Your frequent flier miles and you

Bob CollinsBob Collins Apr 15, 2008

Ask a passenger about the effect of the Delta-Northwest arrangement, and the first thing they want to know is “what about my frequent flier miles?” For the record, both airlines say there’ll be no change, that Sky Miles and World Perks will be “integrated seamlessly.” But you’ll likely see some changes. First, depending on which bank card you use to accumulate miles, you may be doing business with another bank. In an investor conference call this morning, airline officials said agreements with both US Bank (World Perks card) and American Express (Sky Miles card) are up for renewal. It’s likely the new airline will sell its miles at a higher price to one or the other. That changes the bank you do business with — maybe — and potentially how many miles you get for each dollar purchased.

Even without the merger, says Mark Ashley, who runs the travel site, Upgrade: Travel Better, there are plenty of changes coming.

Here’s my full interview.

I’ll be posting the Cliff Notes version over the next few minutes.

  • Frequent flier programs aren’t as much about loyalty anymore. They’re about making money. (Listen)
  • Consumers have to get smarter about using frequent flier miles. (Listen)
  • What’s the value of a mile? Try to get the equivalent of 1.7 cents a mile. Don’t use miles on competitive routes. (Listen)
  • Miles are becoming less valuable because airlines are putting more restrictions and fees on cashing in miles. In short term, probably not an immediate change. Balances won’t go down, but rules and redemption tables are likely to change. (Listen)
  • You’ll probably need 20-percent more miles to get a ‘free’ ticket. Airlines will “tier” their frequent flier awards making it harder to get a seat. (Listen)
  • Airlines make their money by selling miles to the credit card companies. (Listen)

    So what should you do now? Cash in your miles now, not because they’ll be worthless, but because there will be fewer seats available. Writer Peter Greenburg goes so far as to call the situation “frequent flier fraud.”

    The airline are under no regulation to redeem those miles. They’re under no government mandate to redeem those miles. There’s nobody overseeing those programs. As a result, they are the most profitable divisions of the airlines.

    Frequent-flier mile programs are making more money than the core operations of the airlines. The actual market valuation of the American Airlines frequent-flier mile program–it’s the oldest program, it’s the largest program–is valued at over $6 billion. Did you know that the entire market capitalization of American Airlines is $5 billion?

    So, if you think that the answer to saving your airline is shrinking it, and you never want to displace a revenue passenger, and you’re under no obligation to redeem those miles.

    Still to come on News Cut today: A talk with a branding expert about wiping out the Northwest name, logo, and image.

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