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Me and My Mileage
Peter Greenberg November 6, 2006
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When they were first offered 25 years ago, the frequent flyer airline loyalty programs were considered one of the more innovative, powerful marketing ideas of the 20th century. And in the quarter of a century they've been around, we've quickly evolved into a country of mileage addicts. It cuts through all airline classes--luxury travelers as well as the wider public are equally addicted. However, we've also been abused by that addiction: We'll do just about anything to get miles. We'll buy stuff we don't need, refinance our mortgage, even pay for our kids' weddings or bar mitzvahs to get miles.
Consider this: It is estimated that some 307,000 frequent flyers have earned at least 1 million miles in their programs--and I'm one of them. Actually, I'm more than one of them. I have earned at least 1 million miles on every major U.S. airline and at American Airlines, more than 6 million miles.
I've earned most of my miles by flying. However, more than 57% of all mileage earned these days are earned on the ground. And based on most mileage programs, we can get miles for doing everything short of breathing. In fact, we're such mileage sluts that I'm convinced that if an airline offered a special promotion today where you could earn 10,000 bonus miles for killing your mother, tomorrow there would be an awful lot of dead women out there.
For the airlines, the mileage programs have become one of their few profitable divisions--that's right, profitable. Some airlines even call their programs cash cows. How could that be? The airlines sell gazillions of miles to thousands of marketing partners for about $2 billion each year--florists, grocers, gas stations, restaurants and banks all fork over the cash--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. They're selling miles to companies and "awarding" miles to you that they have no intention of redeeming. They might as well be printing money.
Redemption levels remain pathetically low. 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.
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 per $1000 dollars. So to redeem a 25,000 mile award, it costs the airline about $10! That $10 represents an estimated incremental cost for a passenger based on food, beverage, fuel, reservation liability insurance and miscellaneous cost such as denied boarding compensation.
OK, so much for the bad news. Given all those obstacles, how do you go about redeeming your awards and beat the airlines at the mileage game?
First, the 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 they are playing a little game of extortion--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, in much the same way as the airlines can advertise a discount fare without revealing how many seats are actually available at that fare.
And the game of extortion? 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 the airlines have doubled the ante. In almost all cases (and in our experience testing this last week), 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 then 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 if they want to release any seats at all.
So what can you do? Here's the strategy I recommend.
On your primary carrier:
1. Pick alternate airports. Don't just look for award seats to LAX, for example, but to Burbank, Ontario or Long Beach as well.
2. Pick alternate routings. Don't just think point to point or nonstop flights. Seats might not be available on nonstop flights, so make a stop in Chicago en route to San Francisco from Miami. Or, as was the case in our 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 from Los Angeles to Denver to Chicago to Honolulu (ouch!).
And if all else fails, look to mileage partners:
1. Want to redeem your miles on a flight from Los Angeles to Frankfurt, Germany, on United? No seats available. Then try flying United to Chicago and then Lufthansa to Germany (a united mileage partner). How about Los Angeles to Hong Kong? If there are no seats on American Airlines partner Cathay Pacific, try Qantas, another partner, through Sydney.
2. 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 now have the luxury of being disappointed ahead of time...online. But again, think partner airlines.
3. If all else fails and the reservations agent tells you there are no seats 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.
Last note: What about the powerful resonance of credit cards that promise no blackout periods for your miles? The answer is that these card/mileage programs are not affiliated with any airlines and are structured differently. The miles/points you earn relate to a dollar amount (roughly 20,000 miles equals about $190 in your account), and what that means is that the program actually goes out and uses the money in your account to buy you a full, purchased ticket. Simple as that. If you were going to buy everything you charged anyway, perhaps it's no great harm. If.
But a word about the math: If you get about one mile per dollar spent in the airline programs and the lowest level for eligibility is 25,000 miles and that 57% of all miles earned are earned through credit card purchases, that means at the very least, you've spent $14,000 for that "free coach ticket." And that doesn't include the money you spent for airfare to accrue the other 43% of your miles. That's one expensive "free" ticket. And when the airline then doubles the miles you need for that ticket, it could easily represent a $36,000 ticket! On some cards, you've spent even more money for that ticket--if a roundtrip ticket between New York and Los Angeles, for example, now sells for about $360, you've spent about $40,000 in purchases to get that ticket.
Unless you're the manager of a hedge fund, this frequent flyer business is as profitable as it gets. As for the rest of us, we're definitely in the wrong business!
