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BA: the central banker in the sky
The changes British Airways is making to its Avios rewards scheme will be very familiar indeed to the world's central bankers, says Merryn Somerset Webb.
Demand for flights paid for with Avios points exceeds the supply of seats BA is willing to provide
Worried about currency debasement and inflation? If you are a member of BA's Avios scheme you should be.
Earlier this week it was announced that the number of points an economy class customer can earn from each flight is to fall dramatically. If you had taken a non flexible economy class flight from London to Sydney under the old scheme says the Times you would have received 10,600 air miles, enough for two flights to Paris. Do it now and you'll get 2,600 which won't even cover one.
At the same time, points pricing is changing to a more "railway style peak and off peak pricing system", with flights costing more in the school holidays, for example.Regular passengers weren't much impressed, particularly as first class passengers are now to get more rather than fewer points per flight (look up Avios changes on Twitter).
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Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
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But look at the changes through the prism of monetary policy and it all makes sense. Avios has in effect been running a very loose money policy for ages. Avios points have been easy to get (I don't travel much and I've got lots); too many people have collected too many of them; and demand for flights paid for with them now exceeds the supply of those seats BA is willing to provide.
So it makes sense to first create inflation to devalue the currency already out there (ie make peak time flights cost more points) and then to tighten policy to reduce the future supply of them.
It's a problem all central bankers will understand.
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