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.
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.