Yet another loyalty program trap: airline companion tickets

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In the last few weeks I've done a bit of a deep dive into the annual free night certificates offered by various co-branded hotel credit cards (IHG (and here), Marriott, Hyatt), with the general theme that a single annual free night certificate has to be looked at in the framework of your overall miles, points, and travel strategy.

For example, a $75 Hyatt free night certificate can either save you 8,000 Ultimate Rewards points if redeemed as part of a short Category 2 stay (good deal!), or cost you tens of thousands of Ultimate Rewards points if you let its presence in your account convince you to spend your vacation at a Category 4 Hyatt property rather than, for example, a Club Carlson property where your last night (or every other night, depending on your credit card portfolio) is free.

In other words, it's not enough to say the Hyatt Visa Signature credit card gives a free night when you pay the $75 annual fee. That "free" night might be very cheap or very expensive, depending on your travel plans and overall miles and points strategy.

Are airline companion tickets too good to be true?

Many airline co-branded credit cards offer an annual companion ticket, which are (with a few important exceptions) valid for economy travel in the continental United States and Canada, on flights operated by the issuing airline (excluding their partners and, in US Airways' case, their own sister airline American).

Here's a quick glance at some of those companion tickets:

  • Barclaycard US Airways MasterCard (for new and current cardholders in 2015 only): $99 plus taxes and fees for each of up to two companions traveling with the cardholder, when the cardholder purchases an economy ticket fare of $250 or more. Valid in the continental United States and Canada. $89 annual fee. You must pay with your US Airways MasterCard.
  • Barclaycard American Airlines Aviator Silver MasterCard (beginning in the second quarter of 2015): $99 plus taxes and fees for each of up to two companions traveling with the cardholder, when the cardholder purchases a ticket for $250 or more. The cardholder must spend $30,000 each cardmember year to receive the companion tickets. $195 annual fee.
  • Bank of America Alaska Airlines Visa Signature: $121 for one companion to travel with the cardholder, when the cardholder purchases any economy ticket. Valid systemwide on flights operated by Alaska Airlines. $75 annual fee. The primary cardholder must be traveling or the ticket must be booked with a card in the primary cardholder's name.
  • American Express Delta Platinum (economy) and Reserve (economy or first): pay only the taxes and fees for your companion when purchasing a ticket in eligible fare classes. Valid in the continental United States and Canada, except for residents of Hawaii, who can originate there. $195 (Platinum) or $450 (Reserve) annual fee. The terms and conditions state that the ticket must be paid for with your American Express Delta Platinum or Reserve card, although a reader reported that he was able to use a different American Express card.
  • Chase British Airways Visa: you pay only the taxes, fees, and fuel surcharges for a second award ticket in any class of service booked entirely on British Airways-operated flights, originating in the United States. $95 annual fee. The primary cardholder must be traveling.

Who are companion tickets right for?

I often write that there are only two reasons to even consider using travel-rewards-earning credit cards, rather than earning a straight 2% cash back using a card like the Fidelity Investment Rewards American Express:

  • You travel for work and have reimbursable business expenses;
  • Or you manufacture spend furiously.

That's because even if you (not unreasonably) value Membership Rewards, Ultimate Rewards, or Citi ThankYou points at more than 1 cent each, you have to earn a huge number of them to "make up" the $95, $175, or $450 annual fees incurred by premium rewards-earning credit cards.

The same logic applies to companion tickets. If you're reimbursed by your business or employer for your travel expenses, then the annual fees of these credit cards really might be cheap methods for bringing a travel companion on a domestic trip with you.

That's because when the cost of the revenue ticket is taken out of the equation, the credit card annual fees may be a relatively small fraction of the cost of paying for a second revenue ticket: $217 (Delta Platinum) is 25% of a $868 ticket, $210 (US Airways) is 25% of a $840 ticket, $196 (Alaska) is 25% of a $784 ticket. While those hypothetical prices are currently high for leisure fares (I haven't paid $784 for a domestic ticket in years), if your travel companion wants to come with you on a route heavy with business travelers, they're not inconceivable.

The problem with companion tickets

With that out of the way we can come to the crux of the problem: companion tickets are a bad deal because they require you to purchase a revenue ticket directly from the airline.

And if you're a travel hacker, that's vanishingly unlikely to be the cheapest method of buying tickets — even revenue tickets. Leaving award tickets completely aside, here are a handful of straightforward methods for buying revenue tickets on the cheap:

  • Redeem US Bank Flexpoints at up to 2 cents each, earned at up to 3 Flexpoints per dollar spent on charity. Maximum discount: 83.3%.
  • Redeem Citi ThankYou points at up to 1.6 cents each on American Airlines or US Airways flights, earned at up to 3 ThankYou points per dollar spent at gas stations. Maximum discount: 83.7%.
  • Redeem Chase Ultimate Rewards points at up to 1.25 cents each, earned at up to 5 Ultimate Rewards points per dollar spent at office supply stores. Maximum discount: 46.3%.

Compare that to a revenue ticket purchased directly from the airline, and a companion ticket paid for with your annual fee plus any required taxes, fees, or co-pays. Even the unusually high prices I cited above (with savings of 75% on the companion ticket compared to revenue fares) produce savings of just 37.5% when you're forced to buy the first ticket at retail price.

Exceptions worth considering

While the Bank of America Alaska Airlines companion ticket and the British Airways Travel Together ticket do have to be booked directly with their respective airlines (over the phone, in both cases), the terms and conditions of the tickets do not require them to be booked with the corresponding credit card. That means you can use a Barclaycard Arrival+ card to pay for both tickets, potentially securing a discount comparable to what you'd get booking using a more lucrative points currency.

Personally I prefer to use my Arrival+ miles for non-chain hotels and taxi and Uber rides, but if you're earning them cheaply enough, an Alaska Airlines or British Airways companion ticket might make sense — again, depending on your own miles and points strategy.

How do transfer bonuses and Travel Together Tickets affect the value of Avios for long-haul British Airways flights?

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Everyone knows that Avios, the awards currency used by British Airways Executive Club, can be redeemed for short-haul domestic flights at sometimes astronomical values. 4,500 or 7,500 Avios for expensive, short-haul flights is one of the great bargains in domestic travel, and makes British Airways one of the most valuable transfer partners for Chase Ultimate Rewards points, which you can quickly and easily transfer over in increments of 1,000 Avios.

The flip side of that are the huge taxes and fees levied on long-haul Avios redemptions on British Airways flights through London, which mean those redemptions, particularly in premium cabins, are almost never worth making compared to Delta or United redemptions connecting in Continental Europe.

I recently mentioned on Twitter my intention to cancel my Chase British Airways Visa, which I received last January under the fantastic signup bonus of 100,000 Avios after spending $20,000 on the card, and someone mentioned that Membership Rewards transfer bonuses (currently 40%) and British Airways Visa Travel Together Tickets might make the card worth keeping. I don’t pay extortionate taxes, fees, and fuel surcharges, and I don’t recommend my readers do either. But I was sufficiently intrigued: how do transfer bonuses, and the British Airways Visa Travel Together ticket, affect the value of Avios for flights on British Airways metal?

Membership Rewards transfer bonuses

Membership Rewards, one of the proprietary points currencies of American Express, can ordinarily be transferred to Executive Club Avios at a 1:1 ratio. Periodically, however, the program offers bonuses on such transfers so that, for example, 1,000 Membership Rewards points can currently be transferred to 1,400 Avios.

Note what this does and doesn’t mean: while the Avios cost (in Membership Rewards points) of such tickets is reduced by 28.6%, the taxes, fees, and surcharges remain the same.

The cost of every ticket can be broken down into two components: the miles and points cost and the dollar cost. Even a paid revenue ticket has a (negative) miles component (the miles you earn from flying), while a domestic award ticket will still have a low dollar cost ($11.20, for example, in taxes and fees).

There should always be some point at which you’ll prefer to book a revenue ticket over an award ticket; if a domestic revenue ticket on United costs $250, you can redeem 20,000 flexible Ultimate Rewards points for the paid ticket rather than transfer 25,000 Ultimate Rewards points to United to book an award ticket: the negative mileage cost of the revenue ticket makes it "cheaper" overall (even with gutted earning on paid United flights).

In the same way, a sufficiently high transfer bonus should make even award tickets with high taxes and fees cheaper than an award ticket booked on a more consumer-friendly airline.

British Airways Visa Travel Together Tickets

Each calendar year you spend $30,000 on a Chase British Airways Visa, you’ll earn a "Travel Together Ticket.” Travel Together Tickets expire two years after they’re issued. These companion tickets:

  • Can only be redeemed on British Airways-operated flights;
  • Must originate and terminate in the United States (no originating in Brazil to dodge fuel surcharges);
  • Can be used for any class of service, or mixed-cabin itineraries;
  • Require the cardholder to travel on the entire itinerary (no selling Travel Together Tickets online!).

Importantly, when booking a companion ticket you’re still required to pay the taxes, fees, and surcharges for each passenger; the companion ticket only discounts the Avios component of your reservation, not the dollar component.

Is it worth it?

Combining the two promotions results in a discount of 64% to the miles component of a two-person reservation (1,000 Membership Rewards points for 2,800 Avios in value), with no discount to the dollar component. Are there itineraries that make such reservations competitive with other points currencies? I compiled the following chart using the actual mileage and dollar award costs for several cities served by British Airways, American Airlines, Delta, United, and their partners.

For each award, I calculated an "imputed redemption value," which is the rate at which a British Airways Visa Travel Together Ticket redemption is buying American AAdvantage miles, Delta Skymiles (or Membership Rewards points), or United Mileage Plus miles (or Chase Ultimate Rewards points). For example, on a roundtrip economy award for two passengers between New York City and Heathrow, passengers redeeming a Travel Together Ticket would pay $999 in order to spend 28,571 Avios instead of 120,000 Skymiles. You could think of this as buying Skymiles at 1.09 cents each, or paying $999 in order to convert 28,571 Avios into 120,000 Skymiles. If you typically redeem your Skymiles for more than 1.09 cents each, you might consider redeeming a Travel Together Ticket instead.

The lower the  IRV, the better value a Travel Together Ticket redemption theoretically is. I've highlighted IRV's below 1 cent per mile in green, between 1 and 2 cents per mile in yellow, and above 2 cents per mile in red.

A few notes on this chart:

  • This chart only shows award tickets I could actually search for and find online. I've indicated where an airline offers a theoretically lower redemption cost, but where I was unable to find a single award seat at that level. We're interested in the actual cost of award tickets, not their theoretical cost;
  • This chart shows the mileage and cash cost of 2 award tickets, since Travel Together Tickets naturally only apply to 2-person reservations;
  • The mileage cost of British Airways awards is given in Membership Rewards points, since this chart shows the combined effects of Membership Rewards transfer bonuses and a Travel Together Ticket. Multiply by 2 to find the cost in Membership Rewards points without a companion ticket, or by 1.4 to find the cost in Avios without a Membership Rewards transfer bonus (or by 2.8 without either);
  • British Airways will charge more Avios, but not (much) more cash, for departures from their other US destinations. To find the cost from those destinations, add the Avios shown at the bottom of the table;
  • Finally, this is a non-representative sample of British Airways destinations. It was chosen only to illustrate the principle; calculate your own imputed redemption values using the actual cities you're interested in traveling between.

Conclusion

I find charts like this useful not because I have any burning desire to visit Johannesburg, Bangalore, or Beijing, but because using concrete figures can help evaluate generalized claims. My key takeaway from this chart is that the headline combined discount of 64% may sound impressive, but how much value you actually receive from a Membership Rewards transfer bonus and Travel Together Ticket will depend entirely on the itinerary you ultimately redeem them for.

On itineraries between the United States and London, where you'll be forced to pay the United Kingdom's Air Passenger Duty regardless of your airline, the mileage savings with Avios can substantially outweigh the increased cash outlay.

Additionally, if your alternative to using British Airways Avios is the AAdvantage program, you'll likely be booking your transatlantic travel through London anyways, and using a Travel Together Ticket and Membership Rewards transfer bonus instead was a better value on almost all the transatlantic routes I examined.

On the other hand, itineraries between the United States and China are so astronomically expensive in both Avios and fuel surcharges on British Airways-operated flights that even the Travel Together Ticket doesn't make an Avios redemption competitive with redemptions through the other three mileage programs.

Looking at this chart, I've even more persuaded to cancel my British Airways Visa. What do my readers think?

Breaking: Iberia goes bizarre, British Airways award chart intact (for now)

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About 12 hours ago, at 10:23 am, I sent out what seemed like an innocuous tweet:

 

"Did Iberia go revenue-based while I wasn't watching? Short domestic flights are pricing out astronomically"

Here's what I was referring to. While planning an award trip using some of the 100,000 British Airways Avios I earned during that short-lived signup bonus back in January, I wondered whether I might see different availability or cheaper taxes and fees if I transferred my British Airways Avios (through Avios.com) to Iberia.

Here's the itinerary I was looking at, in British Airways' booking engine:

This is an example of an itinerary that, since British Airways prices segments out individually, is a pretty good deal despite their policy of charging three times the price of coach for US domestic first class. It's two 13,500 Avios legs paired with two 4,500 Avios legs, for a total cost of 36,000 Avios, while the same itinerary would cost 50,000 AAdvantage miles or 65,000 Alaska Airlines Mileage Plan miles.

Here's the same itinerary priced out with Iberia's award engine:

That's...weird. The same itinerary is pricing out cheaper using Iberia Avios than British Airways Avios (although the additional taxes and fees make British Airways the better deal overall).

But even weirder is that there's no reason, based on the award charts we all thought Iberia was using, for that odd number of Avios to be required at all.

Since Iberia only allows round-trip award reservations, I thought I'd see whether I got a similar result with a single-cabin reservation. Instead, it got weirder.

Here's a first class reservation between Madison and Chicago using British Airways Avios:

Just as we saw above, this roundtrip flight in first class prices out at 27,000 British Airways Avios.

Here's the same reservation priced out with Iberia Avios:

You read that right. The itinerary costs over twice as many miles using Iberia Avios (which, as a reminder, are freely transferrable to British Airways Avios).

For a final test, I thought I'd check the economy itinerary between Chicago and Lexington. Here's what British Airways shows me:

As you'd expect, the short round-trip itinerary prices out at 4,500 Avios each way.

Here's Iberia's pricing of the same award:

In this case, the economy itinerary costs almost three times as much using Iberia Avios!

The Explanation

As my Twitter follower @KennyBSAT was the first to point out, Iberia has quietly introduced what most bloggers this evening are calling a devaluation (see here, here, here, and here). They've already implemented a new award chart for partner award bookings, including American Airlines award bookings like the one I was booking today.

The new award chart will require close study, and as Gary points out, "long haul flying can be cheaper than using BA Avios."

The most interesting point my example above illustrates is that they appear to use a formula to weight mixed-cabin redemptions, such that adding short-haul economy legs radically reduces the total cost in Iberia Avios, sometimes below the cost in British Airways Avios. Since Iberia requires round-trip redemptions, it isn't obvious how to use this loophole to add a "third strike" to a reservation in order to drag down redemption costs. However, adding a short-haul economy flight to a long-haul business or first class flight may, as in my example, drastically reduce the number of Iberia Avios required for your award redemption.

Conclusion

Trust me: you'll be seeing a lot more analysis along these lines on all the most popular travel hacking blogs in the coming days and weeks. Potential arbitrage opportunities like these are the bread and butter of travel hackers, and I suspect a lot of discussions will be taking place on Twitter, as well as in the comments to this blog and others. Be sure to follow me @FreequentFlyr and check out my list of some of the best travel hacking feeds to make sure you're in the loop for this ongoing and guaranteed-to-be-lively discussion.

Initializing Iberia Plus Avios accounts

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Last month I mentioned that I was trying to figure out how to "initialize" my Iberia account. Now that I've succeeded, I can share my experience.

What are Avios?

For most hotels and airlines we use in the United States, a loyalty currency is almost indistinguishable from a loyalty program. It doesn't occur to anyone that there's a difference between the Delta Skymiles loyalty program and an individual Delta Skymile.

Avios work slightly differently: Avios are the rewards currency of three different loyalty programs: British Airways Executive Club, Iberia Plus, and the Avios travel rewards program.

So just like you can use Euros issued in France to buy bratwurst in Vienna, you can use your Avios for rewards through any of the three programs.

However, as the people of Greece recently discovered to their chagrin, just because countries use the same currency doesn't mean they can't impose border controls. That's exactly what Iberia has done, and smuggling Avios past those controls is the subject of this post.

Why Iberia?

While British Airways and Iberia charge the same number of Avios for flight redemptions through either program, Iberia charges much lower fuel surcharges for award redemptions on their own flights than those booked using Avios in British Airways Executive Club club accounts.

Here's British Airway's Avios calculation for a non-stop flight between Madrid and New York's JFK airport:

At the request of a very generous reader, this picture features a circle

Here's the same route priced out using Avios in an Iberia account:

At the request of a very generous reader, this picture features four arrows

What's the problem?

In a perfect world, that's all you'd need to know. By choosing "Combine my Avios" (find it under "Manage my account") on British Airways' website, you'd be able to save yourself hundreds of dollars on your Iberia award flights by booking using Iberia Plus instead.

Unfortunately, the world we live in isn't perfect yet, and you're not allowed to transfer Avios into your Iberia account until it's been open for 90 days and has at least one other (non-"Combine my Avios") transaction.

What's the solution?

In response to my original post a number of readers reached out with suggestions on how to "initialize" my Iberia account:

  • e-Rewards redemption. This is what I ultimately did: I redeemed $25 in e-Rewards credit for 750 Avios in my Iberia account. That transaction initialized my (over-90-day-old) account, and I was then able to successfully transfer Avios from British Airways to Iberia using Avios.com as the Points Guy describes here. This worked for me since I already had about $24 in e-Rewards credit, so I just had to flunk a few surveys in order to earn the additional $1 in credit. I initiated my transfer on May 29, and the Avios were credited to my Iberia Plus account on June 2;
  • Membership Rewards transfer. In the comments, Grant not-very-helpfully (I don't have Membership Rewards points) pointed to his post on transferring Membership Rewards points to Iberia Plus in order to initialize an account;
  • Melia Rewards transfer. Another reader reported being able to transfer the 2,000 point signup bonus with the MeliaRewards program to Iberia. I wasn't ultimately able to do this — as the reader pointed out, the 2,000 bonus points aren't supposed to be eligible for transfer. However, if you do ever stay with a Melia-affiliated property, or earn Melia points through some other activity, you will be able to transfer the points you earn to Iberia Plus.

Conclusion

Iberia has great award availability and relatively low fuel surcharges on their own flights; that can be a powerful combination when trying to decide how to fly to or from Europe using Avios, while Avios can be one of the easiest loyalty currencies to earn since British Airways Executive Club is a transfer partner of Chase's Ultimate Rewards points.

Quick update: my impromptu January application cycle

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[update 1/11/14: I never got around to calling Chase about my British Airways application, but today I saw that it had been added to my online accounts with a $2,000 credit line.]

Yesterday I announced that in honor of the 5% cash back "old" Blue Cash card still being available, I was moving my next round of applications up from the beginning of February. That meant scrounging around for the best, currently-available, signup bonuses. Unfortunately, the Alaska Airlines offer I wrote about in my "perfect storm" post is no longer available. Here's what I ended up applying for:

  1. American Express "old" Blue Cash. No signup bonus, no minimum spend requirement, no annual fee. 5% cash back at drug stores after spending $6,500 each year. Result: immediate online approval, $1,000 credit limit.
  2. Citi Platinum Select / AAdvantage World MasterCard. 50,000 miles after spending $3,000 within the first 3 months. Result: approval after calling the "status check" number, (888) 201-4523, $3,000 credit limit.
  3. Barclaycard US Airways MasterCard. 35,000 miles after first purchase. Result: immediate online approval, $1,000 credit limit.
  4. Chase British Airways Visa Signature. 100,000 miles after spending $20,000 within 12 months. Result: application pending. I called into the application status line today, (800)-436-7927, but have still been unable to get a decision or shuffle my credit limits around to secure approval. I'll wait and call back on Monday.

As you can see, because this application cycle was impromptu, I didn't have a chance to massage my credit by making sure all my credit card statements closed with a low or zero balance. My day-to-day high utilization rate negatively impacts my score between application cycles, making me look less credit-worthy (even though I always pay off my balances in full).

However, this doesn't bother me. I intend to only use the US Airways card once, to secure the signup bonus, and spend just $3,000 on the American Airlines card, so those low credit limits aren't a problem.

The $1,000 credit limit on the Blue Cash card, on the other hand, would be an issue except for the fact that American Express makes it easy to shuffle your credit limits between cards, so I'll be able to move all but a small part of my $10,000 Hilton HHonors American Express credit limit over to my new Blue Cash card (this is only possible within personal and business cards, not between them). That'll give me more than enough room to manufacture spend on my new 5% cash back card.

All in all, I'm pleased with the results of this application cycle, and hopefully I'll get approval for my British Airways application in the next day or two, possibly after moving part of my credit limit over from my Chase Sapphire Preferred card.

Why United's devaluation changes everything (and why Delta's didn't)

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By now you've undoubtedly heard about United's overnight announcement of a major award chart devaluation. Here's a roundup from around the web:

I think this is more than a devaluation, making it that much harder to earn enough miles for premium cabin award tickets: it calls for a paradigm shift.

The traditional view in the frequent flyer community is that US-based airline programs have some advantages over their foreign counterparts. The most important of those advantages is that US airlines don't typically charge fuel surcharges on award tickets booked on their own flights, and often don't pass along their partners' fuel surcharges.

Delta's August devaluation announcement was treated with disgust by those who were already frustrated with Delta's non-functional online award booking tool. But while there's no such thing as a "good" devaluation, that devaluation is offset in part by the fact that Delta miles remain among the easiest to earn, since Gold Medallions and higher earn 100% bonus miles on paid flights and the American Express Delta Platinum and Reserve cards earn 1.4 and 1.5 miles per dollar, respectively, at their annual bonus thresholds. Most importantly, Delta left untouched the basic deal between frequent flyer programs and their members: you can redeem your miles for "aspirational" awards in premium cabins anywhere their partner airlines fly.

United's award chart devaluation breaks that deal with their customers. The problem with United's award chart devaluation is that the "partner" award chart is activated when any one of your flights is on a partner airline, even if United doesn't fly to your ultimate destination . Lucky elucidates this point nicely.

So far bloggers have been thinking about the devaluation from the point of view of a person trying to redeem United miles. But if you take one step back, you can see the consequences are actually much further reaching than that.

Let's say I'm trying to redeem my flexible Ultimate Rewards points for a round-trip, business class ticket between Boston and Prague.  Since I can redeem United miles on their partner airlines, in this case Lufthansa, at the same mileage cost as on United metal, using the current award chart I'll pay 100,000 United miles and $97 in taxes and fees. After February 1, when the new partner award chart takes effect, that'll increase to 140,000 United miles (let's assume the taxes and fees stay the same for now).

With British Airways Avios, also an Ultimate Rewards transfer partner, I'll pay those enormous fuel surcharges you're always hearing about, in this case about $1,028. But I'll pay just 98,000 Avios. That values 42,000 Ultimate Rewards points at $931, or about 2.2 cents each. That's on the high side, but it isn't crazy, for example if you're planning a high-value Hyatt redemption.

Let's take this example one step further.

Under the current United award chart, the Chase British Airways Visa credit card isn't a great value for most people. It comes with 50,000 Avios, which many people use for short-haul American Airlines flights, which cost just 4,500 Avios each way. But the companion pass that you earn after spending $30,000 during the calendar year has the major drawback that you still have to pay the formidable taxes and fees attached to the second award ticket.

Under the new United award chart , the calculus changes completely. Using the example above, where we found that the British Airways award ended up costing about the same as the United partner award when we value Ultimate Rewards points at 2.2 cents each, now when we book a companion ticket for an additional $931 we're saving not 100,000 Ultimate Rewards points, but 140,000. That's like buying Ultimate Rewards points for just 0.67 cents each. Since you can redeem Ultimate Rewards points for cash at 1 cent each, this is a no brainer.

In other words:

  • Two round trip tickets on Lufthansa using United miles: 280,000 miles and $194;
  • Two round trip business class tickets on British Airways: 98,000 miles and $2,056 (plus a $95 annual fee);
  • Cash value of 200,000 Ultimate Rewards points: $2,000.

This is the example that came to mind most readily because British Airways and United are both Ultimate Rewards transfer partners. But I suspect there are a lot more situations like this, where increased redemption costs under the new United award chart – especially in premium cabins – will make it worth paying potentially astronomical fuel surcharges to their rivals.

United is simply abdicating its position as America's most coveted airline currency, and this decision is going to have unforeseen consequences throughout the industry.  What do you think?