Episode 10: Never Pay for an Airline Ticket Again

Episode 10: Never Pay for an Airline Ticket Again

Never Pay for an Airline Ticket Again

Effective Strategies to Maximize Your Airline Miles

Would you like to fly to Europe or Asia on business class for free. It’s easier to do than you might think. In this episode, my guests, Michael Kauffman and Kyle Romasco-Kelly share some of the ways they have been flying both domestically and internationally for years without paying a penny for a ticket. You will learn some simple ways to quickly build up your travel points and ways to effectively use those points.

TRANSCRIPT:

[00:00:18] Hi, I'm Thom Allison, your host for the Financial Wheel Podcast, and welcome to this episode. Got a question for you. How much did you pay for your last airplane ticket? Some of you probably said nothing. So you're onto a good start. Probably a lot of you actually paid something. Today, we've got kind of a fun conversation that we're gonna have. I have two guests here, who very infrequently pay for an airline ticket, and what they tell me is they only pay because for some reason paying for it is less expensive than using the mileage that they have accumulated. Michael Koffman and Kyle Remuskelly are my guests today, and both of them have learned how to really [00:01:00] maximize their airline miles, both in terms of accumulating them as well as how to most effectively use them. So that's gonna be the basis of our conversation. Welcome, Michael and Kyle.

[00:01:10] Thank you so much!

[00:01:13] Yeah, happy to have you on board. So, yeah, this is kind of an interesting concept. People collect these miles and they sort of do it haphazardly or maybe it's just because it happens to be a benefit there, but they don't really actively manage these things. So what's really the benefit of managing these?

[00:01:28] Well, I guess there's two answers to that one, if you manage them, you tend not to lose them. And there's two ways that you can lose them. One, some miles simply expire, and so you've lost whatever opportunity you would have had. The second, is that they tend to devalue over time and that's part of the game. They want to entice you with ever higher bonuses. And the only way they can do that is if they devalue over time.

[00:01:55] Ok, explain that for me a little bit, devalue over time.

[00:01:59] So, [00:02:00] for example, say, 10 years ago, it was very standard to be able to spend twenty five thousand miles to make a round trip domestic ticket. So you would do L.A. to New York, or Seattle to New York, or Seattle to Miami would be the highest and best use of that twenty five thousand miles. And today that's much harder to find, a twenty five thousand mile flight that will take you in any sort of reasonable time. So what happened is maybe ten years ago, a big bonus for accruing miles might have netted you 30 or 35 or 40 thousand miles. Today, you can do the same activity and the bonus that you'll get might be north of one hundred thousand miles. In order to keep excitement going, they constantly have to ratchet up how big the numbers are on the various promotions, and in order to make it work for them financially, they have to constantly devalue how much each one of those miles is.

[00:02:56] Ok. As I mentioned, people seem to sort of accumulate these [00:03:00] things haphazardly. They just have a credit card, they use it to accumulate some miles. How do you go about maximizing the accumulation of miles intentionally?

[00:03:10] Yeah, I think most of it is about targeting the sign up bonuses. You're really not earning the hundreds of thousands of miles by your daily spend, by going to restaurants, going to get your groceries, paying for those sorts of things. Where you're earning these large amounts of miles that are going to net you trips to Asia, to Europe, to Africa, are by credit card sign ups. These are big bonuses that credit card companies will use to entice you into enrolling in their product. So Chase Sapphire is a great example. They really made a big push a couple of years ago by introducing a Chase Sapphire reserve card to bring a lot of people into their umbrella. Because once you have a Chase card, [00:04:00] you might get a Chase checking account, you might get a Chase savings account, you might invest your money with Chase. So they offered huge one hundred thousand point signup bonus for their Chase Sapphire Reserve, which I'm sure many people have heard of. And that's really their big, big card that they they use to get people in the door. And a lot of people kind of stop there. They get their bonus and then that's where it all stops. And they spend on that card and they keep that card and they pay the annual fee on that card. And those points accumulate. But really, what people should be thinking about is I now have this card, how do I now leverage this to jump to my next point? When am I thinking about getting the next card? And then the next one after that, to really maximize the sign up bonuses.

[00:04:44] And at this point, it's probably worth saying something - you have to confront a fear that people have, which is that if you have too many credit cards, that's a black mark for you or that it comes at some sort of cost. There are some corner cases where that's true. Certainly if you're thinking of getting a mortgage in the very near term, [00:05:00] you may be called to ask for why you have so many credit cards or have so many such a high line of credit across all of your credit cards. But for the vast majority of people, more credit cards actually improves your score. And you can prove this to yourself by looking at Credit Karma or understanding how the FICO score algorithm functions, where additional points are granted for additional accounts because it's thought to be an indicator of your ability to manage money. And there is never a point at which if you have too many accounts, you then end up having the math work against you. So part of the way we know this is because of the way the FICO score is done. Part of the way is because of your own score if you track it in Credit Karma. And another way we know it is that frequent flyer aficionados gather on messaging boards in various communities and they are extremely open about what their scores are, the kinds of cards they have, and it becomes possible to reverse engineer with hundreds and thousands of data points. What kinds of credit [00:06:00] cards you can have and the resulting credit score. And there are people with 50 or 100 credit cards, and their scores are in the high eight hundreds.

[00:06:09] Of course, the underlying assumption there is that you don't get this card with a thirty thousand dollar credit limit on it and run up thirty thousand dollars, and then just pay minimum on that while you go get another card.

[00:06:21] I think that's right. There's there's this is a game for people who already manage their money well and they're responsible and that once you've reached that standard and you have a good credit score, you can play this game and you can improve your credit score at the same time.

[00:06:38] Ok, so we've talked about this before a little bit, and you can make this thing fairly complex. I mean, it seems like it could almost like make a full time job out of trying to do this, and people do. But what are two or three fairly simple things that people can do to get started to effectively manage and build up their miles? [00:07:00]

[00:07:00] Well, I would say the first thing is if you're going to have one or two credit cards, why not have those credit cards that provide the most flexibility in letting you travel where you want to travel? And there's largely not completely, but two main types of airline frequent flyer miles. There's the kind that's married to a particular airline, so it's, you know, United's points or American Airlines points, or Delta's points. And then there's the kind that are flexible currencies that can be converted into those different airlines. Those would be American Express membership rewards, or Chase Ultimate Rewards. There's thank you points from from Citi. And so if you go with one of these more flexible currencies, then you can preserve the ability to redeem on different airlines, depending on who happens to have the best price and the coolest special at the moment you want to go and travel. So a way to make your life more complex is to have lots of credit cards. But if you [00:08:00] want to stick with the number of credit cards you have, why not choose the one or two credit cards that have the most flexibility in being able to trade with all of these other currencies. Two come to mind, Chase Ultimate rewards points, and there's many Chase cards that support those, and the other one would be the American Express membership rewards. Kyle, do you have kind of a different spin or a different take. It's it's hard to know what to do if you're just doing one thing.

[00:08:27] Yeah, I think it's the best way to think about this is almost investing in an index fund versus an individual stock in the market where your individual stock is potentially at risk to changes that could happen to that one company, of different things that might that might happen there that could cause the value to decrease. The index fund is more secure overall because you're you have a wide range of options and a wide range of investments. So the ultimate rewards points are a lot like that, because if United, let's say, [00:09:00] makes their points less valuable overnight, well, your points aren't in United. They're at a place that can be transferred to United. So you could say, I'm not going to do that. I'm going to transfer them somewhere else. So it does give you a lot more flexibility to take advantage of different opportunities that come up.

[00:09:15] There are some downsides there. So although the points tend to transfer at one to one, and sometimes even better than 1 to 1 with membership rewards from American Express, one of the benefits of having a credit card for the particular airline is that they tend to waive the baggage fees. So you have to juggle, if you are in a city that is dominated by one airline and you basically know you'll almost always be flying that airline, saving this several hundred dollars a year in baggage fees is probably a win over someone, say, in Seattle, that does have a large amount of airline choice, and you want the flexibility of being able to secure the lowest redemption rates on whatever airline you can [00:10:00] transfer to.

[00:10:01] And I think it depends a lot of what your travel patterns are. Are you someone that is traveling internationally frequently where bags are free? Are you someone that is traveling domestic frequently? Are you a frequent flyer, or an elite member of one of these airlines, or here in Seattle, we have honestly one of the best options ever, which is Alaska Airlines. Their credit card not only offers phenomenal bonuses with great mileage plans to back it up, but also an annual companion pass. And that provides a lot more value to most folks than a Chase card might, because while you may have gotten that sign up bonus, you are getting that one time. Versus your companion pass, you're getting that every single year. So there are some some trade offs there as well.

[00:10:46] But just to summarize, I think that's right. That you can't go wrong if you have a Chase Ultimate Rewards card, an American Express membership rewards, or if you live in Seattle, an Alaska card. Those are three very solid, I just wanted [00:11:00] not be doing something dumb, but I'm not ready to think about all this yet.

[00:11:05] Ok, so one way of doing this is to get the cards, get the sign up bonuses. Do you get that at any time, and do those bonuses change?

[00:11:14] Yeah, those bonuses do change pretty frequently, as the credit card companies want to introduce or re brand products. Think about American Express with their gold card recently. They really just went through a revitalization of that card. They upped the annual fee, but they also, as a way to entice people in, increase the benefits and then also the bonus associated with it. So it's really keeping an eye out. Maybe a quick Google search of recent bonus for X, Y, Z card could really net you some good information there. Especially with how many travel bloggers there are out there that are very happy to point out when it's a record bonus or something else like that, or when it's not. So I think there's a lot of good opportunities there. I [00:12:00] think just a backup for a second. One of the important things to mention as well is that to be able to accumulate these points, you definitely need to be able to sign up for all the loyalty programs. So take some time and actually sign up for and make sure your account is linked to all your flights that you're taking. So if you're flying on Alaska, that you have an Alaska account, and that that Alaska account is in your profile and attached to your ticket. Otherwise, you're kind of just leaving miles and money on the table at that point.

[00:12:28] You know, you said something which I think is really interesting, which is you referred to the programs, the way the airlines think about the programs, which is their loyalty programs, and these programs are designed to entrap you in their ecosystem, which is antithetical to the way most people would like to use the miles of which is just as raw cash, where they accumulate value and they can spend that value unfettered. But it also speaks to what it is that's necessary if you want [00:13:00] to play the game, the constantly changing bonuses, the constantly changing rules, the constantly adjusting levers that are designed to both appear to be as close to cash as possible because then it appears more valuable to you, while at the same time roping you into their product and their ecosystem. The way to win in this game is to accept that you have to fill your head with some amount of complexity because the winnings go to those that are willing to absorb that complexity, because you get all of the benefits that everyone else is paying for. Many people sign up for credit cards and then never use the miles. And so that affects how valuable miles can be for people who do choose to use them.

[00:13:43] Any other fairly simple, easy things that people can do to start accumulating miles significantly beyond just buying a whole bunch of stuff on their credit cards.

[00:13:52] Yeah, one of the other options that is available and this is kind of jumping ahead a little bit, is actually purchasing miles can sometimes [00:14:00] be an opportunity for folks to get a really great trip at a fraction of the cost. Take Alaska Airlines as another example. That's definitely one of my favorite programs that's out there for this. They frequently offer 40 percent or more bonuses on purchased miles. That can net you hundreds of thousands of miles for a couple thousand dollars. And this does sound like a lot of money and it absolutely is. But you can turn that around, and if you are going to buy a business class flight out to Asia or something else, you can purchase the miles and then use those to redeem for that same flight. They may cost ten thousand dollars and you purchase those miles for fifteen hundred dollars. So really getting a huge discount off of that and accumulating them quickly, without having to go through the pain of actually flying or generating all through the credit cards and whatnot.

[00:14:55] But I'll answer the question more directly, there really aren't that many other avenues to quickly amass miles. [00:15:00] And that's just the nature of the economic forces that are at play for the airline industry and for the credit card industry. So it's clearly the sweet spot. It's difficult to play the game if you don't have a good credit score, and that really is where you have to focus your attention to sort of as the table stakes that play.

[00:15:17] Now, that makes a lot of sense because obviously if you're going to be applying for cards and you get upwards of 10 or 15 cards and obviously some pretty substantial credit lines that are open to you at that point, you're going to have to have a good score in order to be able to do that. So you've figured out now to accumulate some miles, then how do you use those? I mean, is there any strategies to that or, you know, another question to just sort of pops in my mind, it's related, Kyle, you have talked about Alaska being a great program. So I get an Alaska card and I accumulate these miles on Alaska and I want to go someplace where Alaska doesn't fly. So what can I use those miles? [00:16:00] How does that work?

[00:16:02] So I think before I get into that, one thing I do want to mention is that if you're accumulating these miles over time, one of the things that can happen to folks is that they do expire. So the success to accumulation is also keeping track of when things expire. So using a service like award wallet that sends you automated notifications when your miles are close to expiring, and then there are other options, then when you're close to expiring of earning more miles, spending a small amount to buy a magazine subscription, for example. Two hundred miles, like if you have a balance of ten thousand miles, you could spend two hundred on a magazine subscription and or renew them for the next three years, things like that.

[00:16:45] So that ties back into what we said at the beginning, which is Ultimate rewards never expire, membership rewards never expire, and Alaska, if you're in Seattle, hopefully you fly once every three years, because you do need some amount of activity in [00:17:00] order to keep it going. Having a credit card does count as that activity. But in the event that you close a credit card, you'd have three more years to make sure those miles are still usable. So expiring miles become more of a problem when you are juggling dozens of cards and you may allow some currencies to lie fallow for a little bit. But in terms of tips and tricks for the best way to use miles, there's probably two. One is you get to fill your head with lots of meaningless junk about where specific deals and sales happen to be going on. I remember I had some hotel points which are related to airline miles, and they happened to be offering a 86 percent discount on the Intercontinental Hotel in Phnom Penh in Cambodia, where my brother happened to be there for the Peace Corps. And so we were able to sign him up for something ridiculous, like 36 free nights at the Intercontinental Hotel, a [00:18:00] value of eight thousand plus dollars. But the only way you can capture these amazing deals is by constantly paying attention.

[00:18:08] So that is not for everyone. Another thing to keep in mind for how the best way to use these, is to remember that most people redeem their miles on the airline that they have the currency in. And so if you have Alaska miles, you tend to redeem them on Alaska. As you might imagine, that doesn't always provide a lot of opportunity for sweet spots. So one of the ways to redeem the best is to always be looking to fly flights that are not by the particular airline that you happen to have the currency in. So a good example would be British Airways miles are excellent for flying Alaska, what we call Alaska metal. But flights by Alaska Airlines domestically in the United States, which is often better than using British Airways miles to fly from Seattle to London, because British Airways will [00:19:00] add upwards of 500 dollars per fuel taxes for that same flight. So the two takeaways are what's the best way to do it, is you have to constantly pay attention to where there might be deals. And the second one is zig when everyone else zags. So everyone wants to use their miles on the same airline that they have the points in. Take a look at who their partners are and try and book flights on their partner airlines.

[00:19:24] There's an additional benefit to that as well, where many of the airline programs have started to go dynamic with their pricing, I think the pricing varies depending on demand. They don't do that as often for their partner flights. So if you were had a lot of Delta Sky Miles, and you wanted to spend them on Delta to fly to Europe or somewhere similar, it could be 300, 400 thousand miles one way in business class, if you flew on Delta Metal. If, however, you were able to find space on Virgin Atlantic, that same flight would be eighty five thousand miles. You're going to the same destination, [00:20:00] you're starting the same place, you're flying the same route pretty much, but for a fraction of the cost. And a lot of that is just has to do with fixed pricing versus dynamic pricing. So partner awards can offer a lot of value in that sense of their predictable, you know how much it's going to cost. The challenge is that partner airlines won't open as much space to another airline. So using that Virgin Atlantic option, you won't have as many Virgin Atlantic seats available for redemption from Delta as you will if you are using Virgin Atlantic miles, because they want to give their members the most seats. So it does limit you to some extent, so being flexible is definitely the most helpful. Think about traveling on Tuesdays, Wednesdays, Thursdays. Those days are a lot less busy, especially for leisure routes, because people don't want to leave in the middle of the workweek, but that can open up a lot of really great opportunities [00:21:00] to fly.

[00:21:02] Any other suggestions on how to effectively use these miles?

[00:21:05] It's hard because complexity is its own currency in this game, and so the more complex you are willing to think about these things, the more the savings are, the more you just want the simple tried and true. Although you can find some some sweet spots there, you should expect that those sweet spots will probably close in the near term, as they constantly adjust their pricing to make sure that they in the same way that currencies devalue the sweet spots open and close, to constantly try and grab your attention so that once again you're looped into their ecosystem and their product collection. So nothing really comes to mind unless you want to take that next step and truly play the game and get a lot of value. I mean, just to give some numbers, if that's at all helpful, I occasionally I will add up what I think was the relative value of the various flights and [00:22:00] hotel stays that I've gotten, and at last count it was about fifty two thousand, I think over the eight years or so that I've been playing this game. A large amount of that comes from first class, and then obviously then Phnom Penh, putting my brother up for weeks at a time. But certainly that's a significant amount of savings that are possible. It's a little bit vague because there's times when I wouldn't have flown first class. So it's not a pure savings if 50 plus thousand, but my life's a little bit better for it.

[00:22:30] I think you can unlock a lot of really interesting opportunities, flights that you wouldn't expect that you'd be able to do, places you wouldn't expect that you could be able to go see, hotels you wouldn't expect you'd be able to stay at, suddenly become in reach with these points. Chase is a great example of this. You save up some Ultimate rewards points, 20 or 30 thousand of them, you transfer them over to Hyatt, and you can stay at any Hyatt in the world, period. And Hyatt has phenomenal availability. So you want to go stay [00:23:00] in the Maldives or something like that, that becomes available for basically for free just from a few credit card points. So I think the biggest thing that you can do is arm yourself with information. The airlines don't want to make this easy. The credit card companies don't want to make this easy. So finding those good spots requires reading. So lots of really great blogs out there, and I'm sure we can add the link.

[00:23:24] They also don't wanna make it too hard either, right? So Kyle and I are both, we both think that we're exploiting the system, but we are most certainly part of that system. And part of what's happening here is credit cards are incredibly profitable for credit card companies, but it's also incredibly difficult to get people to change their behavior. And when I speak on frequent flyer miles, I'll often ask people how long they've had the current credit card in their wallet, and it's often upwards of 10 years, and no amount of mailing or advertising can move them. But then they'll come in here, me or others like me talk, and [00:24:00] for the first time in a decade, they will switch their behavior and get on new credit cards, and they're going to stay on those for 10 years. And that's worth sometimes tens of thousands of dollars to those credit card companies. And the only way that people will come in hear me talk about this is because I've saved tens of thousands of dollars in travel. And so on the one hand, we're both, Kyle and I are both exploiting the system, on the other hand, we're part of the system. We represent the sort of top 1 or 2 percent that plays the game as hard as we do, and the adventures we have in the same way we have a real. But you have to choose to absorb that complexity in order to play at that level.

[00:24:37] Yeah, It sounds like, you know, if you're willing to put the effort in that you can have some great adventures.

[00:24:42] Well, that's certainly true.

[00:24:42] Yeah. And we were we were actually talking about that a little bit before we got started here. Kyle, you're up to forty two countries you've been in right now. Although there was some debate as to what really qualifies for being in a country there.

[00:24:56] I'm not going to say Kyle's a cheater. I'm not going to say that.

[00:25:00] I [00:25:00] think I think it's old school versus new school.

[00:25:05] But there's definitely advantages to managing this properly. And you said there are some sources of information, there's some things that we can put on our on our website.

[00:25:15] Yeah, definitely some groups that are really good, I think Michael, I know you like travel free a lot. I'm a huge fan of One Mile at a Time and Frequent Miler. All of these are just different bloggers that kind of have intros of how to do this, that you can read different encyclopedia, I guess knowledge of all of this. And it's pretty incredible the sort of things that people will do for these.

[00:25:41] I think that's true. I mean, Kyle and I represent probably the top 1 or 2 percent. But there's another top 1 percent of the 1 percent that lives this. That is truly their full time job to do this. And they make some of their money by blogging about it. But they have gotten so good that their expenses are borderline near zero, and they [00:26:00] simply live abroad playing these credit card games. And the sources you listed, I would agree that the points guy, although he's been a little co-opted by the banks, so he tends to promote things that net him better commissions than potentially what's best for readers. But he's not wrong. He just doesn't fully properly emphasize. And then One Mile at a Time is great. And so is a Million Miles Secrets.

[00:26:29] Wow, that's great, a lot of resources. And for those of you listening, I realize that you're probably somewhere right now where you can't really write these things down. You might be on your machine working out or out for a jog or something like that. So what we'll do is take some of these suggestions that Michael and Kyle had, and we will put them on our Web site. You can go to Financialwheel.net. That's FinancialWheel.net, and there you will be able to get transcripts of this. You'll also be able to see some of those resources [00:27:00] and links to those resources that Kyle and Michael are talking about. I also want to let you know that Kyle and Michael have agreed to do a learning lab with us. That will be on September 24th. It starts at six thirty in the evening. If you go to our Web site, you will see an invitation there where you can sign up for it. You do have to register for that. It's free, but you do have to register for that and you can get a little bit more information. So that's again at FinancialWheel.net. So, Michael and Kyle, thank you for being here. Any sort of final words of wisdom that you have for people who want to take advantage of what's really an alternative currency?

[00:27:39] Yeah, my advice would be, although it feels like a steep learning curve, there's benefits at every step of the way. It's not like there's no benefits until you're an expert. There's a benefit at each step on the staircase.

[00:27:51] I think my biggest piece of advice, when I would feel successful if people came away thinking I can use my credit card points for something more than Amazon purchases [00:28:00] or cashback. There is a lot more value that you can get out of these points than 1 cent per point. There are a lot of really great redemptions out there and I really hope people explore that, but not too much because I need some of those seats still.

[00:28:13] Ok, great. Well, Michael and Kyle, thank you very much for being part of us, and thank you for listening. We look forward to having you join us for our next podcast. And until then, keep your conversations positive and constructive.

 

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10. Receive inheritance or financial windfall:

11. Sell assets:

12. Other:


Family Life Transitions

1. Change in marital status (marriage):

2. Change in marital status (divorce):

3. Change in marital status (widowhood):

4. Expecting or adopting a child:

5. Hire child care:

6. Child entering adolescence:

7. Child with special needs:

8. Child w/pre-college expenses:

9. Child going to college:

10. Child getting married:

11. Empty nest:

12. Family special event (Bat/Bar Mitzvah, anniversary party, trip):

13. Helping and/or gifting grandchildren

14. Concern about aging parent

15. Concern about health of spouse/partner or child:


Legacy Life Transitions

1. Increase charitable giving:

2. Give special financial gifts to children/grandchildren:

3. Give parental pension (monthly stipend):


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