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KrisFlyer Program Revision: Is it really a devaluation?

by Apoorv Trivedi on
How much

The Bottom Line

Singapore Airlines has increased the KrisFlyer miles required for redemptions bookings and upgrades by 10% on average, from 5th Jul 2022.

However our analysis shows this is not a devaluation of the KrisFlyer mile since the cash fares have also gone up recently due to higher fuel costs and reduced capacity in the airline industry.

It has also become more difficult to get award bookings during school holidays as people resume travel, but off-peak availability remains good.

We continue to value the KrisFlyer mile at 1.40¢ per mile after adjusting for all these changes.


What’s New?

Singapore Airlines has increased the miles required for redemptions bookings and upgrades, starting 5th July, 2022. According to SQ, the average increase is 10%. The work done by the MileLion and Mainly Miles bears this out. They find increases ranging from 8-16% depending on the destination zone, award category and travel class.

This is big news in Credit Card land because the value of a KrisFlyer mile is probably the single most important input in choosing the best credit cards in Singapore.

You would think that a 10% increase in the number of miles required to redeem award tickets would imply that the value of a KrisFlyer mile has gone down by roughly 10%. Our base case valuation of a KrisFlyer mile was 1.4¢ before this revision. Naively that falls to 1.26¢ after.

At least that’s what we thought initially but after crunching the numbers we have changed our mind.


Fares are up too

The first big and visible change is that there has been a HUGE increase in airfares in the last few months. When we updated our table comparing airfares on Singapore Airlines for cash bookings and miles for redemption bookings, we saw an average increase of more than 50% in cash airfares.

Table 1: Significant fare increase between May ’22 and Jul ’22

Flight Avg. Fare in
May ’22 (S$)
Avg. Fare in
Jul ’22 (S$)
% Increase
SIN – DPS 533 844 58%
SIN – BOM 593 858 45%
SIN – NRT 1,459 1,889 30%
SIN – SYD 1,293 1,883 46%
SIN – LHR 2,494 3,205 29%
SIN – SFO 2,473 2,872 16%
SIN – JFK 1,841 3,549 93%

Our original comparison was in May 2022 (just 2 months ago!) so this was a bit of a shock. As we dug deeper though, it started to make sense.

The increase is not limited just to Singapore Airlines but seems to be a global phenomena. BLS data from US shows that while fares in April 2022 were only marginally higher than pre-pandemic levels, fares jumped nearly 17% in May! It is likely that fares further increased in Jun. Why is this happening?

As anyone who drives can tell you, fuel prices have really shot up this year.

Singapore Petrol Prices Jul 2022
Singapore Petrol Price Trend: 2022 (Source: Motorist)

There are many reasons for this – the war in Ukraine, increased demand as the world opens up after the pandemic, other supply chain constraints.

As bad as the 27% year-to-date increase in pump prices in Singapore is, it is nothing compared to the increase in Jet fuel prices, which have nearly doubled so far this year.

Jet Fuel Prices Long Term
Long Term Jet Fuel Price Trend (Source: IATA)

Obviously fuel is a very important cost for airlines and if fuel prices have doubled, it is bound to pass through into airfares. And its not just fuel prices. Inflation in general has been high recently around the world, including in Singapore.

However this is not the only reason for airfares to rise. People in the industry tell us there are many other reasons why fares have risen recently and may stay high.

For e.g. there has been a significant reduction in capacity in the industry during the pandemic. Many airlines laid off staff and pilots during the last two years and are struggling to find replacements now that the demand is back.

They also cut weaker routes leading to less competition for others on those routes, and therefore better pricing power. In many cases this also led to staff reductions at airports, meaning it is not easy for airlines to restart those routes till the airports increase their capacity.

Continued travel restrictions in China and especially Hong Kong are very important for airlines in Asia, like Singapore Airlines. This is because Hong Kong is an important hub for travelers from all over Asia to US & Europe. While Hong Kong remains restricted, the flight capacity to US & Europe is constrained and the airlines that are still operating on those routes have a lot of room to increase prices.

And so as people start putting the pandemic behind them and resume travel, a big gap has opened between the demand and supply for flights, leading to significantly higher fares.

It may be a while before this demand supply gap closes and airfares come down. Industry experts we spoke to do not expect a reduction in the next 6-12 months.

What this means though is that while you need 8-16% more miles to redeem an award flight, the cash fare for that flight is up 30-100%. So the value of a KrisFlyer mile in cash terms has actually gone up.


Updating the valuation

We compared the cash airfares and miles redemption for 21 round trips in May 2022 to get to our original value of a KrisFlyer mile between 1.40-1.60¢ and we used 1.40¢ conservatively when comparing credit cards.

We repeated this analysis on 6 Jul 2022, for the same 21 round trips. With the increased fares and the revised redemption schedule, we got a value of 1.75-2.00¢, a 25% increase.

However, we also found it a lot harder to actually get confirmed award bookings on Singapore Airlines.

In May 2022, we got confirmed award bookings for 45% of the flights on Saver fare and 93% on Advantage. This was for a mix of flights on different peak travel dates (school holidays).

Table 2: Redemption Flight Availability by Award Type (%) in May 2022

Saver Advantage
Confirmed 45% 93%
Waitlisted 38% 5%
Not Available 17% 2%
Total 100% 100%
Note: Data for bookings made in May 2022 for travel dates around 19-26 Jun, 2-10 Sep and 2-18 Dec 2022.

In Jul 2022, we got only 24% of the Saver and 57% of the Advantage booking confirmed. We expected a reduction since people have had 2 additional months to book these flights but we were still surprised at the extent of the drop.

Table 3: Redemption Flight Availability by Award Type (%) in Jul 2022

Status Saver Advantage
Confirmed 24% 57%
Waitlisted 36% 40%
Not Available 40% 2%
Total 100% 100%
Note: Data for bookings made in Jul 2022 for travel dates around 6-14 Aug, 2-10 Sep and 2-18 Dec 2022.

We also tested two additional off-peak dates (mid-Nov 2022 and mid-Feb 2023) for all 7 destinations (i.e. 28 flights) to see if the availability was better. It was.

Table 4: Redemption Flight Availability by Award Type (%) in Jul 2022 (Off-Peak Dates)

Status Saver Advantage
Confirmed 75% 100%
Waitlisted 25% 0%
Not Available 0% 0%
Total 100% 100%
Note: Data for bookings made in Jul 2022 for travel dates around 11-20 Nov 2022 & 10-19 Feb 2023.

However the cash airfares were also a lot lower during those dates resulting in a lower overall realized value of the mile during that time.


Building in uncertainty

In our original analysis, we did not adjust the value of a mile to include the possibility that you may not be able to redeem the award flight you want. When you’re getting confirmed bookings in 93% of cases, as we did in May 2022, that is a reasonable assumption.

When the hit rate falls to 57%, it is no longer a reasonable assumption and we must adjust the value of a mile down to reflect this uncertainty.

How much should the adjustment be? This is a hard question to answer and it depends on where and when you fly. For instance, during peak season, we only got 3 confirmed award bookings to London out of a total of 12 legs that we searched for – a measly 25%. For Mumbai, that was 11 out of 12, or 92%.

Table 5: Redemption Flight Availability by Destination:  May ’22 vs Jul ’22 (Peak Dates)

Flight Available Legs
in May ’22
Available Legs
in Jul ’22
SIN – DPS 8 3
SIN – BOM 12 11
SIN – NRT 7 5
SIN – SYD 10 8
SIN – LHR 7 3
SIN – SFO 5 4
SIN – JFK 9 0
* Out of 12 legs (3 round trips for Saver & Advantage fare categories each)

We penalized the value of a mile by 20% to adjust for this. There is no science to this – 20% just sounds like a big enough, conservative enough adjustment.

Largely, this is just us being lazy since a 20% reduction to the updated value of a mile (1.75-2.00¢) neatly brings it back to our original valuation of 1.40-1.60¢, sparing us the work of re-doing all our spreadsheets.

We were also comfortable with this shortcut because when we looked at the value of a KrisFlyer mile only during the off-peak dates (i.e. when schools are in session, around 11-20 Nov 2022 and 10-18 Feb 2023), we got a value of exactly 1.40¢. The availability of award bookings was also 100% during those dates, giving us confidence that this remains a good estimate of a KrisFlyer mile.

As you look at all this analysis, its worth keeping in mind that the value of a KrisFlyer mile will probably be quite volatile over the next year or so.

Airports and airlines will hire back some of the people they fired and the number of flights will increase.  Hong Kong will eventually reopen leading to better connectivity to US and Europe. Jet fuel prices have already come off a bit and could go down further as we see a supply response. Post-reopening revenge travel surge will work its way through the system and things will normalize.

Fares and availability may not go back to pre-pandemic levels, but they may eventually settle at more reasonable level in 12-18 months. Before that, the path may remain quite rocky.

Because of this it makes sense to keep our assumptions conservative when valuing the KrisFlyer mile and we believe we have done so. Most people should comfortably be able to get a value of 1.40-1.60¢ per KrisFlyer mile after the current revision and this should continue for next 12-18 months.


Why do we value the mile much lower than other sites?

Most other travel focused website like MileLion and Mainly Miles suggest a much higher value for the KrisFlyer mile, typically around 1.70-1.90¢ vs. the 1.40¢  we recommend.

We think this difference is because those sites are focused on travel enthusiasts and “mile junkies” who are willing to put in a fair bit of effort to get the best value for their miles. That may include choosing travel destinations, dates and fare classes to optimize the value of the reward.

Our calculations are for the average Jane & Joe, who want to get a good deal but have many other constraints that take priority e.g. school age kids or job requirements that make it tough to optimize travel dates.

We also think that most people do not travel business class on their personal dime. So while flying business class be the way to maximize the theoretical value of the award, its not the correct choice for the rest of us.

Because of these reasons, for our analysis, we fixed the travel schedule first and then tested to see what value we could get for the mile within those constraints. We focused on economy class fares and because of the schedule constraints, we were also willing to take the Advantage fares if the Saver fare was not available. This results in a lower, but we think, much more achievable value for the mile for most of us.


Table 6: Flight level Data used for Calculation in May ’22

Destination Date* Cheapest
Booking
Available
Paid
Ticket
S$ (less
Tax)
Miles
Reqd.
Value
per
mile
(S¢)
Bali 19-26 Jun Advantage 659 30K 2.20
2-10 Sep Advantage 484 30K 1.61
3 – 17 Dec Saver 232 15K 1.55
Mumbai 19-26 Jun Saver 540 37K 1.46
2-10 Sep Saver 374 37K 1.01
3 – 17 Dec Saver 591 37K 1.60
Narita 19-26 Jun Saver: 1W* Adv: 1W 1,500 70K 2.14
2-10 Sep Advantage 888 90K 0.99
3 – 17 Dec Advantage 1,714 90K 1.90
Sydney 19-26 Jun Saver: 1W Adv: 1W 1,404 83K 1.69
2-10 Sep Saver 594 56K 1.06
3 – 17 Dec Saver: 1W Adv: 1W 1,280 83K 1.54
London (LHR) 19-26 Jun N/A 3,139 N/A N/A
2-10 Sep Saver 2,013 76K 2.65
3 – 17 Dec Saver: 1W Adv: 1W 1,451 108K 1.34
San Francisco 19-26 Jun Saver: 1W Adv: 1W 3,034 N/A N/A
2-10 Sep Advantage 1,308 140K 0.93
3 – 17 Dec Saver: 1W Adv: 1W 1,928 140K 1.38
New York (JFK) 19-26 Jun Advantage 2,293 150K 1.53
2-10 Sep Saver 1,327 80K 1.66
3 – 17 Dec Saver: 1W Adv: 1W 1,361 115K 1.18
Average 1.55
* 1W = 1 Way
Data from Singapore Airlines website as on 9 May 2022.

Table 7: Flight level Data used for Calculation in Jul ’22

Destination Date* Cheapest
Booking
Available
Paid
Ticket
S$ (less
Tax)
Miles
Reqd.
Value
per
mile
(S¢)
Bali 06-14 Aug Adv: WL 1,020 30K 3.40
2-10 Sep Adv: WL 969 30K 3.23
3 – 17 Dec Saver: 1W* Adv: 1W 320 23.5K 1.36
Mumbai 05-14 Aug Saver 601 40K 1.50
2-10 Sep Saver 806 40K 2.02
3 – 17 Dec Saver: 1W Adv: 1W 893 57K 1.57
Narita 06-14 Aug Saver: 1W Adv: 1W 1,427 90K 1.59
2-10 Sep Advantage 1,360 90K 1.89
3 – 17 Dec Adv: WL 2,611 90K 2.90
Sydney 06-14 Aug Saver: 1W Adv: 1W 1,745 85.5K 2.04
2-10 Sep Saver: 1W Adv: 1W 1,915 85.5K 2.24
3 – 17 Dec Saver: 1W Adv: 1W 1,477 85.5K 1.73
London (LHR) 06-13 Aug Adv: WL 3,496 140K 2.50
2-10 Sep Adv: WL 3,139 140K 2.24
3 – 17 Dec Advantage 2,113 140K 1.51
San Francisco 05-13 Aug N/A N/A N/A N/A
2-10 Sep Adv: WL 2,698 140K 1.93
3 – 17 Dec Advantage 2,785 140K 1.93
New York (JFK) 05-13 Aug Adv: WL 4,390 150K 2.93
2-10 Sep Adv: WL 3,389 150K 2.26
3 – 17 Dec Adv: WL 2,319 150K 1.55
Average^ 1.72
* 1W = 1 Way
** WL = Waitlisted
^Average of Confirmed bookings
Data from Singapore Airlines website as on 6 Jul 2022.

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