NEW YORK (Money magazine) -
Do you hoard frequent-flier miles the way you save for retirement -- banking them for a day in the future when you'll finally hop that free flight to Borneo? Well, don't.
Some industry watchers have long said it's a sucker's game. Unlike saved money, which grows over time, saved miles just sit there. Or worse, they get devalued or just expire.
And if it's always been wise to spend your miles before they burn a hole in your pocket, consider this a five-alarm fire. Experts expect frequent-flier programs to undergo a dramatic overhaul in the next year or two.
"The value we used to implicitly assign to a frequent-flier mile is slipping and will only get worse," says FrequentFlier.com editor Tim Winship, who began spending his own miles stockpile six months ago.
The reason? Airlines have cut capacity about 20% since demand plummeted in the wake of Sept. 11. Air travel is finally rebounding, but several of the biggest airlines are still posting losses. Meanwhile, they're minting four times as many miles as customers redeem.
With some 9 trillion miles currently in circulation, devaluing them looks inevitable. The big carriers are also seeing discount airlines grow market share despite the upstarts' stingy frequent-flier programs.
The inevitable has already begun. Mileage requirements for specific destinations are inching up. Some airlines no longer let you use miles to buy an upgrade if you hold a discount-fare ticket.
Robert McKinley, founder of CardWeb.com, says he's heard talk that some major airlines are considering bumping the standard redemption level for domestic flights from 25,000 to 30,000. The bottom line: Use 'em or lose 'em. Here's how.
Go long haul. Generally, you need 25,000 miles for a free restricted domestic flight, whether it's a cross-country trip or a quick jaunt from, say, Chicago to Minneapolis. You'll get more value from the former; use discount carriers for the latter.
Book early or late. Airlines set aside just a few tickets per flight for frequent fliers. With leisure travel up and capacity down, it's increasingly hard to book a free flight at all -- especially to favored destinations like Hawaii and Europe. You'll have the best chance if you book either very early (330 days ahead, in fact, when the departure dates first enter airlines' systems) or very late (days or even hours before takeoff).
Take what you can get. If all else fails, cut your losses now and use miles even for inexpensive flights. Or if the allocation of restricted tickets is already taken for a flight you want, consider spending more miles -- generally 50,000 for a domestic flight and 100,000 to Europe -- for an unrestricted ticket, on which airlines put fewer limits.
It may not be the most efficient use of your miles, but don't worry -- the hotels in Borneo probably offer generous loyalty programs of their own.
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