The Extra Mile

Airlines increase award options for frequent flyers

April 25, 2005 - Up to this point, the history of frequent flyer programs has been the story of ever-expanding mileage-earning opportunities. The mileage schemes which began life as single-focused marketing promotions, rewarding travelers exclusively for flying, have burgeoned into all purpose loyalty programs, awarding miles for a dizzying array of activities. American, a trendsetter in this area, now boasts more than 1,200 mileage-awarding partners in its AAdvantage program.

The growth on the earning side of the programs has not been matched by a proportionate increase in award opportunities. In fact, the only advance in recent years has been the addition of magazine subscriptions to the award charts of most programs. While the ability to redeem 500 miles for a year's worth of Vogue or Esquire is handy, especially for program members with modest account balances, it hardly offsets the explosion of miles earned for almost any imaginable retail or financial transaction.

The disconnect between earning and redemption opportunities has become increasingly irksome to consumers since the major airlines went into a financial tailspin, pressuring them to reduce the number of award seats allocated to frequent flyer program members.

The recent rebound in air travel is making matters even worse for would-be award travelers.

For the month of March, for example, American, Continental, Delta, Northwest and United reported load factors -- the percentage of seats sold -- exceeding 80 percent. JetBlue's planes flew 90 percent full for the month. While good news for the airlines, such robust demand translates into fewer available seats for consumers looking to burn miles. And on more popular flights, which can reliably be expected to sell out to paying passengers, airlines sometimes succumb to the all-too-rational temptation to reduce the number of award seats to zero.

The airlines are between a rock and hard place. On the one hand, they are desperate to squeeze every last dollar from every flight, at the expense of loyalty program members if necessary. On the other hand, they cannot afford to allow their mileage programs to lapse into irrelevance. The programs have proved their worth in fostering customer loyalty. And no less important, the revenue generated from the sale of miles to program "partners" (credit card issuers, hotel chains, rental car companies, etc. which offer airline miles to their customers) has become a critical element in the pursuit of financial stability, and a highly profitable business unto itself. While the airlines don't separately report revenue and profits from their mileage programs, it is estimated that they sold $3 billion worth of miles in 2004.

With so much pressure to maintain the programs' viability, it came as no great surprise when American last month revised its list of award options to include free hotel accommodations and points in a popular credit card program.

Dubbed redeemAAmiles, the new feature allows AAdvantage members to redeem their miles online for hotel stays and points in several leading hotel programs and for Diners Club Rewards points.

AAdvantage members may use their miles for points in the Hilton HHonors program, points or free stays in Intercontinental's Priority Club program, and free stays at Marriott hotels. Free nights are available for as few as 12,500 miles, for a night at a Holiday Inn Express, and for as many as 37,550 miles, for a night at an upscale Intercontinental hotel.

Or, 10,000 AAdvantage miles can be redeemed for 10,000 Diners Club points, which in turn can be used for awards in the Diners Club Rewards program or exchanged for miles or points in other airline and hotel programs.

In a troubling break with tradition, American charges a $25 fee for each redeemAAmiles transaction.

Within a week of American's announcement, United Airlines responded with a related move of its own, expanding the availability of hotel and rental car awards to all elite members of the United Mileage Plus program. (When the hotel and car awards were introduced earlier this year, they were offered only to the top two elite tiers of Mileage Plus.)

Travelers who attain elite status with United may now redeem miles for hotel stays at Marriott or Radisson, and for car rentals at Alamo, Avis, Hertz or National. Unlike the American offering, there's no transaction fee over and above the miles.

Rental car awards begin at 10,000 miles for a two-day weekend rental. Free hotel nights range from 15,000 miles at Radisson locations in North America to 30,000 miles for overseas stays at Marriott or Radisson properties.

With non-airline awards now on offer from the two largest programs, the competitive pressure on other carriers to follow suit will be irresistible. And that will be a welcome trend for consumers, who can look forward to a new chapter in the development of loyalty programs, entitled "Rewards Programs Get More Rewarding."