The Extra Mile

Frequent flyer miles -- use 'em or lose 'em in 2005

January 24, 2005 - Last year ended with a whimper rather than a bang, as yet another airline quietly sought protection under U.S. bankruptcy law. On Dec. 30, 2004, Aloha Airlines -- citing the need to restructure costs in order to insure its long-term survival -- added its name to the growing roster of air carriers operating under Chapter 11. The list of U.S. airlines now in bankruptcy includes Aloha, ATA, Hawaiian, United and US Airways.

For millions of travelers who participate in the frequent flyer programs of the affected airlines -- and for others who worry that their airlines will be next -- the bankruptcies raise troubling questions. Will the airline shut down completely, obliterating billions of frequent flyer miles in the process? Will those hard-earned award tickets have any value if the airline which issued them slips into insolvency? Is it worthwhile earning miles if the future of the programs, and of the airlines which host them, is in doubt?

That uncertainty can only undermine the value of mileage programs.

Adding to the decline in the value of frequent flyer miles is the long called-for revamping of ticket prices, which began in earnest on Jan. 5, 2005, with Delta's introduction of SimpliFares. Bowing to pressure from consumers demanding simpler, cheaper ticket prices, and from discount carriers able and willing to meet that demand, Delta thoroughly revised its pricing to, among other things, reduce the most expensive one-way domestic fares to $499 in coach and $599 in first class.

American, the world's largest airline, has matched Delta. And other mainline carriers are expected to do so as well.

While the new pricing is good news in most respects, there's an unintended negative consequence for mileage program members. The decrease in first-class fares will increase demand; and more first-class ticket sales will inevitably translate into fewer first-class seats available for upgrades.

These developments further contribute to the ongoing devaluation of frequent flyer programs, and of the frequent flyer mile itself. Average ticket prices are down. Fees are up. Awards are harder to obtain. And airlines' uncertain future puts frequent flyer accounts at risk as never before of summary liquidation. Taken together, these negative factors have forced consumers to adopt a new formula for valuing their miles: instead of the old 2¢-a-mile rule of thumb, frequent flyer miles are now worth less than 1¢ apiece.

Since that downward trend shows no signs of leveling off in the foreseeable future, it follows that a mile redeemed today is more valuable than a mile redeemed tomorrow. And a mile redeemed tomorrow will have more value than a mile redeemed next week. And so on.

Which suggests a New Year's resolution for 2005 and beyond: Use those frequent flyer miles sooner rather later, before they lose more value, or they disappear altogether.