Why air miles are set for a nose dive

A few years ago, collecting Airmiles made a great deal of sense. But recent changes to the rules mean they're soon going to be worth a lot less than they used to be, says Merryn Somerset Webb.

Air miles used to be rather fabulous. Back in the 1990s, collecting them really made sense. If you took one flight, often the miles you collected meant you were entitled to another. Collecting them wasn't hard either: you could even get them on flights you booked and cancelled. Promotions were frequent and they were good. In 1999 David Phillips, an engineer from California, noticed a promotion on a chocolate pudding in his local supermarket. He bought $3,000 worth and in the process collected frequent flyer miles that were valued at $25,000.

Let's hope he spent them quickly. Back in 2007, the buying power of air miles had already fallen (they were harder to collect and you had to use more to get a free flight). But we warned here that it was soon going to get worse. The air miles in issue at the time were valued at around $700bn (by The Economist) and there were so many of them out there that none of us could see how the airline industry could afford to honour them. Even if no more had been issued, it would still have taken the industry 25 years to provide enough flights to use them all up. Think of air miles as a currency (as we did) and you could guess what was going to happen next: currency degradation. We expected that, as time passed, the small print would be fiddled with so that people would find it "harder and harder to redeem their miles" and that, if they ever managed to find a flight on which they could use the miles, it would cost them more than they expected. That has happened.

But now, The Mileage Company, which owns Airmiles, has moved the devaluation of the frequent flyer miles up to a new level. An overhaul of the rewards programme is about to mean that customers claiming on their miles will for the first time have to cover all the air and fuel taxes on the trips. This will affect around 2.2 million Airmiles customers and could add around £300 to the cost of a trip to New York and up to £600 to a trip to Australia. A few compensations have been granted: surcharges for those flying from regional airports are being abolished and one-way flights are being added to the scheme. But these are minor things. The fact is that, from 15 December (when the new rules start and Airmiles is to be rebranded Avios), Airmiles are going to be worth a lot less than they are now. So what do you do? What you always do when you hold a currency that's about to be devalued: spend it fast. If you still have miles left after December, only use them for flights in Europe. Whatever the real costs of the taxes, if you've collected miles in the last year, the charges will be capped at £27.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up
Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.