The cover story of this month’s Inside Flyer is called “The Ethics of a Mile” and deals with gifting, bartering and selling awards — and the consequences for violating a program’s rules.
In general, most airline and hotel programs will let you gift an award ticket or hotel night to anyone you wish (although some programs will limit you to giving travel to family members).
But going beyond that — sell your miles on Craiglist or through a broker — and you risk having your accounts closed, tickets cancelled, and even being banned from future participation by a travel provider.
Even giving a ticket to a charity for a fundraising auction violates some programs’ rules.
Last month I explained What triggers an airline or hotel program to suspect you, and how to respond if they do.
They’re your miles, though, right? Why won’t programs let you sell them?
Here’s what I told Inside Flyer:
Why are the programs so against their members selling the miles they’ve earned? We contacted frequent flyer expert and blogger Gary Leff from View from the Wing, asking, “Why do frequent flyer programs have rules against their members selling miles?” He responded: There are really three things that forbidding the sale of miles accomplishes for a frequent flyer program.
1) Frequent flyer programs balance their revenue and costs. If members sell their miles, that’s likely unused miles that get used, sooner, and for more expensive awards. That means higher costs. And it means the program is spending money on someone that they don’t have a loyalty relationship with.
2) If miles have a market value–rather than remaining the property of the program, a mere rebate for travel spending, and a reward for loyalty–then there’s a great risk of taxation.
3) And frequent flyer programs want to set the price of their miles themselves–to the general public and to partners. A secondary market for miles undercuts their pricing power and business relationships.
It’s ironic that frequent flyer programs began wanting to reward a loyalty relationship with a customer, and so frowned on commoditizing that relationship–but United and Delta are now moving in the other direction rewarding purely economic transactions through revenue-based programs.
Which still doesn’t answer the ethical question from the start of the piece. Should you be allowed to sell your miles?
My own take is no, because you agree not to as part of program membership. But if you take a dim view of adhesion contracts you may not find that view persuasive…
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Gary,
Generally I know you’re not one for hair splitting and editing issues, but I have to raise the point:
Given the answer you give to your question, when you pose this question to a learned audience, you really need to ask “Should the programs remove the restriction prohibiting sales of miles and points to a third party?”
Your answer (and the question preface) indicates that you think you asked, “Is it ethical to sell miles and points to a third party when the program rules state that you shouldn’t?”
As much as this pains me to say this, you never own your points and miles. They’re “your” points just as much as it’s “your” seat on an airplane or “your” hotel room. Make no mistake that the airlines/hotels own the points and you are merely renting them.
It’s not that you have to take a “dim view of adhesion to contracts”. It’s that the contract is so one sided that it shouldn’t really be considered one. One side of the party can make and changes at any time for any reason. This includes removing you from the program without any compensation for what you have “earned”. That’s not reasonable. There’s also the case where airlines attempt to get out of contracts (“mistake fares”) above and beyond frequent flyer programs. The DOT stops them from doing this but if DOT wasn’t there they would surely break contracts without a second thought which is why the rules were put into place to begin with. So as soon as the airlines start entering into real contracts I’ll gladly adhere to them.
If we could sell them all airlines would then by default become a revenue based FF program. A supply/demand FF program at that…..
@Paul – the DOT is considering, in their current proposed rulemaking, amending the obligation of airlines to honor mistake fares. Separately, the Supreme Court’s view is that frequent flyer program terms are binding and no state-level claim of fair dealing can be applied due to the Airline Deregulation Act which preempts state regulation of airlines.
Oh no, I get it the recent court case and what DOT is considering. But my point about how the “contracts” are so one sided that they shouldn’t be considered contracts stands. I understand our government is paid for by corporations like the airlines who can hire lobbyists so they can have a certain set of rules that allow them to write one sided contracts like they do. If it were you and I entering into a contract that one sided it would be thrown out if it were ever challenged. So should you feel morally obligated to “adhere to the contract”. I would argue no.
‘So should you feel morally obligated to “adhere to the contract”. I would argue no.’
So don’t. Fly without a frequent flyer number. Millions of people do this every year. You still get transported from A to B, your trip is still governed by the airline’s contract of carriage, etc.
How can this be a contract of adhesion if you are not required to participate in a frequent flyer program in order to fly an airline? Heck, you can buy every single thing elite status gives you- a first of business class seat, extra luggage, even lounge access. So what are you being forced to do here?
Donating award seats for charitable fundraisers is iffy for other reasons. Some friends bid over $10,000 at a fundraiser for 2 business class award seats to Paris plus a week in a fancy apartment. Then they found there was no Saver availability any time they wanted to travel. I tried to help them find seats; when I failed I asked Lucky for help; still no go. Fortunately my friends are on the charity’s board of directors; they “rolled with the punches”. Less dedicated supporters might have raised a major stink!!
“So don’t. Fly without a frequent flyer number… So what are you being forced to do here?”
Of course you’re not being forced to do anything. You’re hardly ever “forced” to do something and that’s not the determining factor of an unconscionable contract. The airlines aren’t being forced to offer frequent flyer programs either but they do and they sell miles to various parties that advertise things like
“SIGN UP FOR THIS CARD AND YOU GET TWO FREE PLANE TICKETS*”
*restrictions may apply like we can change the terms, kick you out of the program for any reason, etc. Even after you’ve met the requirements for your TWO FREE PLANE TICKETS.
So airlines sell something to credit card companies, credit card companies effectively sell those miles to the public through usury interest rates (obviously the most people on here don’t keep a balance but many do) and swipe fees and then the airlines can remove you from the program for any reason (or completely change the terms) and there’s nothing you can do about it. See how this is one sided?
Paul,
I don’t know if you read my previous comment, but the contract you speak of is more of a “renter’s agreement” than anything.
Let’s take apartment leases as an example. The typical apartment lease is also pretty “one-sided” where the owner/landlord retains most of the leverage and the renter has to accept the set rules or take their business elsewhere. When the lease expires, the landlord can increase the rent, decrease the services provided or kick you out without cause. They can even kick you out during the lease if they feel that you violated your end of the agreement. It is easy to draw parallels between these actions and our pet peeves about loyalty programs.
The courts repeatedly side with the landlords in these agreements, even if, in your opinion, you consider them to be “one sided”. Yes, contracts can be voided if they are signed under coercion, but that only applies in cases such as where you literally have a gun to your head and are forced to sign.
With loyalty programs, there typically isn’t a “lease period” and the company can change any of the terms on a moment’s notice; and I agree that it’s pretty crappy. However, airlines/hotels compete for loyal customers and some are starting to include fixed-periods as a way to enhance their program without added expense. The “no devaluations through 2014” pledge that IHG made is a good example.
Gary – why does US Airways make me pay additional monies to SHARE/GIFT my miles with a family member? They are miles I’ve accrued and should be able to have any family member use without additional cost. Your thoughts. Thanks
bobbieddie, see my previous comments about the accrued points only being rented instead of actually being owned. It’s really up to whatever the terms/lease stipulates. If your apartment lease says no unapproved roommates/guests/subletting, that’s all the reason the landlord needs to enforce their policy and kick you out if they catch you violating it.
I guess we’ll have to agree to disagree on this topic. A renters agreement is nothing like this unless under your lease your landlord can change the rent at any given time during the lease and remove you from the apartment for any reason he chooses. Do you think a lease like that would stand up in court? Your last paragraph touches on this but if you understand these points I’m not sure why you would bring up the landlord example to begin with.
A contract doesn’t not have to be with a gun to your head in order for it to be so one-sided it is thrown out due to unconscionability. I understand that our government has held this not to be the case often when it’s a large corporation vs. an individual due in large part to lobbying efforts but that doesn’t mean I need to feel an moral obligation to adhere to an unconscionable “contract” like a frequent flyer agreement.
@bobbieddie – you can use your miles for a ticket in anyone’s name you wish. if you want to put miles into someone else’s account, that’s when there’s a charge, and that’s consistent with how any airline that does not offer family pooling (like, say, British Airways does) operates
Paul,
There is nothing to legally prevent two consenting parties from agreeing to a short-term lease. An ultra-short (i.e. one day) apartment lease would certainly stand up in court if all else was proper.
I still don’t understand how you feel that customers are being fleeced so badly by frequent flyer programs that its unconscionable. You are setting the bar so low that any contract that includes the term “reserves the right” is unconscionable.
Again, I disagree with pretty much all your points. Not sure if we are going to change each other’s views. Where I currently live and am a landlord (NYC, the largest rental market in the country) I need to give 30 day notice to my tenant if they are are on a month to month lease. There is no such thing as a day-to-day lease, it’s not allowed. I also can’t raise the rent during that month. And if they don’t leave after the 30 day notice I can’t change the locks I need to go through the eviction process which will take several more months.
I still don’t understand how you can’t see how one sided frequent flyer programs are that it’s not glaringly obvious that they would be viewed as unconscionable to an unbiased party. One party promises another that if they complete certain actions (fly on an airlines, open a credit, purchase miles with legal tender, etc) they will receive certain benefits. Only one party can change the terms of what the other will receive retroactively after entering into this agreement and even beyond that one party can end the agreement at any time without providing any compensation to the other even if they have meet the agreed upon terms.
In the worst case an airline could sell miles for $0.001/mile, Gary, the rest of the blogs and all of us miles and point junkies would wet their panties at the deal and we’d all buy millions and millions of dollars worth. The airline could then increase redemption rates by 20x, close the frequent flyer accounts of anyone who bought miles, or even end their programs and that would all be fine under the terms and conditions. Do you really not understand how this is unconscionable/one-sided?
I think our disconnect is regarding if having the term “reserves the right to modify” is innately unconscionable. It is a very common phrase used in contracts throughout every industry, and I see no issue with it being present.
However, your concern is that this phrase can be used to modify the contract to something that is unconscionable. If this concern is actually valid, then the phrase would not be allowed to exist in any contract because there is an infinite number of unconscionable possibilities that can result from it. For example, if the contract with your cell phone carrier states that they reserve the right to modify their name, you might call this term unconscionable because they might change their name to “Paul is a Big Fat Dummy Wireless”.
The question then becomes where do we draw the line with devaluations. I believe that SOME amount of devaluations are conscionable, especially if the earned points are pegged to dollars spent (i.e. credit cards, most hotel programs), which is subject to inflation. If this wasn’t allowed to be modified, and $1 of credit card spend always earned 1 mile and 25k miles can always be redeemed for domestic round-trip airfare, charging a pair of jeans to your credit card in 2060 might be able to get you a free flight.
There is no other way to judge devaluations other than on a case-by-case basis as they happen. I feel that the Airlines/Hotels/Banks have acted in good faith with their programs and I haven’t seen any previous devaluations that I would call unconscionable. If there are unconscionable devaluations in the future, I would have no problem if the victims took it to court. If you feel that you have been the victim of a previously unconscionable devaluation, by all means, sue the company and let me know how it goes.
Yeah, I think that’s where we are in disagreement. I don’t believe it’s a standard practice for a contract to have language that one side and only one side is able to modify an agreement in any way they see fit with no notice. For example, I just looked at Verizon Wireless:
http://www.verizonwireless.com/b2c/support/customer-agreement
“CAN VERIZON WIRELESS CHANGE THIS AGREEMENT OR MY SERVICE?
We may change prices or any other term of your Service or this agreement at any time,but we’ll provide notice first, including written notice if you have Postpay Service. If you use your Service after the change takes effect, that means you’re accepting the change. If you’re a Postpay customer and a change to your Plan or this agreement has a material adverse effect on you, you can cancel the line of Service that has been affected within 60 days of receiving the notice with no early termination fee if we fail to negate the change after you notify us of your objection to it.”
So they need to give you notice of the change *before* they make it and you have 60 days to terminate the contract. You also get the compensated if you decide to end the relationship based on their modification of the terms by not having to pay any early termination fees (effectively they give you the money they subside on your phone).
I don’t plan to sue the airlines over devaluations because I believe that they are willing to pay their lobbyists and lawyers more than I am willing to pay mine and the game is effectively rigged. That’s said, I have no problem acting on my own self interest when it comes to modifying the terms of the agreement as I see fit. This is all to Gary’s point that it’s some kind of ethical issue to sell your miles because of the terms and conditions of the program. My point is that you should feel free to modify the terms and conditions as you see fit as the airlines do. Meaning go ahead and sell your miles and like always you should keep a low balance in your account at all times since the other side has the right to modify the agreement or terminate your account whenever they want. Whether that be for selling your miles or because they feel like it for any other reason.
Gary, why did you delete my post?
@Paul I did not, the software flagged it as possible spam so i had to manually approve it (which I did as soon as I saw it)
Sorry, saw that it was awaiting moderation then it disappeared… thank you.
I have no problem acting on my own self interest when it comes to modifying the terms of the agreement as I see fit.
Ah, so now we come to it, then. “The other guy is bad and engages in trickery, so I am allowed the same trickery. HE STARTED IT!”
Except airlines tell you “sorry, we’re changing the terms”, even if it’s with no notice, they do say “sorry, terms have changed”. Are you letting the airlines know you’re changing terms on your part? No? You’re pretending to agree to them and changing them WITHOUT informing them? Then it’s not the same, is it?
Whatever gets you sleeping through the night, I guess.
uhh yes, that’s exactly right. The agreement should be equal. Why would you ever think that some of the things I mentioned are not unconscionable? If both parties are able to change the terms and conditions than that does make it ok, or at least as good as it’s going to get.
The airlines don’t always say “sorry, we’re changing the terms” sometime they say “sorry, we’ve *changed* the terms” (see: AA), and sometimes they don’t even do that. I hate to break it to you but the airlines don’t always give you notice when they change their programs:
https://www.facebook.com/LoyaltyLobby/posts/113847242122164
http://www.flyertalk.com/forum/united-airlines-mileageplus/1423633-2013-changes-united-mileage-plus.html
http://blog.wandr.me/2013/10/uniteds-mileageplus-program-hidden-restrictions-friendly/
There have been several other examples that I can think of in the couple of years I’ve been reading about this stuff, I’m guessing there’s been a lot more prior to that and that I don’t know of…
So no, I don’t think it’s a requirement that you notify that airlines if you decide to change the term of your agreement with them. Can you show me anything in the terms and conditions of the airline programs that suggest that they are required to notify you of changes?
Feel free to start thinking for yourself instead of letting your corporate masters do the thinking for you and falling in line like a good like serf. If you want to sell your miles (something that I haven’t done at this point but would in a heartbeat if I thought it would benefit me) you shouldn’t have a moral issue with it, you should just weigh the pros and cons just like the corporations do when they decide if they want to screw you over.
I agree with Paul all the way. The definition of Adhesion Contract is one where a stronger party such as a corporation presents a contract to a customer whose only options are 1. Take it as is or 2. Leave it and any attempt at negotiation will be laughed out of their office!
The airlines can call it ‘fraud’ to sell miles/ awards, but that does not make it so any more than if somebody calls his bowel movements “delicious chocolate fudge!” The airlines owe SOMEBODY a free ticket, so it’s none of their business WHO flies. This differs from a person who buys tickets to a show for him/herself & for a friend because s/he wants the friend’s company. It would be fraud for that friend to sell the ticket to a stranger and pocket the cash.
Also, by selling miles (especially) directly to members or even to credit-card banks, car-rental co.s, etc., they contradict their T&Cs which state that miles are property of the airline! Why would anybody pay money for something, title to which remains with the seller?!