Airlines and hotels sell travel points in advance. Here’s what that means for you

Image source: Getty Images

Credit card companies can start accumulating points — here’s what travel rewards enthusiasts should know.

Offer Status

Some offers on this page may be out of date. Please visit best credit cards page for all up-to-date offers.

With COVID-19 leading to a huge drop in travel bookings, many airlines and hotels are facing bankruptcy and need cash fast. One potential solution is the pre-sale of travel points.

Hilton Hotels recently sold $1 billion worth of Hilton Honors points to American Express; Delta Air Lines and United Airlines are also in talks with their credit card partners to pre-sell miles. While it may seem like nothing more than a simple (albeit expensive) transaction between two companies, point presales are also important for consumers.

Here’s a closer look at how these presales work and how they could provide an opportunity to maximize your travel rewards.

How travel points pre-sale works

Many travel suppliers partner with credit card companies. Through these partnerships, the credit card company offers co-branded cards linked to the travel provider’s loyalty program.

American Express and Hilton, for example, are partners – American Express offers credit cards that earn Hilton Honors points. When you use one of these cards to earn points, American Express buys the points from Hilton at a rate agreed to by both companies. Like any good partnership, there are benefits for both parties:

  • The credit card company can acquire more cardholders and earn money from transaction fees.
  • The travel supplier makes money by selling points to the credit card company. By offering credit cards in its loyalty program, the travel supplier can also build customer loyalty.

A presale means that the credit card company buys a set of points (or frequent flyer miles) to use later. In this situation, the credit card company gets the better end of the deal because it can pay a reduced rate on the points. For the travel provider, this is usually a survival strategy. He gets the money he needs to stay afloat, but sacrifices his future earnings and sells points at a lower rate.

Why Point Presales Benefit Consumers

When a credit card company buys points, they can use them to convince consumers to open a credit card and/or to satisfy current cardholders. The easiest way to do both is to boost its bonus offers.

After a points presale, chances are the credit card company will improve one or more of the following on its co-branded credit cards:

  • Sign-up bonus
  • Bonus categories (for example, a card can start earning 3 points per $1 at restaurants instead of 2 points per $1)
  • Retention offers (incentives to offer when a cardholder wishes to cancel the card)

There is a potential downside. It is possible that a travel supplier may later decide to devalue its points. A devaluation occurs when the travel provider increases the cost of redeeming points for travel reservations. An airline could increase flight prices by 15,000 to 20,000 miles, or a hotel could increase rates per night by 25,000 to 30,000 points.

You would expect credit card companies to make a contract to avoid this possibility, but there is no way to be sure that a devaluation will occur or not. Still, that’s unlikely after a point presale. If American Express spends $1 billion on Hilton Honors points, it doesn’t want Hilton to lose the value of those points six months later.

It’s also important to remember that the number one reason a travel supplier sells points in advance is to raise money during tough times. This is currently because far fewer people are booking trips. The last thing an airline or hotel would want to do is devalue their program points when they are already experiencing low demand.

Beware of the chances of earning more points

It’s obviously not the best time to travel, but if you’re financially stable and like to use credit cards with travel rewards, then you should keep your eyes peeled for new bonus offers in the coming months. You could end up earning points that you can put to good use when it’s safe to travel again.

The best credit card erases interest until 2023

If you have credit card debt, transfer it to this top balance transfer card guarantees you an introductory APR of 0% in 2023! Plus, you won’t pay any annual fees. These are just a few of the reasons why our experts consider this card a top choice to help you control your debt. Read the full The Ascent review for free and apply in just 2 minutes.

Previous Criminal: To catch an identity thief
Next Apple gets poor iPhone SE pricing in India