Frequent flier programs are probably the most successful marketing idea of all time. Since American Airlines launched AAdvantage, the world’s first FFP in 1981, more than 300 million travelers count miles with one or more of 200 airline programs worldwide, many of which have scores of airline and non-airline partners, hotels, car rental firms and credit card providers.
AAdvantage’s more than 66 million members have earned billions of miles for flying, redeeming their miles for millions of awards, including flights, lodging, dining, shopping and much more.
Some FFPs have as many as 200 partners. So nobody needs to fly to earn miles. Many airlines make money from FFPs by selling miles to program partners. United Airlines and American Airlines are said to generate more money in this way than by selling airline seats. . FFPs enable airlines to build a data-base of travelers, especially very frequent travelers, with the opportunity to build a direct relationship with them.
The three major airline alliances, Star Alliance, One World and SkyTeam, allow travelers to earn and redeem miles on their partner carriers – a total of 49 major carriers. Thus, by pooling mileage in one or the other account; for example, by giving your Lufthansa number to United Airlines, or vice versa, when you fly with either carrier. This has allowed many travelers to reach gold, or platinum status by concentrating their miles on a single program. Sometimes it pays not to use the obvious choice, such as your home carrier, but to earn miles on a partner airline.
But airlines do not make it easy. Remember that frequent flier programs are a marketing tool for airlines; they are not run as a benefit to travelers. Loyalty is not measured in miles alone, but in how much revenue you bring to the airline; rewarding people who pay the most for their tickets.
‘I’ve accumulated enough miles for a free flight, but when I try to book, the airline tells me that there are no award seats left on the date I want to travel.’ ‘I tried to use miles for an upgrade to business class but the airline told me that I was not traveling on an “eligible fare.”’
These are typical laments of frequent fliers, frustrated and angry at finding themselves snagged in a thicket of arcane rules and small print of airline frequent flier programs. As everybody knows, it has become far easier to earn frequent flier miles than to redeem them; too many miles are chasing fewer airline seats.
No wonder insiders estimate that there are a staggering 14 trillion unredeemed miles floating around in the system, earned by 250 million mileage junkies, each typically members of 3 to 5 frequent flier programs.
Loyalty is not measured in miles alone, but in how much revenue you bring to the airline. Few airlines outside of North America allow you to earn miles on any published fare or allow you to use miles for upgrades. Typically, European and Asian carriers only award miles on the more expensive, fully-flexible fares.
But if FFPs are so successful, why is it that the number of unused miles is increasing dramatically? Insiders estimate that a staggering 14 trillion unredeemed miles are floating around in the system.
This is because it has become far easier to earn miles than to redeem them; too many miles are chasing fewer airline seats. Airlines therefore have devalued the currency, making it harder to redeem miles with a thicket of arcane rules, such as blackout periods for the days you want to travel fly, limiting the number award seats available on certain flights, and expiry dates.
And some miles are more equal than others. This is because individual programs have different rules, such as award levels or the category of fare that earns you miles; which has left travelers confused and frustrated. This may have diluted loyalty towards a particular carrier by ‘commoditizing’ miles.
And don’t expect reciprocal perks and recognition, even or especially, if you carry a gold or platinum card. You may not get top priority on the waiting list or the run of the best lounge with an alliance partner airline.
There’s no such thing as a free flight. Travelers should ask themselves ‘Do you want to pay top dollar for a full-fare ticket and earn miles that you may find hard to redeem, or forget the miles and buy a discounted business-class ticket for less than half the published price?’
Back in my corporate days, before miles entered the travel equation, recognition, in the form of membership to airlines VIP clubs, was by ‘invitation only.’ Working in Geneva, I became a member of the Swissair ‘Travel Club.’ This delivered privileges, such as priority wait-listing, escorting to the plane by the station manager, a reservations hotline, and impromptu upgrades.
The ultimate status symbol was wafting into the first class lounge with a green (economy) boarding pass ostentatiously stuck in your top pocket.
Perhaps it is time to reinvent the wheel.
Here’s my reply to a message from Peter Dielissen (fireweed@rogers.com) in Canada. Peter has accumulated enough miles with Air Canada’s Aeroplan program by buying goods on his credit card for some extensive premium air travel.
Peter,
That’s a great story; thanks so much for writing. I don’t know exactly which story of mine you read, but you are a supreme example of someone who has become a mileage millionaire without actually flying. Airlines make more money from their ffps than selling airline tickets, thanks to airline program partners, such as credit card providers. Great for people like yourself who may not fly very often; not so great for frequent fliers who might think that you are doing them out of a free flight award. So much for traveler loyalty.
Anyway, I wish you many bons voyages. And hope you enjoy rogerandrandy.com.
Cheers,
Roger
Date: Thu, 11 Jun 2009 19:49:11 +0000
To: rcollis25@hotmail.com
Subject: RogerandRandy.com Feedback
From: fireweed@rogers.com
Hi Roger…
Just read your article on FF miles.
Here is my story just published last week in our local newspaper.
http://dailygleaner.canadaeast.com/front/article/691143
Peter
Here is a welcome new ‘a la carte’ initiative will help travelers tame the hostile airport.
United’s new Premier Line service provides priority access to three types of specially reserved lines that offer travelers priority at check-in, security and boarding, including boarding for connecting flights. Prices start at $25.
‘When we asked people what travel services are most important to them, they told us that access to airport priority lines was something they value highly,’ says Dennis Cary, senior vice president and chief marketing and customer officer. ‘Premier Lione provides convenient access to fast-track lanes and is another choice for our customers to customize their travel experience.’
Premier Line is available in the U.S. at United’s five hub airports – Chicago, Denver, Los Angeles, San Francisco and Washington Dulles – and at 9 other airports, including Boston, New York LaGuardia, and Seattle. You can purchase the service at www.united.com when booking a ticket, while checking in online, or anytime through the ‘My Itineraries’ page at united.com. The option is also coming available at United’s airport kiosks.
United’s Premier Line service is offered to a limited number of passengers each hour based on time of departure. Elite Mileage Plus members continue to enjoy complimentary access to priority lines as they have in the past.
Back in my corporate days, the rule was that for every “problem” identified in the marketing plan one had to find a commensurate “opportunity,” however spurious, in subsequent “brainstorming” sessions.
I was having a quiet brainstorm of my own the other day, wondering if the present turmoil in the banking system might be an opportunity to transfer my overdraft to a safer haven, when I happened upon a cartoon in The New Yorker, which had a man pleading with the mugger who had snatched his wallet, “Use the platinum card - I need the miles!”
Exactly! There is nothing like black humor for unleashing productive ideas.
If frequent flier miles are as good as gold, how would it be if miles were actually to replace money as convertible currency? Mileage millionaires would then replace derivatives traders and hedge-fund managers as the new “masters of the universe.”
Frequent flier programs are said to be the most successful marketing idea of all time. Since American Airlines began AAdvantage a quarter of a century ago, more than 124 million travelers count miles with one or more of 140 airline programs, many of which have scores of airline and non-airline partners, hotels, car rental firms and credit card providers. Some frequent flier programs have as many as 200 partners. Nobody needs to fly to earn miles. Many airlines make money from FFPs by selling miles to program partners. United Airlines and American Airlines are said to generate more money in this way than by selling airline seats.
That’s quite a universe.
No sooner had my think bubble filled up with asterisks and exclamation marks when a call comes in from Stanley Zilch, the fecund chairman of Blue Skies Travel Research Institute, a research institute in Broken Springs, Colorado.
Stanley reminded me that with 14 trillion unredeemed miles sloshing around the system there is more liquidity mileage, so to speak, than in today’s beleaguered monetary systems. And with each mile worth an estimated 2 U.S. cents, that adds up to $280 billion.
“Surely that’s not enough to bail out the banks. And what about airlines? If the airline goes bust, surely the miles become worthless,” I asked?
“Not at all! The idea is to package up what you might call ’sub-prime’ miles, and any other dodgy loyalty award schemes, into structured indebtedness vehicles, and mileage derivatives. Nobody knows what they contain; but so long as people believe they have a value,” he replied.
“Didn’t Warren Buffett describe derivatives as ‘financial weapons of mass destruction?”‘
Zilch is unfazed. “You can search for WMDs but everyone knows by now that they don’t exist!”
“But some miles are more equal than others, because FFPs have different rules, such as award levels or the category of fare that earns miles and ‘elite’ membership privileges. How would you be able to exchange miles that have different values?”
“This happens now. The three main airline alliances, Star Alliance; One World and Sky Team, allow travelers to earn and redeem miles on their partner carriers - that’s a total of 32 major airlines. Frequent travelers often have several accounts. Thus by pooling their mileage in a single carrier, they are able to achieve elite status more rapidly and become mileage millionaires. Elite members would be kept loyal by awarding them stock options in miles. This might help solve the present problem of too many miles chasing too few aircraft seats.”
“Yes, but how do you encourage airlines to start lending to one another again?”
“Airline alliances will act as banks, underwriting the issue of miles, collateralized debt obligation bonds, and credit default swaps. The new central mileage fund will act as lender of last resort, pumping as many miles as necessary into the system.”
Zilch stresses the importance of confidence. “These miles exist only because people believe that they do. It’s like a cartoon character who only falls when he realizes that he has walked off the cliff,” he says. “In the long run, any system will be profitable as long as you believe in it.”
But to paraphrase John Maynard Keynes: In the long run, we’ll all be terminally over-leveraged.