When Alaska Airlines shared the other day that they’re celebrating their 90th birthday by giving each employee 90,000 Mileage Plan miles I passed on this news and joked that they were helping their employees learn how difficult it has become to use their miles. There’s a certain truth to this, and it’s actually to the airline’s benefit!
Alaska is hardly the first to give miles to employees, even recently. For instance,
- Southwest gave 50,000 Rapid Rewards points to employees for their 50th anniversary last year. Then they offered miles as a reward for attendance between the Thanksgiving and New Year’s holiday travel periods.
- American Airlines included miles in severance packages for managers as they tried to convince employees to leave during the pandemic.
But Alaska Airlines, in giving 90,000 miles to employees to celebrate their 90th anniversary, is making a uniquely smart move that helps enhance the value of the loyalty program, offers a leveraged way to make employees happy, and improves customer communication about Mileage Plan.
- It’s cheap to do even a scale, since Alaska’s ‘cost’ for 90,000 miles is almost certainly less than $750 per employee. Four years ago Alaska (and many other airlines) handed out $1000 per employee bonuses prompted by the Tax Cuts and Jobs Act of 2017.
- Employees will value the miles at more than they cost, just like customers do 90,000 sounds like a lot, much more than $750. Indeed the leverage in miles is that customers can redeem for travel worth far more than the travel costs the airline to provide. The gap is widened further for (1) saver awards (2) in premium cabins.
- Engages employees directly in the program most employees may be aware of the program don’t don’t know much about it, perhaps vaguely. It’s a huge revenue driver for the airline in addition to being a key tool to keep customers flying them.
- Introduces employees to the airline’s partners and routes. If you call Delta there’s a good chance the agent may think Air France is their only partner or ‘the only member of SkyTeam’ (something I’ve been told many times). It helps for employees to know who Alaska partners with, and helps promote those partnerships with customers, for them to engage directly figuring out where they can use there miles and on which airlines.
- They can become salespeople for the program, encouraging customers to join and engage once they know the product directly, and have traveled with it, they are more likely to be Mileage Plan evangelists – and since the program is a revenue driver that’s good for the company.
- And give critical feedback often feedback from employees is heard loudest. With employees as experienced users there may be more of a chance for improvement.
All employees should be experienced in the loyalty program since the loyalty program is core to the business. That includes revenue management, who might be more amendable to offering better award inventory if they combine an understanding of the program’s value to the business and experience with the challenges redeeming miles as a user.
Giving 90,000 miles is a lot of value, albeit at modest cost per employee to the airline. And while it alone can mean award travel the best use of the miles is adding to them for higher value partner awards around the world – especially on some of Alaska’s longest-standing partner airlines.
My experience running the Loyalty Security Alliance is that worries about employee fraud are typically the drivers of a corporate decision to not allow entirely, or to discourage, employees to participate in the loyalty program in many businesses. Abuse of the programs by employees is most common in retail, but “loyalty fraud” committed by employees and franchises are fairly prevalent at hotels. This being said, I believe the benefits far outweigh the risk of potential fraud.
There are tax liabilities for the employee and the company in giving away confirmed travel just as there is in exceeding IRS acceptable levels of discounts.
Airlines have very well-established mileage banking, redemption and transfer processes but it is very possible that employees could be selling their “gifted” miles so it might not accomplish all of the purposes that were intended.
Internal fraud is a big issue for companies and while, airlines do a better job than other industries, giving revenue customer benefits to employees does open risk.
@Tim Dunn – yes there are tax liability for giving employees miles, just like there are bonuses, just like ‘free’ travel. Indeed, just ask retired airline employees who get 1099s for their nonrev travel
At least they will have enough miles for two one way tickets in coach to Seattle
Alaska sucks so bad now if you don’t use their International Partners there is little value in their currency.Try and use a systemwide which you earn as an elite?Good luck with that
And perhaps off topic they have the worst partnership in One World ever.You can’t combine OW partners and many routes globally are excluded.God forbid you want to add an Alaska leg to your itinerary.It isn’t likely to happen even in coach. Program aside they have nice team members typically
@ Gary. My understanding is that non-rev travel (by active employees or retirees) is standby and that seat would go unused and has no income tax value. If the travel is positive space (confirmed) it would have taxable value. All non-rev travelers must pay any applicable departure/customs tax.
Whether a seat would go unused is does not mean there is no value to it @Joe T
Jim,
the IRS has pretty clear definitions of how employees can discount or give away their product or service to employees.
It is very difficult for a company to determine that a physical product cannot be sold even if it is spoiled because employees themselves would have to make the determination of whether a product is unsellable so employee discounts regarding products involve a defined discount – which I believe the IRS caps at 20% max – while surplass or spoiled merchandise is donate to organizations outside the company.
Services are easier to give away but only if you can legitimate argue that there is no potential to sell it. Airlines are able to offer free, untaxed travel to employees on a standby basis and generally only after they cut off sales to customers – usually within the check-in cut off period. Similarly, a cruise ship like a flight has a defined departure after which there are no more sales and where defined surplus inventory remains. It is much harder for an accounting firm to argue that they give free services to their employees since they would have to allocate resources to do that job. Service businesses can give discounts to their employees – which they often do.
If a business in the US gives away services which can arguably be sold to a paying customer or discounts it to employees above a certain level, then there are taxes owed.
Frequent flyer programs can be used at some point in the future beyond the day they are granted so have value. The US airlines largely show the value of the mileage credit they have issued in their financial statements that are sent to the SEC so it is possible to calculate the liability involved in what has been issued.
Airlines can offer confirmed travel to employees for business related purposes but they generally are very careful to make sure there is documentation to back up the reason.
Some airlines offered positive space travel during the pandemic – sometimes before – and it will be interesting to see if it remains in its present form. Some crew members use it to commute to their bases but it is likely a taxable employee benefit under normal circumstances and it only involves a certain subset of employees (those that do not live in the same city as their base). It is a bit more justifiable to offer transportation to get an employee to their job but it should probably be taxed just as it would be in sending a limo to your house to take you to the office.
Alaska is most certainly paying taxes on the miles they give and there are undoubtedly employees that do not want them because it would involve a tax liability for a service they do not want. Some airline employees do have FFP accounts at their airline so presumably they would then intermingle miles they earned just like everyone else with company benefit miles. Unless transfers are blocked, some employees will transfer their miles to other people and might sell them.
With inflation, the rising costs of EVERYTHING, getting a paid bonus, real spending power is a much better thing, in my estimation. I don’t think the gas station or the grocery store takes Alaska Air miles.
It’s genius to give employees bonuses in your own currency. Sky Pesos are only slightly more useful than Shrute Bucks and can be devalued just as quickly.
Try giving all employees miles instead of non-rev travel
– they will soon find out how worthless the miles are!