Avios, gilts and the art of (stealth) default

What can the UK government learn from British Airways’ handling of the Avios programme? Quite a lot, as it turns out.

When organisations accumulate large liabilities, they typically look for ways to reduce their obligations gradually while maintaining the appearance that little has changed. British Airways’ treatment of the Avios programme over the past few years provides a surprisingly good case study in how governments often approach excessive debt. Avios points are effectively a private-sector currency. BA issues them, customers earn them, and many save them for future consumption. Like any issuer, BA faces a challenge when too many points are outstanding. Every unused Avios point represents a future claim on the airline. Left unchecked, those obligations become expensive. The solution is not unlike the one available to governments burdened with debt: quietly reduce the value of what you’ve promised.

The UK’s debt burden is high by historical standards and debt servicing costs are consuming an ever-larger share of tax revenues. Unlike households, however, governments largely borrow in their own currency. This gives them an attractive option. Rather than defaulting, they can allow inflation to erode the real value of their obligations. If someone lent the UK government £100 in 2020, they still receive £100 back. What they are unlikely to receive is the same purchasing power. The promise is honoured in nominal terms but diluted in real terms. Any Avios collector will recognise the tactic.

A masterclass in debasement

The most interesting aspect of BA’s strategy is that it has not relied on a single devaluation. Instead, it has attacked the problem from multiple directions. Five years ago, an off-peak Club World return flight from London to New York typically required around 100,000 Avios plus roughly £650 of taxes and charges.

Today, the equivalent redemption can cost 176,000 Avios plus around £400-£500 in cash, depending on the pricing option selected. The Avios requirement has increased by roughly 76%.

But redemption pricing is only part of the story. For many travellers, the primary source of Avios is spending on the British Airways American Express Premium Plus card. Until recently, cardholders earned 1.5 Avios per £1 spent. From October 2026, that falls to 1.25 Avios per £1.

The implications are remarkable. Five years ago, earning the Avios required for a New York business-class reward ticket required roughly £67,000 of card spending. Under the new earning structure, accumulating the Avios required for today’s equivalent redemption will require over £140,000 of spending. In other words, the spending needed to earn broadly the same reward has more than doubled!

Importantly, BA never sent customers a letter saying: “We’ve halved the value of your points.” Instead, it increased redemption costs, reduced earning rates and adjusted cash contributions. The liability shrank, but the process felt gradual and largely painless.

Governments frequently use the same playbook.

Fiscal drag: The taxpayer version

Rather than announcing large tax rises, governments often freeze thresholds and allowances. As wages increase, more income is taxed and a greater proportion falls into higher tax bands. Tax revenues rise without any change in headline rates. Economists call this fiscal drag. The political attraction is obvious. It raises money without the unpleasantness of explicitly raising taxes. Reducing the Avios earning rate from 1.5 to 1.25 per pound spent is essentially the loyalty-programme equivalent of fiscal drag. The rules appear unchanged. The outcome is very different.

Financial repression: Another familiar tool

Governments also have another option: financial repression. If inflation exceeds interest rates for a prolonged period, savers steadily lose purchasing power while debtors’ benefit. No default occurs. No debt is written off. Yet the real burden of liabilities gradually declines. Think regulatory incentives, the creation of captive buyers of government bonds and keeping interest rates artificially low.

This is conceptually very similar to maintaining a loyalty scheme whilst ensuring each point buys slightly less than before. The burden is transferred from issuer to holder. Quietly.

Why devaluation always wins

Imagine BA simply deleted 25% of every customer’s Avios balance overnight. The backlash would be immediate. Instead, the airline adjusts redemption charts, earning rates and surcharges over several years. The economic outcome may be similar, but customer outrage is muted. Governments have the same incentive. Default is obvious and politically toxic. Inflation, fiscal drag and financial repression achieve many of the same objectives with far less public resistance.

The real lesson

Every loyalty scheme relies on members believing today’s points will retain value tomorrow. Sovereign debt markets rely on investors making the same judgement about government bonds.

British Airways has shown how an issuer can reduce a large liability without ever explicitly reneging on its promises. Governments facing uncomfortable debt burdens often reach for the same toolbox. Inflation. Fiscal drag. Financial repression.

Different mechanics, same objective.

Whether you’re running a loyalty programme or a national balance sheet, the temptation is always the same: solve a debt problem by quietly debasing the currency. The danger is that, eventually, people notice. And once confidence is lost, whether an airline or sovereign, rebuilding it is considerably harder.