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02/19/2008

Why Frequent Flyer Miles Are Profitable...And What You Must Do To Play Their Game

Editor�s Note: One of the best stories we�ve ever read on frequent flyer miles (FFM) was written by Peter Greenberg, Travel Editor for Today. We have reprinted it from MSNBC.MSN.com, titled, �Why Frequent Flyer Plans Keep You Grounded.� Greenberg says 120 million Americans have FF miles. And there are 92 FFM programs.

The average active member earns 11,364 miles per year. And there are 9.7 trillion unredeemed miles in current liability among all FFM programs. (Approximately 15 trillion FF miles have been issued, at 2-cents per mile that is a $300 billion currency.) Frequent flyer miles are the second biggest currency in the world, after the U.S. dollar.

What does an award cost an airline? With airlines carrying unredeemed mileage on the books as a liability, the airlines then estimate that when they do actually redeem miles they do so with the valuation of 40-cents for every 1,000 miles. So, redeeming a 25,000-mile award costs the airline about $10! (Note: With the recent rise in fuel the price might reach $15.)

For the airlines, the mileage programs have become one of their few profitable divisions�that�s right, profitable. How could that be when airlines sell miles to thousands of marketing partners�florists, grocers, gas stations, restaurants, banks�so that you can �earn� those miles when you make purchases? But here�s the rub: Since the airlines also manage and control redemption of those miles�without any oversight, regulation or control�they build in a huge profit.

And while the airlines claim that more miles were redeemed last year than before, the actual redemption percentage, that is, the percentage of eligible miles that were really redeemed by the airlines last year hovered at slightly below 10%. That�s an amazingly profitable margin! And for consumers, that�s an amazingly painful experience.

Now that I�ve given you all the bad news, how then do you go about redeeming your awards and beating the airline mileage game?

Airlines will argue that their members are happy with their programs and their ability to redeem those miles. Really? Dig a little deeper and you�ll find that what the airlines are not telling you is that the airlines are playing a game, which they are allowed to do under deregulation. Since these programs aren�t regulated, no airline is required to provide any seat free of charge in these programs. This is similar to the way airlines are allowed to advertise a discount fare without revealing how many seats are actually available at that fare.

And the game? Almost all mileage programs of the major carriers get you to enroll by strongly inferring in all of their advertisements and promotional materials that as soon as you get to the first redemption level�25,000 miles�you�ll be sitting on a beach with a pina colada.

But the reality is that airlines often double the ante. In almost all cases, when you call to redeem those 25,000 miles for a free coach domestic ticket, or 35,000 for a free coach ticket to Hawaii, the airline informs you that no seats are available at that level, but the airline magically does have your seat for double that amount�50,000 or 70,000 miles! It�s a clever but painful way for airlines to dispose of their mileage liabilities. And that�s only if they want to release any seats at all. So what can you do? The answer, it seems, is be creative in a number of ways:

  � Alternate airports. Don�t just look for award seats to Los Angeles airport, for example, but also to Burbank, Ontario or Long Beach as well.

  � Alternate routings. Don�t just think point-to-point trips or non-stop flights. Seats might not be available on non-stop flights, so make a stop in Chicago en route to San Francisco from Miami. (In my search for Hawaii flights, throw out the map entirely. On one routing offered to us to redeem our miles to Hawaii, United told me the only way they could get me there was Los Angeles to Denver to Chicago to Honolulu!)

And if all else fails, then look to the airline�s mileage partners. Let�s say you want to redeem your miles on a flight from Los Angeles to Frankfurt on United, but there aren�t any seats available, try flying United to Chicago and then Lufthansa to Germany (a United mileage partner). Los Angeles to Hong Kong? If there aren�t any seats on American Airlines, try one of its partners, Cathay Pacific or Qantas through Sydney.

In many cases, you may need to book as much as 320 days in advance to get those seats. Some airlines, like Continental, offer a feature on their web sites that allows you to check mileage seat availability up to 11 months ahead. That�s the good news. The bad news: you have the luxury of being disappointed online!

And if all else fails, and the reservation agent tells you there are no seats available on any flight on any route to any nearby airport on your primary or any partner airline, it�s time to speak to a supervisor. Why? The key reminder here is that loyalty programs are worthless if they don�t reward you...for your loyalty! In almost all cases, supervisors have the discretionary power to override computer blocks and release mileage seats.


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