Airlines don’t let you sell your frequent flyer miles. They prefer opaque markets where they set the price of miles and they’re a monopoly seller. They know that purchased miles are more likely to be used and used for high value awards (less breakage, higher cost). A customer buying miles to cover the cost of a premium cabin ticket also may be someone that would have just bought he ticket outright. Plus if there’s a ready market for miles the tax treatment could change too.
- If you get caught selling your miles your frequent flyer account may be shut down.
- If you get caught traveling on a ticket you paid someone to book for you with your miles you risk having the airline cancel your ticket.
Here are the flags that cause an airline to audit your account. Here’s what to do if your mileage account gets audited.
There appears to be one exception to all of this. A Brazilian court – the Tribunal of Justice for Sao Paulo – heard an appeal in a case where a member sold miles, American Airlines caught it, and they voided the tickets. The appeals court is requiring American to pay the cost of replacement tickets plus damages.
Process: 0009943-57.2015.8.26.0635 Judged
Subject matter: CONSUMER LAW – Consumption Contracts – Air Transport
Source: Region of São Paulo / Regional Forum of Pinheiros / 2nd Civil Court
Number of origin: 0009943-57.2015.8.26.0635 (Viewing the Process in the First Instance)
Distribution: 23rd Chamber of Private Law
Reporter: JOSÉ MARCOS MARRONE
The court argued in essence,
- Airlines include the cost of future travel (miles awarded) in with your tickets
- The acquisition of miles is a commercial transaction between customer and airline
- This is big business
- Prohibition on sale of miles creates a cartel or monopoly in the sale of miles
- That’s not permissible
While I can’t speak directly to questions of Brazilian law, I’d quibble with the first claim. It’s true from an accounting perspective that the cost of miles issued is booked along with travel. However this is really a marketing expense, not something being sold to the customer. You only have to look at how these programs began to understand that.
Before frequent flyer programs, airlines took out ads in magazines. There was a months-long lead time. And they never really knew how well an ad did. Frequent flyer programs were one-to-one marketing programs with self-identified customers. It’s permission-based marketing, it’s also directly measurable.
As far as how this is going to change American’s behavior, and whether they’re concerned with the precedent that so far appears to govern members in Sao Paulo, I reached out to the airline for comment. On Tuesday they promised to “get more information on the case” and on Wednesday they promised to follow up. I will continue asking how this affects members going forward.
Gary how low can you go, I thought you reached bottom awhile ago, this Clickbait article proves Im Wrong. The title should have been Brazilan Court: by just saying Court you will achieve your aim to get tons of folks to click the article, which has absolutly no revelance to them sinmce they arent from Brazil
Keep up the lousy work
This doesn’t seem misleading at all to me. The blurb which is right below the title on the home page begins saying it’s a Brazilian court
A Brazilian court heard an appeal in a case where a member sold miles, American Airlines caught it, and they voided the tickets. The appeals court is requiring American to pay the cost of replacement tickets plus damages
I totally disagree with your objection to number 1
Airlines NOW base the number of miles on the amount of money you spend for the ticket – what more clear evidence is needed that “cost of….miles” is included in the price of the ticket. It may not have been that was originally but it sure is now!
I agree with Estelle. You have really misstated your objection. AA’s problem is not that they did / did not account for the cost of miles in the tix price, it is that AA did not _sufficiently_ account for the cost of the miles.
We all know that AA’s calculations are based on the majority of miles never being redeemed, and AA goes to extreme and underhanded means to keep miles from being redeemed, as this article slightly illustrates.
I finally let me last 60k AA miles expire and moved on to another airline. If AA wants to have my miles expire unused so strongly that they would rather have my miles than my future business, so be it, they can keep those last 60k miles and I will take my money elsewhere.
@fairisaack Yes its mentioned once you click onto it but thats whats wrong. and why its clickbait. I highly doubt everyone who clicks to read it would have had Gary had Brazilian Court in the title
sort of like if I have a title saying Earn 15% in 1 year CDs, then in the article I mention its in Turkey and only for Turkish citizens. when I could have simply put in my title attention Turkish Citizens earn 15% in 1 yr CDs, but Id hardly get anyone clicking onto it,, same with this post had he written Brazilian Court = why its clickbait
Gary…when you speak to AA can you ask how a 2mm mile member can appeal being banned? AA terminated my membership on the presumption I had brokered a paltry 28k mile hotel reservation. They later admitted they had erred (there was no brokerage), but won’t reverse the termination because I hadn’t properly and timely responded to their queries. My fault, of course, but the severe punishment of termination and consequent confiscation of all my 600k miles is totally disproportionate to the minor offense. Is there any responsible exec at AA who can look at this travesty?? Or is the AA Security group so insular that they’re immune to being critiqued?
While all of the court’s points are valid, the one it does not hit on is that program has largely become a fraud. Examples cited in card promotions usually speak about how “enough to earn a round trip ticket” – sure there may be one or two at that price, but the average stiff will never earn enough miles to redeem for anything. And if they do, the miles will be worth a fraction of a cent.
Just last night for kicks I priced a one way ticket that sold for $177 and the mileage required was 25,000. Seriously? And how about announcing great “sales” on miles that are worth less than half what they are selling for.
And as point number two in the court’s ruling points out, why is it okay for AA to relentlessly sell miles to end users, but those end users can’t sell the property the purchased?
@isaac – actually you don’t have to click to see this is brazil, it’s right in the excerpt for the post in fact it’s at the start of the excerpt. Look right on the home page for the blog before you click on the post. I’m sorry if you missed it!
I don’t know what people are talking about. Going on the boardingarea.com page and searching “Brazil” yields no results and there is no mention of Brazil in the excerpt that is shown to me. Is the layout different for different members?
While this was clickbait, it was nevertheless interesting.
Frequent flyer miles aren’t an expense when they’re earned. When you purchase a ticket, airlines will book the value of miles earned into a liability account (now deferred revenue due to 606 implementation). Since these are a deferred revenue, from an accounting perspective, you are purchasing the miles when you purchase the ticket as the court in Brazil stated, and American can’t recognize the revenue from that portion your purchase until you redeem the miles or they are forfeited. I would argue that any well-thought frequent flyer program should never be considered a net expense – if the program as a whole didn’t generate a profit, they probably wouldn’t be offering it.
Interesting piece. Keep up the Good work!
Isaac. Get a life.
1) not clickbait
2) this decision from a first world country is important
3) the acctg explanation is timely. Revenue based awards instead of mileage based is a recent change.
4) airlines love to have every seat occupied. So this decision plays into their hands. It seems to backfire because of ltd awards availability, which actually limits AA’s exposure since maximum gray market activity is naturally capped.
5) this could affect discount carriers that may have to compete with “low cost” gray market frequent flyer awards sales, because nobody is going to pay a lot for resold awards space…maybe 25-50% of what a regular ticket would cost.
@Leef33. Your analysis makes absolutely no sense. Anyone who lacks their own miles and wants to take a flight has basically 4 choices: 1) don’t fly, 2) buy miles from American, 3) pay cash for the seat, 4) buy 3rd party miles. Assuming they are going to fly, American is clearly worse off with option 4, and to the extent that some, or all, of those miles would have otherwise gone unused, the loss of cash is substantial. The fact that they American can recognize the award seat in Revenue from an accounting standpoint is irrelevant to cash flow, which is what really counts.
I’m appalled anyone let 60K miles expire.You could have gotten a flight for a family member or donated for a charity flight or gotten magazines or other uses.
As Jerry M posted in response to Joseph N letting 60k miles expire, that was a waste. AA website lists 3 organizations miles can be donated to
You could visit an AA Dining participant and buy a soda, why would you let 60k miles expire???
Not sure why more airlines don’t allow you to cash out for giftcards like Southwest does.
How much did the miles sell for?
Are miles and points actively sold underground in USA? If so where. I don’t want to accidentally find myself on an unapproved web site.
It’s disingenous for AA or any airline to sell us miles for cash, then turn around to say that ‘miles are not your property!’ I could understand legal &or moral restrictions on selling some other things, such as when my friend gifts me a show ticket to attend with her, (s)he wants my company and social companionship, so it would be wrong for me to sell it to John or Jane Doe & pocket the cash! But an airline should not care WHO sits in those free seats–except for the breakage issue, which just exposes them as not really wanting to give away all those free seats in the first place!
Let’s be honest, airlines know about the miles marketplace but allow it to continue.
I think it is normal to want to get a legitimate benefit from this situation. The existence of markets for the sale of miles just proves that so many people think it is.