Air miles - and the rewards they bring to frequent flyers - don't go very far these days, says Neil Collins
A plaintive message from British Airways arrives in my in-box: don’t let your Avios fly away.
The email proposes a solution to keep them on the ground: collect more or spend them. Of course. If I do neither, the poor little things will simply fade away, all 4,280 of them. For non-Avios addicts, this sounds a lot, but only because they are such tiny things.
Avios are the Green Shield Stamps of the skies. Accumulate enough of them and you can fly round the world first-class almost for free – just as those stamps could earn you a Ford Escort, provided you had filled 950 books of the fiddly little things.
Avios are the successors to Air Miles, launched by BA in 1988, which appealed to the same instinct as the stamps – the pleasure of getting something for nothing. In the case of Air Miles, there was an added twist. Most flyers then were paying with their employer’s money, but the benefits went to the flyer – and were tax-free.
The problem is that Air Miles/Avios have been almost too successful – they have built up an uncomfortable liability on the BA balance sheet. The solution is to reduce their value – quietly.
The boffins at Bond Vigilantes call it the art of stealth default. A flight that five years ago would have cost £650 plus 100,000 Avios, they calculate, today costs £400-£500 plus 176,000 Avios (see what I mean about my 4,280). Needless to say, I never got a letter saying, ‘We’ve cut the benefits from your Avios stash.’
There is not much that BA can teach the UK Government on this subject, of course. Inflation is the borrower’s friend, which is why official pledges to control it are widely ignored by lenders in calculating how much of their capital it will eat while they wait for their money back. Only when the price demanded exceeds the political pain of higher interest rates do the authorities make serious attempts to control inflation.
Can the Government learn from BA’s behaviour? It cannot warn bondholders that their investments will fly away, but it can impose financial repression. In extremis, it could oblige investors to buy government debt at above the market price, or keep interest rates artificially low.
This is only one step away from the nuclear option of default, which fortunately is probably too horrible even for Andy’s brand-new socialist administration. He has yet to learn that it is not a good idea to tell your bank manager that you won’t pay, while asking him for yet another loan – but he really has no choice.
Meanwhile, it’s adios Avios from me.
