It’s no secret that it feels like the industry is tightening its belt as the economy recovers. Fewer churning options, lower sign up bonus offers, less first year fee waived opportunities.
It’s so easy to write things thoughts and ideas. The hard part is to focus on the positives. So let’s get some negatives out of the way first, so that we can have a more positive post:
- Bloggers and forum posters ruined it for people because they write posts so publically about good offers, whereby more and more people get on board and companies are forced to shut down a good deal because it’s not profitable anymore.
- Economy doing well, so companies are making record high profits, so there is no need to be customer friendly anymore.
- Churners killed all the good deals for everyone else.
- Merges and acquisitions are hurting the competition.
American Express and MBNA are two of the more well known companies to have tightened their rules on sign up bonuses and how many credit cards you can have at once, respectively.
In Canada, 2013 was the year of the sign up bonuses. Lots of generous offered in that year. So far, 2016 has been pretty awesome too. But I suspect that things are about to slow down.
However, the economy appears to be relatively strong, from the companies’ standpoint. They are making record high profits and cost-cutting measures that have previously taken place appears to be paying dividends. For example:
- BMO to lay off 1,850, but raises dividend
- TD CEO received 10-per-cent pay hike last year as bank cut hundreds of jobs
Historically, it has been a cyclical effect. As the economy goes down, companies fight for your business. Once the economy recovers, they tighten up until the next downturn. However, I suspect that things will be different going forward.
Even if and when the economy does go down again, would companies become competitive again and fight for your business or they will just do cost-cutting measures?
My predication is “cost-cutting”. Here’s an example:
Cost-cutting includes savings from mergers, consolidation, job cuts and cutting inventory. The problem with cost-cutting is that there is a lack of focus on winning back old clients or gaining new clients to be sustainable. They are hoping that once the economy recovers, everything will work itself out. However, there is a difference between airlines and hotels, versus banks.
Banks are well-positioned to sustain a hit in the economy, because where would you go if you need money and but don’t have any? You would go to a lender. When people have high debt, they are making lots of money on interest payments (e.g. maxing out credit cards, refinancing mortgages, increasing line of credits). Which would theoretically result in record high profits for banks, unless lots of people go bankrupt. However, banks have become quite strict with giving loans, so I don’t expect enough bankruptcies to really affect the banks. Even if they do take a hit, they will just cut more jobs and close down branches, which is fine because there is more and more online banking anyway.
Airlines and Hotels
Airlines and hotels don’t have the same income diversity as banks. When the economy goes down, tourism and business travel usually takes a hit. So airlines and hotels have to cut down on inventory to reduce expenses (e.g. cutting number of flights/routes, reducing the number of reward options, staff and service cuts at hotels, elimination of perks and benefits) and probably actually need to find ways to attract customers back. Otherwise, we are going at buyouts and mergers, which I suspect is going to be the trend going forward.
I used to have 8-10 credit cards at a time, but I have since really trimmed down my portfolio. For the time being, I have been putting my spending in fixed rewards credit cards. The benefit of this approach is that I do not have to worry about my rewards expiring and I do not have to watch for reward availability.
I am ready to shift my focus to a new strategy, so I have been taking a wait and see approach, along with jumping on whatever opportunities are currently left.
What to do
If you see a good promotion, offer, sign up bonus, reward option, etc., go for it! Don’t tempt fate that it will discontinue. If you are questioning, “should I sign up for this?” Just do it! I have been guilty of waiting around for a “better” offer, only for it to never come around and completely missing out.
Secondly, as I said on TV, the “earn and burn” strategy is the way to go. We have no idea when devaluations are going to happen, or elimination of reward programs. So if you have miles and points with a goal in mind, redeem once you hit your target to complete what you set out to do.
Basically, the real way to win the miles and points game is to achieve what you want to accomplish.
Any other factors to consider? Feel free to share your thoughts in the comment section below!