The New Rules of Travel Rewards: Spend More or Lose Out

Everyone has their own air travel horror stories. Sally, I am still shook by how you had two flights canceled in a row.
I'm the one weirdo on earth who actually thought that was fun because I got a bonus vacation day in Denver, an extra free meal. You know I got my $45 in Starbucks gift cards.
I basically made money off of this canceled flight. But what if I told you there are economic forces at play that are making delays and cancellations more prevalent? Are you trying to tell me that the economy is what messed with my airplane's brakes? Kinda.
I'm bringing in an expert to break it down. Welcome to Smart Travel, a deep dive into the tips, tools, and tactics to maximize your travel dollars.
I'm Sally French. And I'm Megan Coyle.
And we are the travel nerds ready

to help you plan your next big trip. Today, we've brought on professor and author Ganesh

Siddharaman to help you understand how the airline experience went from five-course meals

and piano bars in the sky to a sad 28 inches of seat pitch and not an inch more. This is really

a great introduction to how the airline industry works, the big business of airline frequent flyer programs, and if you know all that, you'll have a better understanding of how to work the system. But first, some news out of the travel industry.
We just received some interesting data from Bank of America about the latest in travel spending trends. Their latest report found that, sure, domestic travel in the U.S.
is still rolling, but it's definitely tapping the brakes. Bank of America data shows that spending on lodging and tourism from January 1st through March 22nd, 2025 is down about 2.5 percent compared to the same period in 2024.
Airline spending is down even more, about 6 percent. But their analysis suggested that slowdown could be weather-related.
Cold snaps hit places like Texas and New York hard this winter, and Easter is really late this year, which might just be delaying some spring break plans. That delayed timing could mean a rebound is coming, but there's also a bigger shift happening.
Measures of consumer confidence are also dropping, which might be causing people to hold off on booking trips altogether. And the slowdown isn't hitting everyone equally.
The biggest pullback is among lower-income households, but even higher-income travelers are cutting back on domestic trips. But that might be because they are going abroad instead.
In fact, overseas in-person spending with Bank of America cards was up over 2.6% at the start of 2025. So actually, international travel may be poaching some domestic travelers.
And when it comes to destinations, some of the biggest drops in domestic tourism spending are in places like New York, Nevada, and Texas, classic vacation spots that just aren't seeing as much out-of-town spending this year. You know, Megan, that's in line with some of the trends we've been seeing.
Fewer international tourists are coming into the U.S. this year.
The travel data company Tourism Economics announced last week it is now expecting a 9.4% decline in international visitor arrivals for 2025. That's largely driven by an expected 20.2% decline in visitors from Canada.
Those tariffs, a weak Canadian dollar compared to the U.S. dollar, and former Canadian Prime Minister Justin Trudeau urging Canadians to choose Canada this summer and change their summer travel plans earlier this year.
I just think there's a lot of uncertainty about what's going on in the U.S. right now, and those tourists are choosing to go elsewhere or just stay home.
In short, for U.S. travelers, you might notice fewer crowds at some of the most popular U.S.
destinations this summer. So we'll definitely be following that story all throughout the year.
Yes. In other news, Fiji Airways joined the One World Alliance this month.
Oh, Fiji. You can't get any further away before you start coming back.
A Truman Show classic. So along with joining the One World Alliance, Fiji Airways also made American Airlines a advantage program, its loyalty program.
That means if you fly Fiji Airways, you'll be able to earn a advantage miles and elite status members will be able to flex their perks such as priority boarding and lounge access when flying Fiji Airways. Well, Megan, I know that's you at the advantage elite status.
I knew it was good for something. And for others with One World, Emerald, Sapphire, and Ruby elite status, Fiji Airways joining One World means those folks as well can flex those elite status perks too.
I've flown Fiji Airways to Fiji before. Some of the best snorkeling I've ever done was on a remote island there.
I also booked a Fiji Airways flight with Alaska points a long time ago. It was from LA to New Zealand and it was 20,000 Alaska miles.
But there was a layover in Fiji and yeah, that trip was in the fall of 2020. So it did not happen.
Womp womp. Well, at least you have American miles now.
So maybe you can run it back. Yes.
And speaking of airline partnerships, you can now use JetBlue points to book Icelandair as well. Icelandair seems to be partnering up with just about everyone.
They partnered with Southwest Airlines earlier this year. Right now, you have to book those flights through Icelandair.
They are not available on the Southwest website yet. Lots of options if listeners want to go internationally this year and earn points with a U.S.-based airline.
And you'll be in good company with all the other American travelers going to Italy and the Caribbean and all the other destinations we talked about in our summer travel episode. And that's it for the latest travel news.
Now, on to a bit of a history lesson in why the airline industry is, well, the way it is. Megan, we have another interview today.
Yes, our guest today is Ganesh Sitaraman. He's a law professor at the University of Vanderbilt, and he has done some fascinating research into the airline industry.
In fact,

he wrote a book about it called Why Flying is Miserable and How to Fix It. And the good thing

is it's pretty hopeful. He makes the argument there are some things the government could do

to regulate the industry and make improvements for consumers. But in the meantime, there's a

few things that flyers can do, especially in how they strategize using airline loyalty programs. Ganesh, thanks for joining us.
Thanks so much for having me. You're a law professor by day.
Why is the airline industry so interesting to you? Well, like a lot of people, I fly a lot. And I've had my fair share of miserable flying experiences.
But the other side of it for me is that I am a law professor and I study regulation and public policy. And so a few years ago, when we were in the midst of the COVID pandemic, and the airlines went to Congress, and they asked for taxpayer support, and they got it.
The year after that, we still had tens of thousands of flight cancellations and there was loss of service to cities. And what struck me was that there was a real policy story to be told here about why flying had gotten so miserable and why it's been miserable in this moment of crisis.
And tell me a little bit about your personal flying. Have you had a really bad experience while flying ever? You know, to me, the worst experience is when you're in some giant hub connecting between two different cities and you run what seems like, you know, a half marathon to get from one side of the airport to the other side of the airport.
Oh yeah, I've been there.rying your stuff. And then you get there.
And at the end, you are just a few feet away when you see them close that door. And you know, they can't open the door once they've closed it.
And you've just missed your flight by seconds. That's the most frustrating experience.
It's heartbreaking, honestly, to see them close the door and you're right there. In your book, you trace a lot of these issues like cancellation, cities losing service, back to the airline deregulation that happened in 1978.
Can you explain what flying was like before airline deregulation and how this law changed everything? Everything that we think about in the country with flying is really a function of public policy choices. We decide as a country whether children's toys are safe, whether we want rural places to have electricity.
These are all policy choices, and airlines are not so different. So after the Wright brothers first had their flight at the beginning of the 20th century, the early years of airline flying was really subsidized by the government through the form of the post office.
And there were subsidies for airmail. And the purpose of this was to build this industry up.
And so you had government really involved in that as a way to get there to be more airlines flying more routes to more places. And once the initial technology starts taking off and there's a bigger and bigger airline industry, by the 1930s, you get what I would think of as really the first modern era of airline policy.
And this is a period of regulated competition. And Congress created what they called the Civil Aeronautics Board, or CAB, which was a federal agency.
And the job of the agency was to make sure that the airline industry was successful enough that the airlines didn't all go bankrupt, but not so successful that just one airline dominated and created a monopoly. And the way they did that was that the Civil Aeronautics Board would allocate routes to different airlines, so which cities they could fly between, and it regulated the prices of those flights as well.
And this had a really important effect, which is that it ensured that there would be geographic access to flying in lots of different parts of the country. So places that are smaller cities, more remote, don't have that much volume, it might not be economical to serve them, would still get airline service.
And that system worked pretty well, actually, for about 40 years, from 1938 to 1978. We had more people flying.
There were big improvements in safety. And we had really big innovations, like the shift to the jet age.
Prices, interestingly, were also declining over this period. It was a really reliable, stable, workable system.
And then in the 70s, you had this really big push for deregulating the industry. And the view was that the Civil Aeronautics Board was kind of like a government-run cartel.
And the theory was maybe market competition would be better. The pitch was something like, imagine if you had dozens, maybe even hundreds of airlines operating competitively with lower prices, with no losses of service.
There'll be no real downsides. I mean, that sounds great.
It's a great pitch. And who wouldn't want to go for that pitch? And in fact, Congress then jumped at the idea and deregulated the industry in 1978.
But as we all know, we didn't really end up in that world. What happened instead is that there was this moment of competition that started after deregulation, but then it quickly turned into something that I think of as more like the Hunger Games.
There was just cutthroat competition between these airlines. The new entrants came in, they offered no frills, they had no unions, they wouldn't take on these more rural routes.
And that meant lower prices on the high traffic, high volume routes between big cities. It meant some more competition initially.
But then the big airlines, they fought back and they pushed out a lot of these new competitors and then afterwards raised prices. And that's when you also see this shift to these consolidated big fortress hubs like Atlanta or Dallas or Charlotte, where you have one airline that's really dominant in those cities.
And by the end of the 80s, there had been dozens of bankruptcies, mergers. There was a lot of conflict between labor and management.
Quality of service was going down. There was a lot of lost baggage.
The result was actually a reconsolidation to the same number, in fact, the same big airlines that existed under regulation. And they were still the dominant players, but now without any of the checks of the regulated period.
There's very, very little competition, few choices. Often the prices aren't great.
Sometimes the service isn't that great. But guess what? There's not much you can do about it because airlines are an essential service for how we get from place to place over long distances.
I want to get into that pricing aspect. So it seems like one of the main factors in deregulating airlines was to lower prices.
But you argue in the book that prices were actually falling before deregulation. And how have they changed since then as well? Yeah, it's a really interesting question.
I think the conventional wisdom that we often hear is, well, after airline deregulation, prices went down. And that's true.
Average prices went down after deregulation. But average prices were also going down before deregulation and at just about the same rate, which might get you asking the question, was it really deregulation that made the prices go down? You see prices going down in some places, but prices going up in other places.
And a big function of that is how much competition there is. In the pre-deregulation period, in the era of regulation, you would not have been allowed to become a monopoly because what the regulators did was they prevented any airline from becoming too powerful at any big airport.
And that's what made the system work in a reasonable way. They were deciding where airlines could fly into, like which routes they had.
And so they were sort of controlling how much competition there was at each airport. Is that right? Exactly.
And so what you ended up with was a system where even in the 70s, the biggest airlines didn't really have a huge percentage of any of the major airports. You know, they might be in the 25, 30 percent range, but not like we're seeing today where it's twice that or more in some cases.
I remember there was a fascinating anecdote in your book about how Newark Airport started after deregulation because one airline wanted some New York flights, and so they built a new airport to get those routes. One of the really fun things about doing the research for the book was digging into what happened in airline deregulation and afterwards.
And there's a real cast of characters of the heads of these airline companies in the 80s who are really ferociously fighting for market share

and engaged in all kinds of what we would now say are anti-competitive business practices,

but also creative and innovative business practices to try to win in what they knew

was going to be a really difficult competitive environment.

I immediately thought of Succession when I was reading that part.

This would make a really great television show.

Are there any characters from that era that really stand out to you?

Thank you. I immediately thought of Succession when I was reading that part.
Like, this would make a really great television show. Are there any characters from that era that really stand out to you? The one character that I found really interesting was a guy named Robert Crandall.

And Crandall ran American Airlines for a long time, really legendary head of American.

In the 1970s, when deregulation was being debated, he, like really almost all the major

airline executives were against deregulation was being debated, he, like really almost all the major airline executives were against deregulation. And that might be surprising.
Usually industry is for deregulating things. But he and others said, you know, this is not a good thing because our industry works because of the system of regulation.
Otherwise, you're going to end up with a lot of things that we've seen, really cutthroat competition, airlines going bankrupt, the need for public subsidies, loss of service. I mean, all of these kinds of things he and others understood were likely to be a problem if you didn't have a system of regulation.
And he's there at Congress and there are these hearings going on. And afterwards, he says to one of the people in the hearing, you academic, and there's an expletive, are going to ruin this industry.
You don't understand it. But then when deregulation happens and he becomes head of American, I would say he is one of the most aggressive players in navigating through that environment, trying to win that Hunger Games.
He was going to play by the rules of the game and was a cutthroat shark like everyone else. And I'm glad you mentioned American Airlines because they actually started a lot of the things that are so relevant today.
One of them being super saver fares, these very cheap fares that people could buy last minute. And then also loyalty programs.
I believe American Airlines started their first loyalty program. So can you tell us how those features came about? Yeah, so it actually comes out of deregulation.
After deregulation, when there's this need to compete really ferociously with all these other airlines, the airlines start thinking about what they can do to keep people with them, as opposed to going to some competitor. So Crandall and American come up with this idea of the frequent flyer program to give their frequent flyers additional benefits so that they'll stay with American and not go to others.
Now, obviously, the purpose of this is to keep the travelers with your airline. And people at the time in the 80s thought of frequent flyer programs as anti-competitive.
That itself is kind of interesting. But then they've changed so much over time.
And I think the changes are pretty interesting, too. So early on, the programs were pretty simple.
I mean, you can think of them almost like the punch card at your favorite coffee shop or something, or, you know, buy 10, get the 11th one free kind of thing. The first big change, I think, at least, was really American again.
And they partnered with Citibank to offer a credit card that would be branded, and, you know, the points would be redeemable for flights on the airline. The second big change is really diffuse, occurs across all the airlines.
But in the 90s, what the airlines did was they really proliferated the number of fare classes. Now, that's just a complicated way of saying they're charging different prices for tickets.
And so once you recognize that you're not just charging the same price for every ticket, but you can charge more or less to different people in different times, different seats, and you have different types of tickets, that makes the whole fare system way more complicated. And then the third change I really think about as one that Virgin America did in the 2000s, and that was recognizing that once you have these complicated fare structures, what's really important to the airline is not that you flew on the airline five times, but how much money you spent.
So what really might matter is just the spend, not the number of flights. And so Virgin created a point system, a loyalty program that rewarded money spent rather than the amount of miles you flew or the number of flights you took.
And so these three shifts, I think, really fundamentally transformed the points loyalty reward system into the kind of thing that it is today in which airlines are increasingly moving to spend criteria rather than mileage or number of flights criteria. And that's a really big shift from how these programs started.
In some ways, they're not really frequent flyer programs at all. They're big spender programs.
And these airlines are actually making a ton of money off of their frequent flyer programs. Can you explain how these airline loyalty programs work today? It's a bit complicated, but here's a simplified version.
The airlines create points really out of nothing, and then they sell them for real money to banks that have co-branded credit cards. And so the banks pay the airlines for these points, and then the banks award points to cardholders for spending money on the card.
The cardholders can redeem those points with the airline for flights using these kind of web portals that we've all used. And the banks and credit card companies make money off of the swipe fees that the cardholders use every time they pay for something.
So the result is that airlines in some ways are kind of like banks or quasi-banks almost. If you think about the Federal Reserve, airlines issue currency, the points, and they get to decide how much that currency is worth and what it can be spent on.
That is a very different system than figuring out how to fly planes. For customers and for the country, it's not so obvious that this is a great deal because it might feel like a free bonus when you're paying for a flight or something with points.
But the challenge is that every time you swipe that credit card, it, in a way, increases prices across the economy.

And the reason is because a credit card company takes a cut of every one of these sales. And so what the points system is like is almost getting a little kickback every time there's a cut.
And so if you're on a points earning card, you're getting that kickback. But if you're somebody who doesn't have one of these fancy credit cards, if you pay in cash, if you don't have enough money to spend hundreds of dollars to get all the best kind of point systems, what's likely happening is you're paying higher prices for everything because businesses are including some of the costs they're sending to the credit cards and the prices of stuff.
And you're not getting the kickback. That's a great point.
It's like people who don't have these travel rewards credit cards are already losing the game when it comes to things that they buy in their everyday life when they're not traveling. Yeah, and the other challenge is even for people with the credit cards, even if you do have these points, there are all kinds of problems with how they work.
And probably the biggest one, or maybe the easiest one is how I should put it,

is that the point system really feels unclear. What's the average value? How much should I be

thinking about these as I think about planning trips? Oh, yeah. NerdWallet does this every year.

You do that too. We look at like hundreds of flights or hundreds of hotel stays and try to

figure out how much those points are worth. And the answer is not that clear.
Yeah. And the reason

the We look at like hundreds of flights or hundreds of hotel stays and try to figure out how much those points are worth. And the answer is not that clear.
Yeah. And the reason is they don't tell you, right? The airlines don't have a kind of exchange rate that is fixed and consistent.
They can change them whenever they want. They can reduce their value.
They can reduce the value of the things you can get for the points or for status if what you're interested in is status. And so one of the things that we've seen is the kind of changing value over time in these point systems.
The other thing that goes on is sometimes what I think of as pretty deceptive kind of practices in this industry. So, you know, if you ever have that pop-up come up when you're buying a plane ticket and says, do you want to buy extra points, the mileage multiplier, and you can buy 1,000 extra points for whatever, however much money.
In a lot of cases, the estimated value of those points is a lot less than what they're charging you for them. They might be charging you $0.03 a point when the estimated value is value is one cent a point.
I mean, that's the equivalent of saying, how about you give me $30 and I'll give you $10? No one would make that deal. So I think there's a lot of things like that that could be addressed in this area to make things fairer for consumers.
Yeah, that's why NerdWallet always recommends checking how much your points are worth using some of our calculators and also not buying points unless you know and have done the math that it is a good deal to buy it. Sometimes, occasionally, there might be a promo or something that does make buying points worth it, especially if you only need a few, but definitely all important reminders.
What are some things that customers can do in this environment to not get super locked into the system and maybe not able to use their points? I think the really key things are being careful up front. Do you really want to sign up for that credit card, which may have a huge fee every year associated with it, when it's uncertain if you're going to reach status or see how many points you're really going to get out of it and what the benefits are going to be.
So being careful about that up front, because there's a downside also to canceling credit cards and these things impact your credit score. So being careful about that in your own personal circumstances, I think, is an important thing.
A second thing that people often give advice on is using points when you have them in order to prevent really them being devalued over a period of time. The third thing that I would say, though, is looking more broadly than just these particular systems, which is talking to your elected officials about making this system better.
Because the reality is, this is just a set of policy choices that we can make. We can decide to say, it's actually unfair to do this, and you have to make this transparent.
I really want to dig into that a bit more because there is so much that people might not know about the federal government's role in all of this. And it's not all bad news for consumers, actually.
So that's coming up in a moment. Stay with us.

The Department of Transportation has actually done some things in the past few years to add a bit more protections for consumers.

And they also launched an investigation last year into airline loyalty programs.

What are you most interested to see in the coming year or years, changes that might be coming to the airline industry?

Well, I think what's really interesting about the Department of Transportation's investigation is how it started. There was actually bipartisan interest in the Senate on this.
There was a letter from Senator Richard Durbin from Illinois, who's a Democrat, and Senator Roger Marshall from Kansas, who's a Republican. And the two of them got together and wrote this letter to the Transportation Department asking, why do we have all these problems in the airline credit card systems? And I think what the real question is, is going to be on the government side, how does the new administration, the current administration, move forward with this?

Do they move forward with these investigations and where does it go?

And I think on the airline side, whether or not the current administration goes forward with this, do the airlines recognize that there's enough interest in the public and from members of Congress on both sides of the aisle that they need to preemptively take some steps to try to make the system a little fairer. And I think there are things they could do that would be pretty easy for them, including having a kind of fixed exchange rate, making the exchange rates transparent.
There are some very specific practices that are a little unfair that they could try to address. Excessive fees in transferring points from one person to another.
The cost of these multipliers that are overvalued. Those are some other things that they could do on their own.
And we'll see what happens and we'll see if there's any additional public outcry. So there is hope for us travelers that flying doesn't have to be miserable in the future if any of these changes happen.

That's really exciting.

Ganesh Sitaraman, thank you so much for coming on the show today and talking with us.

Thanks so much for having me.

That was Ganesh Sitaraman, the author of Why Flying is Miserable and How to Fix It.

Great interview, Megan.

I think the most compelling point out of all of this was how important it is to earn transferable

points.

Good reminder to diversify your points so there is less risk if your preferred airline changes their loyalty program. And it's not a question of if, but when.
And speaking of questions, let's play a listener question. This one actually came from one of our producers, and I love how she sent us a voice memo.
Hi, travel nerds. I have a question for you.
So I have a trip coming up to South Africa. I have to pay for that now, which is a pretty substantial chunk of change that I'm going to be putting down on my credit card, which obviously I'll pay off in full.
But I'm wondering, should I get another card for the intro bonus? What do you think? I'm currently considering up leveling my Capital One Venture card to potentially the Venture X card. They got a good intro offer right now.
What are your thoughts? I would love to know. Thanks.
Whenever you have big expenses coming up, that's a great time to get a new card. I do keep that list of boosted welcome bonuses on NerdWallet, so that's always a good place to start if you're looking for a higher intro bonus.
I will say of these choices, the Capital One Venture X is a really good choice. One reason I love it is because you get a $300 travel credit.
You can use this credit for bookings through Capital One Travel, and they actually have really good prices there. In fact, I was just in Palm Springs and I used my $300 travel credit.
You can use this credit for bookings through Capital One Travel, and they actually have really good prices there. In fact, I was just in Palm Springs, and I used my $300 travel credit to pay for a rental car.
The rental car was about $250, which was the cheapest price that I found really anywhere when I was comparison shopping anyway, so I have $50 left for the year on mine. Now, on top of that $300 travel credit, you get 10,000 bonus miles.
That's equivalent to $100 towards travel every year. That is starting on your first anniversary.
So the Capital One Venture X has a $395 annual fee. If you really are going to use that full $300 travel credit and then the $100 worth of bonus miles, you're basically making $5 off of holding this card.
That's a great deal. And I think the lounge access could be extremely helpful for a long flight like that.
It doesn't say where she's flying from to South Africa, but if you have any layovers, there's a good chance that maybe that airport has a lounge that you might be able to access either a Capital One lounge or possibly a Priority Pass lounge. The Priority Pass lounges abroad can be really great.
You know, I actually just did some digging around. I'm going to assume she's flying into OR Tambo International Airport.
That's the biggest airport. They have six lounges all on the Priority Pass network.
Four are in the international terminal. So that could be really a great bet.
That's a long flight though. Either way, even with a lounge, if you wanted to explore some other card options, I'd look at a hotel card.
There are some great points deals on hotels in South Africa. So if the card you end up choosing comes with a free night reward, for example, that might be a great place to redeem it.
Okay, that was a fun question. Thanks for sending that one.
My question for you is, can we please go with you? I want to see some animals. Same.
For the listeners out there, if you've got more questions, send them to travel at nerdwallet.com. You can also send us a voice memo to that exact same email address.
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It helps others find the show too. This episode was produced by Hilary Georgie and Tess Vigland.
Claire Soce helped with fact

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is provided for general educational and entertainment purposes and may not apply

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