate same over a period of time and pay from their pocket. I also guess that the conversion rate changes account for inflation over the coming years as well.
Secondly, about the Foreign exchange movements. Have a look at the USDINR movement over the past 3 years approximately. There is a 30% appreciation here, and most other western world currencies will show similar trends of strengthening against the Rupee.
When a company such as Citi pays for your mileage conversions in India, most of the companies they are dealing with are based abroad, such as Delta and British Airways. Hence, their costs to buy the same number of miles go up, not down because they are spending more Indian Rupees to get the miles into your accounts. At some point of time, they’d have reached the tipping point to have raised the conversion ratios.
Thirdly, why does the use as cash go up only 10% while use for conversion go up 100%? My thoughts are linked to the explanation above and a bit of conspiracy theory as well.
When you are using the points for cash (0.45 paise per PM), Citi is paying an Indian vendor (goibibo.com) to help you with your bookings, that too in INR. So, the currency appreciation does not play a part. My conspiracy theory also says that maybe a 100% hike is being made to dissuade customers from converting to miles and promote the use as cash. But then, that is just the way I think of this situation and maybe not Citi’s viewpoint.
In all fairness, I don’t blame them for the whole conversion inflation, but I sure think they could have done a small devaluation than such a large one, like a 1.5 PM = 1 airmile.
Anything I miss here? And what do you guys think?