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Points.com: Mile exchange made easy?but…

When Points.com (http://points.com) launched on April 2, it purported to address a longstanding and deeply felt need of mileage aficionados: the ability to readily transfer miles among different accounts. While Points.com is a step in the right direction, most frequent travelers are likely to feel that fulfilling their dream of exchanging miles will have to wait.

Consolidation: Better Late than Never

While it is generally accepted that the sensible approach is to consolidate mileage-earning into a single account (to maximize awards, reach elite status, and simplify record keeping), that’s often impossible advice to follow. The result is a dispersion of miles and points across multiple unrelated accounts, with diminished chances of reaching meaningful award levels and attaining elite status.

That all-too-common conundrum always begs the question: How can I convert those miscellaneous orphan miles into a single currency?preferably that of my primary program,?and still achieve the benefits of consolidation?

In the past, knowledgeable mileage-accumulators used the Reward Exchange feature of Hilton’s HHonors program to convert miles from one program into miles from another. And more recently, Diners Club Rewards added miles-to-points to its venerable points-to-miles conversion feature, giving would-be exchangers yet another option.

But a simple, straightforward mileage exchange (like a currency exchange) was just a gleam in the eye of mileage junkies.

Enter Points.com

What a traditional currency exchange is to dollars, deutsche marks, and yen, Points.com endeavors to be for miles and points from loyalty programs (online and offline, travel-related, and not).

The centerpiece of Points.com’s service is pointsxchange, which allows members to exchange miles and points among a variety of programs (see table below), including those of five airlines. Here’s how it works:

  • Establish a Points.com account by entering the required member information (name, e-mail address, etc.) on the Points.com website.
  • Enter program information into the pointsfolio section. Users will be asked to provide their membership number and PIN, and to give Points.com limited power of attorney to access account information and buy and sell their miles. (This is similar to setting up an account with any of a number of online “account aggregation” services, which consolidate data from multiple accounts (frequent traveler, brokerage, checking, etc.) and deliver a single comprehensive statement.)
  • Lastly, members enter the names of the programs to exchange between and the number of miles or points to convert. The Points.com calculator then determines the number of miles the conversion will yield. According to points.com, exchanges take between 24 and 72 hours to complete.

As you would expect, there’s a price to be paid for this convenience?conversion loss. In effect, you pay a commission for the transfer, resulting in a conversion rate of less than 1:1. Taking an exchange between American miles and Midwest Express miles as an example, 10,000 American miles convert to only 1,046 Midwest express miles; and, reversing direction, 10,000 Midwest Express miles convert to only 1,465 American miles. And, over and above the cost of the conversion loss, you’ll pay either $5.95 per transaction, or $14.95 for a year’s worth of unlimited transactions.

Alternative Conversion Options

Points.com may be the only dedicated mileage exchange, but it is not the only way to exchange miles. The first was Hilton’s HHonors Reward Exchange. Diners Club Rewards followed this, more recently. Both are two-step processes: first, convert miles into points (HHonors points or Club Rewards); then, convert the points into a different type of miles.

Exchange Costs

As with the Points.com exchange, users of HHonors and Diners will pay a price for the exchange in the form of conversion loss. The following table shows the beginning and ending miles when 10,000 American AAdvantage miles are exchanged for Midwest Express miles, and vice versa, using each of the three conversion programs:

CONVERSION COST COMPARISON

BEGIN WITH CONVERT VIA END WITH CONVERSION LOSS
10,000 American miles Diners Club Rewards 5,000 Midwest Express miles 50.0%
HHonors Reward Exchange 1,500 Midwest Express miles 85.0%
Points.com 1,046 Midwest Express miles 89.5%
10,000 Midwest Express miles Diners Club Rewards not possible N/A
HHonors Reward Exchange 4,000 American Miles 60.0%
Points.com 1,465 American Miles 83.4%

The conversion loss gives many would-be users sticker shock. And it turns out that the barriers to lowering prices are not easily overcome. The obstacles to better conversion rates are twofold:

1) Marketing Considerations

Miles are, by definition, a loyalty currency. Travelers earn AAdvantage miles, for example, as a reward for NOT flying on United or other American Airlines competitors. But if miles are interchangeable, the incentive power of any particular currency, or any particular program, is diluted. This prospect makes marketers cringe.

So for program operators who see their programs as, first and foremost, vehicles for promoting loyalty to the host company, mileage exchange is inherently counterproductive.

2) Costs

While they are still called “loyalty programs,” many programs today are also profit centers unto themselves. That means that the revenues generated by the sale of miles to program partners have come to rival the loyalty effect in importance.

For conversion rates to improve, program operators will have to view mileage exchange as a marketing plus, rather than a minus. And, they must be willing to pay more when purchasing miles from Points.com and accept less for miles sold to Points.com. Neither is likely to happen anytime soon.

Exchange Options

Another key difference among the alternative exchanges is in the programs participating in conversion. The following table shows the options associated with each exchange.

CURRENCY EXCHANGE COMPARISON

PROGRAM SUMMARY DETAIL
Diners Club Rewards Miles-to-Points: 3 airlines (American, Delta, United)
Points-to-Miles: 24 airlines
Aer Lingus, Air Canada, Air France, Alaska, American, America West, Asiana, British Air, Continental, Delta, El Al, Hawaiian, LanChile, LatinPass, Mexicana, Midwest Express, Northwest, SAS, South African, Thai, TWA, United, US Airways, Virgin
Hilton HHonors Reward Exchange 13 airline programs Aero California, American, Continental, Delta, Hawaiian, LanChile, LatinPass, Mexicana, Midwest Express, South African, TWA, United, Virgin
Points.com 5 airlines, 4 non-airline programs Air Canada, Alaska, American, America West, Beenz, ClickRewards, Esso, Midwest Express, PhoneHog.com

The Bottom Line

For mileage exchange to develop into a mainstream feature of the frequent traveler/miles-and-points landscape, consumers will demand both more exchange options and better conversion rates. Until that happens?and there are significant obstacles to both?exchange will remain on the fringes of the mileage universe, more dream than reality.

In the meantime, consumers should use the exchanges opportunistically, depending on the fit between their needs and the features and benefits of the contending exchanges.

Summary
Exchange Program Strengths & Weaknesses

Diners Club Rewards (http://www.citibank.com/dinersus/)

Strengths: Includes three largest airline programs, lowest conversion cost
Weaknesses: Slow conversion (two to 10 weeks, depending on the airline); limited participants

Hilton HHonors (http://www.hiltonhhonors.com)

Strengths: Extensive partner list
Weaknesses: Slow conversion (comparable to Diners)

Points.com (http://points.com)

Strengths: Fastest conversion; includes non-airline points
Weaknesses: Highest conversion loss; limited participants

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