Why Air Miles' Expiration Policy Is Wrong

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Last updated on January 11, 2021 Comments: 2

By now, most Canadians have read about the impending expiration of Air Miles rewards on December 31, 2016 and the flack Air Miles has received for making it difficult for customers to redeem their points as the expiry date approaches.

Bad things happen when finance runs a consumer marketing company. This is a great case study. We clearly respect the fact that Air Miles is a for profit institution. However, what Air Miles seems to have forgotten, is that they are an aspirational consumer loyalty program first. If they lose sight of their raison d’etre, finance will have no money to play with, let alone margin.

The Air Miles loyalty program, one of Canada’s best and most revered, deserves better than what Air Miles management has delivered. We can only hope, that like the vast majority of other loyalty and rewards programs, Air Miles decides to abandon its ill-conceived automatic 5 year expiration policy.

Why Air Miles Did What It Did

While Air Miles is not alone in having an expiration policy for its loyalty points, it seems to have gotten especially greedy in its strategy to maximize customer “breakage,” as opposed to “redemption”.

In the 1980’s, 90’s and early 2000’s consumer loyalty and rewards programs were all about maximizing breakage, the rate at which customers did not redeem their points. Partners such as BMO, American Express and Shell still paid Air Miles for each reward earned by a customer. The fewer of those rewards redeemed by customers, meant more margin for Air Miles itself.

Loyalty companies had many arrows in their quiver to maximize breakage, from requiring a minimum number of points for redemption to pricing merchandise with odd numbers like 975 points, to limiting availability on its most popular items.

However, with the introduction of cash back rewards and cash like rewards (i.e. 1 WestJet Dollar equals 1 CDN Dollar) redemption rates increased dramatically. Many companies saw that the more transparent and the fewer barriers to redemption they threw up, the more customers spent with them. Customers were also far less likely to leave dollars on the table than they were points or miles. As a result breakage decreased dramatically.

Many companies were fine with this. Credit card companies were happy to offset the decline in breakage, with the increase in interchange revenues from higher credit card spend – hence the proliferation of cash back credit cards.

However, some companies, like Air Miles, were caught in a lurch. Consumers were choosing cash back over rewards in droves. Air Miles’ very business model was threatened. Air miles reacted by offering consumers the ability to convert Air Miles Rewards into cash. Doing so flipped the Air Miles profitability model on its head.

The new cash back model increased redemption rates and drove down breakage, forcing Air Miles to “find” margin somewhere else. Enter forced expiration, which is just another breakage strategy. Instead of relying on customers not to redeem their points, Air Miles was going to engineer breakage by automatically expiring points older than 5 years.

Why Air Miles’ Expiration Policy is Wrong

What makes the Air Miles expiration policy so wrong is that it’s punishing some of its most loyal customers, regardless of their continued usage of the program. It’s anathema to a loyalty program, which is supposed to reward members for long term patronage, and continued usage, not punish them.

It also seems to run counter to the aspirational messaging of Air Miles Dream Rewards, where people save over the long term for their dream vacation – which can take years to save-up for. Mass market spenders, the heart of Air Miles collectors, are the very same people who need time to earn enough points for their dream reward.

Let’s be fair, Air Miles is not alone in having an expiration policy. Many Canadian loyalty programs have one. However, Air Miles is one of the few that automatically expires points regardless of whether a customer is active or not (i.e. loyal or not). For example Aeroplan, Esso, Petro, and HBC all expire points if an account has not been active within the last 12 months. Scene does so after 24 months. Some programs, such as Canadian Tire, have no expiration date.

From Bad To Worse

What’s worse, is that Air Miles has been accused of deliberately trying to keep customers in the dark about the looming expiry of their points. Air Miles never sent explicit notices. They never indicated the expiry date or how many miles were set to expire when on customer statements or on point balance summaries – until they were forced to by the recent media firestorm. Most other loyalty programs tell you when and how many of your points will expire and exactly what you have to do to maintain them.

Air Miles is also being accused of making it deliberately difficult for customers to redeem their points, in the hopes of driving up breakage. Many customers have reported difficulty redeeming their points online and over the phone, with website crashes and wait times over 2 hours common place. Perhaps most egregious of all, some customers claim Air Miles is hiding merchandise they’ve been saving up to redeem for over the course of many years, especially higher ticket items.

Air Miles Will Get What It Deserves, Not What It Wants

All of Air Miles’ “breakage” strategies are genius if you’re the CFO. They shift balance sheet liabilities to income statement earnings – low hanging fruit, instant earnings. Good luck to Air Miles’s CMO however. He’s going to have to deal with customers who have many alternatives in the marketplace.

Sadly, Air Miles didn’t have to do what it did. It’s a program that offers compelling value to its Canadian consumers and its partners. But like Icarus, Air Miles is getting burnt by its own hubris. Avarice got in the way of reason.

Rarely do you get what you want, but you always get what you deserve. In a world of transparency, and hyper connectivity, consumers are more empowered than ever. It’s hard to pull the wool over their eyes. Air Miles better clean up its act and come out with a very public apology, and a policy that puts the customer first, otherwise customers will get the last laugh.

Author Bio

GreedyRates is Canada’s go-to resource for all things personal finance. Our expert articles and videos cover every topic under the financial sun, including credit cards, credit scores, loans, bank accounts, budgeting, investing, RSPs, TFSAs, GICs, taxes, and more. Want our advice on a personal finance issue? Send us an email at [email protected] and we’ll gladly give you some free tips.

Article comments

Suan Teo says:

What about the HBC Rewards which expire after 12 months of non-activity. Is this fair given the recent policy imposed on Air Miles. Who should I bring this up to

GreedyRates says:

Hi Suan,

The 12 month inactivity expiry rule is actually used by many rewards programs. We’re not sure if it’s going to be covered by the proposed legislation. It seems to be a little fairer than the automatic expiry policy of Air Miles, although not completely fair, since you actually spent money to earn your rewards.

A good program should notify you in advance that your points will expire if you don’t earn or redeem any in the near future. Some programs also give you the opportunity to re-activate your points, if you call and ask. Although some may charge you for it.

Given the current regulatory environment, we would suggest you call HBC, and request that your points be re-activated. Push as hard as you can, while being polite, and escalate the issue. Moreover, be clear that you’re not only upset with the expiry policy given your loyalty, but you’re even more upset that you were not given notification of the pending expiry. Let us know what happens.

GreedyRates Staff