[FoRK] Airlines Are Deflating Frequent Flier Miles...

Ian Andrew Bell (FoRK) fork at ianbell.com
Sat Mar 12 10:57:38 PST 2005


Fliers Finding Mileage Points Go Only So Far
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Published: March 13, 2005

  For two decades, travelers enjoyed a golden age of frequent-flier 
programs, hoarding miles and sometimes becoming intoxicated by them. It 
was a love affair at 30,000 feet: airlines enticed passengers with 
promises of free tickets and first-class upgrades, in return for their 
dollars and loyalty.

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To build up their accounts, some fliers zealously boarded flights at 
odd hours and endured connections even when there was a direct route 
home, expecting their miles to be valuable currency for vacations and 
comfort. But passengers are facing the prospect that like free meals 
and pillows, the golden age for frequent fliers is going away.

Travelers, now ready to book trips for spring and summer, are 
increasingly complaining that the tight supply of free tickets on 
crowded planes means they cannot secure their first or second or even 
third choice of dates and destinations at the airlines' cheapest rates. 
Some are spending far more miles than they anticipated in a bid to 
evade complicated restrictions. Others must split up family groups and 
fly on different days, spoiling some of their holiday fun.

Passengers like Roger Nickel of Boca Raton, Fla., are abandoning their 
unused miles on big airlines and switching to low-fare carriers like 
Southwest that give free tickets based on the number of flights 
travelers take, not the miles they travel.

  Credit card customers, once beholden to a single airline's 
frequent-flier program, are seeking other rewards, too. If the trend 
continues, it may deprive the airlines, which sell credit card issuers 
billions of dollars worth of miles each year, of an important revenue 

The big airlines are in a bind. In the past, they simply piled on the 
miles to calm passengers down. But today, passengers in the United 
States are sitting on more than nine trillion frequent-flier miles, 50 
percent more than just 5 years ago, according to WebFlyer.com. That is 
enough for 36 million free tickets, at the basic rate of 25,000 miles - 
or enough to give almost everyone who flew out of Kennedy International 
Airport last year a free ticket.

  To be sure, big airlines could revitalize the programs by making more 
seats available. But with planes chock-full of paying passengers, they 
would prefer not to give any more tickets away. And with $8.3 billion 
in collective losses last year, constant fare wars and rising jet fuel 
prices, they can't afford to.

"It's become such a double-edged sword," said David Stempler, president 
of the Air Travelers Association, which represents airline passengers.

The result is a vicious cycle: more miles given, more miles unredeemed. 
To protect themselves in the event consumers started a run on miles, 
airlines would have no choice but to increase restrictions and blackout 
dates even more. Nobody expects them to do away with the mileage 
programs altogether. After all, analysts say, consumers might very well 
riot. In the meantime, no one seems happy. "What the airlines have 
done," said Max H. Bazerman, a professor at the Harvard Business 
School, "is devalue miles."

  In 1994, airlines required only 20,000 miles for a free ticket. 
Coupled with higher airfares, that meant miles were worth about 2 cents 
apiece, according to IdeaWorks, a consulting firm in Shorewood, Wis.

  Today, with airfares way down but the mileage requirement way up, 
miles are worth about 1.4 cents apiece, IdeaWorks says.

And they could really be worth half that, said Tim Winship, the 
publisher of Frequentflier.com. The reason is what he calls "the hassle 
factor," the inconvenience many travelers encounter when booking their 

For their part, the big airlines say they are fulfilling their basic 
promise of a free plane ticket, even if it requires that passengers be 
flexible. The airlines also argue there are multiple ways for travelers 
to redeem miles beyond simply plane tickets.

  "I don't know if it's as good as the good old days," said Dan Garton, 
senior vice president at American Airlines, "but it sure isn't bad."

At least for the airlines, that is. They have total control over every 
aspect of their frequent-flier plans, from the number of tickets 
available, which they do not disclose, to the dates when customers can 
redeem their miles and the levels required to earn rewards.

  Faced with a glut of demand, they could tighten the restrictions as 
they did in 2002, when the basic amount needed to redeem a ticket went 
up by 5,000 miles at the major airlines.

And the adjustments haven't stopped. At the end of last year, US 
Airways, which is operating under bankruptcy court protection, said 
that frequent fliers were entitled to the equivalent of four million 
free trips, 37 percent fewer than in 2003. While travelers cashed in 
more miles, the airline added new programs that offered more 
flexibility but doubled the mileage requirements. US Airways also said 
that more fliers have been trading in miles for tickets on its partner 
airlines, most likely because of worries that US Airways might not be 
around to honor their miles.

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The difficulty in redeeming his miles was a reason that Mr. Nickel, the 
Boca Raton resident and an insurance company manager, has all but given 
up flying on US Airways and American.

Instead, Mr. Nickel, 46, now primarily takes Southwest, where eight 
flights earn him a free trip. "On all these other airlines, there are 
restrictions," he said. "I have tens of thousands of miles I can't 

  While Southwest has 16 blackout days a year, most around Thanksgiving 
and Christmas, it does not limit the number of free seats on each 
flight. "As long as the seat is available and the customer can get on 
the flight, they can have the ticket," said Debra Benton, Southwest's 
director for loyalty marketing.

That is easier for Southwest to do, because its planes typically make 
more trips each day than those at the big airlines. And its flights 
average only about 65 percent full, versus as much as 80 percent for 
its rivals.

But Southwest customers have to act fast: once earned, their flight 
credits are good only for a year, versus the three-year life of 
frequent-flier miles at the big airlines. That shelf life is the same 
at  JetBlue, which awards a free ticket once passengers have 
accumulated 100 points, which are given out based on the distance 

Some travelers on the major carriers are now getting help. American, 
whose AAdvantage program kicked off the industry's rush toward miles in 
1981, touts its Hot Spots page on its Web site as one answer.

On a color-coded grid, where green means free seats are plentiful, and 
white means none are available, customers from New York were told this 
winter that free weekend tickets to Aruba and Orlando, Fla., were gone 
in April, but they had a good chance of flying to Canc?n, Mexico, if 
they were willing to go on a weekday.

  Even then, passengers were not guaranteed a seat: the site cautioned 
that free tickets "may not be available on all flights."

With planes so full, "I presume there are cases when a free seat is 
harder to find," Mr. Garton acknowledged.

  Inke Bauder found that out this winter. She had more than 400,000 
miles in her Northwest Airlines account by taking annual trips home to 
Finland from Detroit. So she tried to use some of those miles for a 
business trip to Las Vegas.

Assuming the journey would cost a basic 25,000 miles, Ms. Bauder was 
shocked to learn she would have to redeem 90,000 miles, much more than 
she had used in the past to fly overseas.

The reason, Northwest said, was that all the 25,000-mile tickets on the 
day she wanted to travel were gone. The only seat she could have was a 
first-class ticket available under the "mileage buster" program. Like 
those at other airlines, the plan lets passengers get past the 
restrictions, but at a big cost.

  "They're making it too difficult," said Mrs. Bauder, 59, who owns a 
skin-care salon in Ann Arbor, Mich. Though she decided to cash in her 
miles for the trip, she said, "it has gotten to the point where it 
isn't even worth trying."

Behind recent developments are the airlines' shifting economics, which 
were built in part on cooperation with the credit card industry.

For the first time last year, the majority of credit card offers were 
not for airline rewards programs but for those that offered a range of 
rewards, from plasma-screen televisions to books from Amazon.com. And 
the number of consumers who signed up online for airline-sponsored 
cards plummeted almost 40 percent, to 250,000, in the second half of 
last year, according to data from comScore Networks. Indeed, credit 
card issuers are finding that airline miles no longer are the only way 
to stimulate purchasing. High spenders have collected too many; low 
spenders cannot earn enough for a free trip; and those in the middle 
have other needs.

"Airline miles are very important," said Carl Pascarella, chief 
executive of Visa U.S.A., "but people have other ambitions and other 
things that they want to build for."

Still, when miles pay off, the rewards can be pretty. Rick R. Thiessen 
of Abbotsford, British Columbia, redeemed 1.1 million of his 4 million 
American miles on a luxury vacation last summer to London and Paris 
with his wife for their 10th wedding anniversary.

The miles paid for everything from their plane tickets to a train trip 
beneath the English Channel to dinner at the Eiffel Tower.

  Given all that, "the value was reasonable," Mr. Thiessen said.

For his part, Professor Bazerman of the Harvard Business School is 
using up his miles as fast as he can. "Miles today are worth half of 
what they were five years ago. And they will be worth half again 
someday," he said.

"I'm telling all my friends: Use your miles."

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