Playing chicken with airline miles

The Washington Post's intriguing new consumer-issues blog, The Checkout, writes today about changes to Capital One's rewards-points policy that radically deflated the value of members' airline mileage points. The coverage underlines a point I'd already taken to heart: start spending those airline frequent-flyer points, stat.

Any financial instrument is only as valuable as the institution backing it. At the most basic level, paper money only has worth because we trust governments to honor the currency power imbued in coins and bills. But, as too many people are learning as they watch promised pensions evaporate, the system of guarantees becomes meaningless when one party backs out or alters the contact's terms -- and in many cases, there's nothing the other party can do about the change.

Anyone who has picked up a newspaper in the last year is aware that the airline industry situation is dire. Four of the seven major U.S. carriers have gone bankrupt (Northwestern, Delta, United and U.S. Airways; United is scheduled to emerge any day now, and U.S. Air's escape clause is its merger with America West), and all the remaining players are struggling to stay afloat amid the problems posed by soaring fuel costs, labor challenges, and business models predicated on scarily thin margins. Anyone want to place a long-term bet on an airline's solvency? I sure don't.

Traditionally, rivals have viewed frequent flyer programs as jewels available for plucking when a competitor goes under. Someone buys the list and honors the miles members have accrued. But with all the airlines struggling, the calculations are different. It's tempting to hoard miles and dream about the exotic vacations you'll use them for one day. But with the currency of mileage at great risk of hyperinflation, I say it's better to burn them up now and get some value from them, while they still have any.