What You Should Know About Frequent Flyer Programs

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In this installment of the Sir Trips-A-Lot Blog we will discuss Frequent Flyer, or airline loyalty programs. For purposes of this blog, the subject matter will be of a general nature, there are many differences from airline to airline in their programs so it would be nearly impossible to accurately describe them all. For the uninitiated, this entry will provide an overview of the basics of frequent flyer programs.

As long as I have been an adult, there have been frequent flyer programs offered by the airlines. It had to be around the mid to late eighties when they started to become increasingly popular, and nowadays there are few people who do not understand the basic principle of airline loyalty programs. A customer becomes a member of the program offered by a particular carrier, and each and every time the customer flies with that carrier, the miles accrued are added to the passenger’s milage account. When enough miles have been collected, the customer is eligible for an award, which is normally a free flight, or an upgrade to a higher cabin class. In reality, this is no different from your hairdresser or a sandwich shop who rewards you after a predetermined amount of purchases, except that when it comes to airline travel the rules are far more complicated.

All miles are not created equal. In the beginning, all miles were counted based on the statute distance between cities according to airline routes. For example, the distance between Denver, CO and Chicago, IL is 920 miles. Depending on the airline, they would give you either 900 miles or the full 920 miles for this flight. If you had a round-trip flight, that number would be doubled. It seems pretty straight forward, but even back then, there were exceptions. Let’s say that you were flying with United. United maintained hubs in both cites and so there were/are direct flights between those hubs. But, what if you were flying with US Airways? US Air does not fly directly from Denver to Chicago, you have to make a connection in Phoenix, where US Air has a hub. That means that the actual distance flown would be greater than the 920 miles as the crow flies, but it would be at the discretion of the airline as to what miles would be given for that flight. The distance from Denver to Chicago via Phoenix is 2040 miles total, because you are flying roughly 586 miles in the wrong direction to get to Phoenix. Naturally, the airlines would want to count only the direct distance because it is shorter. Fast forward to the present and you will find that most airlines now “award” miles based on the class of fare that you have purchased, and the numbers are rounded off. For example, if you are a member of Miles and More with Lufthansa, the miles for flights within continental Europe have been rounded off and are based on the booking class of the fare you have purchased; the more costly the fare, the greater the amount of miles. For the cheapest economy fare, you could get as little as 250 miles for the flight, while a person who purchased a business class fare for the same flight may get 1,500 bonus miles plus the actual distance traveled. I am not just singling out Lufthansa here, most airlines have moved to this type of mileage calculation for their frequent flyer programs. In addition, they have raised the mileage required to attain an award.

There are two reasons for the inflated mileage levels for awards: the first is that previously, the miles expired and it made people very angry when they saved up for years to get a free flight only to find that once they reached the award level, the miles had expired. The airlines had done this as a way of limiting the number of free flights they had to give away. Once airlines decided miles did not expire, they raised the amount of miles needed to attain an award. The other reason for the inflated award levels is due to the way miles were now accrued; with the advent of credit cards where the dollar value of purchases were counted toward membership miles rewards for airlines, the logical result was the airlines raised the amount of miles needed for a free flight or upgrade.

The new economy: miles as a form of Currency. The use and value of frequent flyer miles has become so ubiquitous in recent years that miles have taken on the feel of an actual currency. To some degree, this is exactly what the airlines and the credit card companies want. The lure of free airfare has created an entire economic niche where accrued miles can be exchanged for real goods and services. The airlines have created a synergy with the banks who issue credit cards that allow the user to accrue miles for travel or upgrades, and increasingly other retail items as well. The result can me people who are so “miles obsessed” that they make every purchase with a credit card, even menial grocery purchases. With the explosion of consumer credit card debt in the United States looming over the entire economy like a ticking time-bomb, it is perhaps not such a good idea to encourage people to take on more debt. It is likely that the airlines have created derivatives based on the outstanding airline miles awards, or potential awards not claimed. It seems like an unholy alliance for the average traveller, who in his desire to earn that free trip to Las Vegas, has purchased everything from underwear to gasoline at 18% interest. The airlines do not care, and the banks definitely do not care but the marketing machine continues unabated. The truth is that very few average fliers will ever see a milage reward, that only businesses and business travelers really have a change to benefit from these frequent flyer memberships.

Who wins in the end? Remember that airlines have now based miles on the fare rather than the actual distance between to cities so in essence they have severely curtailed the value of long distance trips if the customer has booked a cheap economy fare. Combine this with the fact that they have universally raised the award levels needed and the average Joe has a real mountain to climb before he will ever see a reward. For example: with Lufthansa, they claim it is possible to upgrade to business class from economy for as little as 10,000 miles. This is true, if the flight is within Europe and is flown with Lufthansa or its partners within Europe. The reality is: who wants to waste 10,000 miles for an upgrade on a short-haul flight with a flight duration of less than five hours? The cost in miles to upgrade for a flight from the US to Europe is 35,000 miles, more than three times as many miles, for Asia from Europe it is 50,000. In the end, the airlines benefit the most from their membership programs because they put you the customer on a treadmill trying to reach for that ever-elusive carrot.