Frequent Flyer Programs … From the Beginning

American Airlines introduced the first of what we now know as frequent flyer programs in May 1981, with 283,000 members. At the time, no one could have imagined how pervasive the programs would become.

In the three decades since American’s launch of AAdvantage, airline programs have become the cornerstone of travel industry marketing. AAdvantage alone now boasts 66 million members. And it is estimated that more than 100 million Americans participate in one or more airline program.

The basic loyalty program model—earn points for purchases, redeem points for rewards—has been adopted by businesses ranging from single-outlet coffee houses to Fortune 500 mega-corporations.

The Path to the Prize: Earning Miles

While the focus of many frequent flyer program participants is understandably on the goal—the free trip to Mazatlan or Paris they hope to earn—it takes many days to earn the many miles required for an award ticket. Luckily, those many miles can be earned in many ways.

In the beginning, travelers earned miles for only one activity: flying. Over time, the airlines recognized that a trip comprised several components, and began awarding miles for hotel stays and car rentals. When members responded favorably, airlines offered miles for credit card charges. Realizing that even the most extensive single-airline route network wasn’t all-inclusive, program operators invited other airlines to join their programs, with the goal of offering miles for travel anywhere in the world. And more recently, the programs have moved beyond travel altogether, making miles available for everything from supermarket purchases to investing.

Here’s a summary of mileage-earning options offered by most programs:

Partner Airlines

All frequent flyer programs—even those of discount carriers like Southwest and JetBlue—aspire to be global in scope, offering their members opportunities to earn and redeem miles most anywhere in the world. So, for example, American Airlines includes British Airways and Japan Airlines in AAdvantage as “program partners,” giving program members opportunities to earn and redeem miles throughout Europe, the Middle East, Africa, and Asia … opportunities not available on American’s own flight network.

American currently has more than 20 such partner airlines in AAdvantage; United has 35 in its Mileage Plus program; and Delta has 22 in SkyMiles. Even a smaller airline like Alaska Airlines, the country’s eighth largest, has 15 partners in the Mileage Plan program.

Hotel Stays

Although the major hotel chains operate their own frequent-traveler programs (Hilton HHonors, Starwood Preferred Guest, Marriott Rewards, InterContinental’s Priority Club Worldwide, etc.), they also participate in airline programs, a tacit admission that many consumers place a higher value on airline miles than hotel points.

Miles are usually earned at the rate of 500 per qualifying stay, or according to the member’s dollar expenditure.

Car Rentals

Most major rental-car companies offer frequent flyer miles in most airline programs. The industry-standard earning rate is 50 miles for every day a car is rented.

Credit Card Charges

Every major airline program has one or more co-branded credit cards associated with it that reward cardholders with miles-for-charges. Examples: the AAdvantage Mastercard issued by Citibank, the Southwest Rapid Rewards Visa from Chase, the Delta SkyMiles credit cards from American Express, United’s Mileage Plus Visa from Chase, and so on.

As with non-mileage cards, the airline-affiliated cards are normally offered in a choice of Classic, Gold, and Platinum versions, or names to that effect, with annual fees and interest rates varying accordingly. Cardholders generally earn one airline mile for every $1 charged. And there’s usually an annual cap on the number of miles that can be earned, often waived for more expensive cards and for program members who have attained elite status.

Several airlines also feature program-linked mileage-earning debit cards. Because debit cards are less profitable for the issuing banks, the mileage payout is less—typically one mile for every $2.

Also worth considering are cards offered by hotel programs, and cards from American Express that allow users to earn “generic miles” that can be converted to miles and points in participating airline or hotel programs.

Look for a separate chapter in future on rewards cards.

Shopping

To capitalize on consumers’ infatuation with miles, and the need for online retailers to gain a competitive advantage for themselves, most of the larger airline and hotel programs now feature mileage malls—networks of online retailers that offer miles for purchases. The largest of these comprise as many as 500 Internet merchants, making it possible to earn miles across a wide array of retail categories, from clothing to hardware to consumer electronics.

Eye on the Prize: Redeem Miles for Travel, Etc.

While opportunities to earn miles have multiplied steadily, redemption options have been a mixed bag, waxing and waning over the years. Recently, hotel nights and car rentals have reappeared on the award charts of several programs, making it possible to construct an entire trip using “free” components.

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Airline Awards

The most-requested award ticket is the capacity-controlled round-trip coach-class ticket for travel within the continental U.S., offered in most programs for 25,000 miles.

Prices for round-trip restricted award tickets from the U.S. are generally as follows:

• Within the continental U.S.: 25,000 miles for coach, 50,000 for first class
• To Hawaii: 40,000 miles for coach, 80,000 for first class
• To Europe: 50,000 miles for coach, 100,000 for first class
• To Asia: 60,000 miles for coach, 120,000 for first class

The price for unrestricted awards—free of capacity controls and blackout dates—is typically double that of the corresponding restricted awards.

In addition to free tickets, all programs offer upgrades-for-miles, a popular award among business travelers who tend to be more interested in increasing the comfort quotient during required trips than in taking more trips.

Upgrades are generally offered on a one-way basis, and are more or less expensive depending on whether the upgraded coach ticket is unrestricted (and therefore pricey) or restricted (the discounted advance-purchase coach fares purchased by most leisure travelers). Typical upgrade prices look like this:

• Upgrades from restricted coach fares for travel within the continental U.S. are usually priced at 15,000 miles each way, and 5,000 miles each way from unrestricted coach fares.
• For travel to Europe or Asia, upgrades cost 25,000 each way from restricted coach, 15,000 miles from unrestricted coach.

An unfortunate recent trend has been to require a cash surcharge in addition to miles for upgrades. American, for example, now charges $75 plus 15,000 miles, each way, to upgrade domestically from cheaper fares.

Mileage Expiration

Miles, it should be noted, do expire.

The rule governing mileage expiration in most programs reads something like this: All miles will expire 18 months (two years in some programs) after the latest earning or redemption transaction. In other words, any account activity automatically extends the life of all miles in that account for an additional 1.5 years.

While miles do expire in theory, with the myriad options available for earning miles, it’s a simple matter to keep them indefinitely. The key is paying attention to looming expiration dates and acting accordingly.

The Fine Print

Frequent flyer programs are notoriously rule-laden. Reading through any program’s “Terms & Conditions” is a mind-numbing experience, likely to confuse all but the most lawyerly among us. A few key issues to bear in mind:

• The airlines have the right to modify or terminate their programs at any time, for any reason. At least that’s what all programs’ member guides claim. Almost always to the detriment of program members, the airlines avail themselves of this right on a regular basis, increasing award levels, adding new fees, and so on.
• Miles are generally awarded only for “qualifying” rates and fares, and may not be awarded on all routes or, in the case of hotels, at all properties. If there’s any doubt in your mind as to whether a transaction will qualify for miles, contact the program’s customer service center and ask for confirmation.
• Frequent flyer program members are expressly prohibited from buying or selling miles, certificates or award tickets, except as permitted through the airlines themselves or their authorized agents. While it can be tempting to traffic in frequent flyer awards—directly with friends or acquaintances or via “coupon brokers”—the consequences of breaking this rule should give would-be scofflaws pause: Sellers will have their accounts frozen; buyers will have their tickets confiscated.

Choosing a program that will work best for you—given your individual goals, travel patterns, etc.—will be the subject of the next installment.

Are Frequent Flyer Miles for Me?

While the lure of a free ticket is sufficient incentive for most to participate in a program, there are skeptics. Among the most common concerns, and responses to them, are the following:

I don’t travel very much, so I’ll never earn enough miles for a free trip.

Earning a free trip is well within the capabilities of most consumers, even if they’re not frequent flyers.

You can earn miles for many non-travel-related activities, including credit card charges, dining, shopping, financial services (investments, insurance, mortgages), and more. So pervasive have the programs become, in fact, that you’d be hard pressed to think of a purchase for which you couldn’t earn miles.

For example, if you were to participate in an airline’s dining-for-miles program, which awards five miles for every $1 spent at participating restaurants, and use a mileage-earning credit card to charge the meals, you could reasonably expect to earn the 25,000 miles required for a free domestic award ticket in as little as a year, as follows—

• Earn 13,000 miles (250 miles per week x 52 weeks of dining miles)
• Earn 12,000 miles (1,000 miles per month in credit card charges)
• Total: 25,000 miles (earned from the above in 12 months)

Without flying a single mile, you’d earn a free ticket.

It’s not worth the time and effort required to pursue frequent flyer perks.

It is a mistake to think of frequent flyer miles as an extra. The cost of frequent flyer miles is included in every ticket issued. So if you don’t earn miles, and eventually redeem them for an award, you are effectively overpaying for your ticket.

I travel a lot, and usually in first class. Why bother with frequent flyer miles when the last thing I want is to be “rewarded” with yet another flight?

For bona fide frequent travelers, the payoff isn’t necessarily more travel, it’s better travel: upgrades, priority boarding, expedited baggage-handling, enhanced customer service. An upcoming chapter in this series will focus on elite status.