Too many miles chasing too few seats (so burn as you earn)

Back in November I explained why mileage award prices will go up, now and in the future, because there are simply too many miles chasing too few seats.

This new piece (originally in the Boston Globe and then syndicated) outlines the current state of the phenomenon.

    Frequent-flier miles are easier to come by as airlines sell more miles to partners like credit card companies and hotels, but they’re harder than ever to redeem.

    Behind-the-scenes deals with corporate partners are helping cash-strapped airlines rake in millions of dollars at a time when high fuel costs and lower fares are killing their bottom lines. At the same time, these deals give companies that buy miles a sought-after incentive to offer their customers.

    But frequent-flier club members shouldn’t think all the freebie miles they’ve racked up will add up to free trips. Even with more miles floating around, airlines are cutting flights and flying more crowded planes, limiting the seats available to frequent fliers.

    “The sale of miles is growing,” said Mark Bergsrud, vice president of marketing programs and distribution at Continental Airlines. “It’s good business whether the oil price is low or high and good business before fares started to decline.”

    It may be particularly good now.”

    Continental reported $24 million from sales of its OnePass frequent-flier miles to other companies in the fourth quarter of 2003, but Bergsrud said the actual amount was probably larger because airlines account for those sales over several quarters.

    Delta Air Lines landed $500 million in cash from American Express Travel Related Services Co. in October, when American Express paid for three years of points in Delta’s SkyMiles frequent-flier program in advance. American Express offers a Delta SkyMiles credit card, which allows members to accrue miles as they make purchases with the card. Delta spokeswoman Tanya Dunne said she could not discuss the deal before the airline files financial reports with the SEC.

    Selling miles to companies that give them away is good for the airlines not just for the cash they produce, but because many of those miles go unused anyway. United passengers got about 2 million free frequent-flier tickets in 2003, but Mileage Plus members still had about 9.7 million trips worth of miles sitting unused in the same year, according to documents filed with the SEC..

    Members of US Airways’ Dividend Miles program took 1.2 million awards trips in 2003, down 7.7 percent from the previous year, according to company filings. But the airline’s frequent fliers were still hoarding miles worth 6.2 million trips.

    Even if passengers used more miles for trips, it would be unlikely to hurt the airlines because it doesn’t cost that much to add passengers to a flight that already has hundreds of paying customers on it.

    If there’s a seat available on a flight that hasn’t been paid for already, “then we’re not losing money,” said Ned Raynolds, a spokesman for American Airlines.

    About half the miles earned in American’s AAdvantage frequent-flier program come from products or services other than air travel, said the company. American frequent fliers can earn miles through 1,500 different companies by buying things like Kellogg’s cereal, flowers from, long-distance services from AT&T, or using a special Citibank credit card.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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