A frequent flyer program (FFP) is a loyalty program offered by many airlines. Typically, airline customers enrolled in the program accumulate frequent flyer miles (kilometers, points, segments) corresponding to the distance flown on that airline or its partners. There are other ways to accumulate miles. In recent years, more miles were awarded for using co-branded credit and debit cards than for air travel. Acquired miles can be redeemed for free air travel; for other goods or services; or for increased benefits, such as travel class upgrades, airport lounge access or priority bookings.
History
The first modern frequent flyer program was created at Texas International Airlines in 1979. But lacking the computer horsepower of its larger competitors, TI was overtaken by American's introduction of AAdvantage in May, 1981. During the early days, several other carriers experimented with reward programs, including Braniff International and Continental (OnePass). American's program was a modification of a never-realized concept from 1979 that would have given special fares to frequent customers. It was quickly followed later that year by programs from United (Mileage Plus) and Delta (SkyMiles), and in 1982 from British Airways (Executive Club).
Since then, frequent-flyer programs have grown enormously. As of January 2005, a total of 14 trillion frequent-flyer miles had been accumulated by people worldwide, which corresponds to a total value of 700 billion US dollars.
Miles accrual
The primary method of obtaining points in a frequent flyer program until recent years was to fly with the associated airline. Most systems reward travelers with a specific number of points based on the distance traveled (such as 1 point per mile flown), although systems vary. Many discount airlines, rather than awarding points per mile, award points for flight segments in lieu of distance. In Europe, for example, a number of airlines offer a fixed number of points for domestic or intra-European flights regardless of the distance (but varying according to class of travel). The calculation method can become complicated, with additional points given for flying first or business class, and often fewer points given when flying on discounted tickets.
With the introduction of airline alliances and code-share flights, frequent flyer programs are often extended to allow benefits to be used across partner airlines.
Many programs also allow points to be obtained not just through flying, but by staying at participating hotels, or renting a vehicle from a participating company. Other methods include credit and debit cards that offer points for charges made to the card, and systems which allow earn miles by eating at participating restaurants and charging the meals to registered cards.
Programs differ on the expiration of points. Some expire after a fixed time, and others expire if the account is inactive for an extended period (for example, three years).
Customer status
Many frequent flyer programs identify travelers who fly more than a few times per year by awarding them different status levels, which in turn give a number of benefits. Status levels vary from scheme to scheme, but benefits can include:
- Access to business and first class lounges with an economy ticket
- Access to other airlines' lounges
- Increased mileage accumulation (such as doubling or tripling)
- Reserving an unoccupied adjacent seat
- The ability to reserve specific seats, such as exit row seats with more leg room
- Free or discounted upgrades to a higher travel class
- Priority in waitlisting or flying standby
- Preference in not being bumped if a flight is oversold
- Priority of luggage (to be prioritized on transfer and to be displayed on the belt first)
- Ability to grant status to another person
- Eliminating of program's miles expiration rules
Some programs even permit elite members to reserve space on sold-out flights, giving members the ability of bumping regular passengers. In the US, member status is based on elite qualifying miles (EQM) or number of flight segments, not redeemable miles. Typically one elite qualifying mile is earned for each mile flown on a paid ticket, although there may be a percentage bonus for flying full-fare economy, business, or first class. In addition, the airline may offer opportunities to earn elite qualifying miles in non-flying ways, often in connection with their branded credit card. There are usually many more ways to earn redeemable miles (which can be used for free tickets and other benefits) without flying than ways to earn elite qualifying miles. Some airlines will recognise a customer's status with a competing airline, and grant them the same benefits.
Some airlines offer accelerated admission to their elite programs through special promotions, such as flying 10,000 miles (16,000 km) of non-discounted coach fares or 20,000 miles (32,000 km) of discounted fares within three months gains a higher tier membership normally reserved for passengers flying 50,000 miles per year.
Value of a mile
Travellers frequently debate how much accumulated miles are worth, something which is highly variable based on how they are redeemed. A typical ballpark figure is approximately 2 cents per mile based on discount (rather than full fare) economy class travel costs. However, most airlines have stringent capacity constraints on the number of "award" seats available, so some people argue that this ballpark figure is an overstatement. In this case, the value of a mile drops below a cent per mile. The airlines themselves value miles in their financial statements at less than one one-thousandth of a cent per mile.
In contrast, calculating the value of a mile based on full-fare business class travel costs can yield a figure several times higher, but only if the customer would personally be willing to pay the multiple thousands of dollars such tickets would cost otherwise. However, a person paying a full business fare will be able to change flights on short notice without extra cost; a person flying business class on a free award ticket may find that last minute minutes changes result in no award seat availability with the result that a ticket must be bought.
Increasing limitations on the availability of seats for point redemption, increases in services fees that airlines charge for redemption, and limitations on the transferability of redeemed tickets together have caused the value of miles to customers to decrease with time.
Air New Zealand found a unique solution to this problem, by pegging their Airpoints scheme so one point (an "Airpoints Dollar") has the same value as one New Zealand dollar when purchasing.
Bankruptcy
In the wake of the September 11 attacks, some airlines have faced financial difficulties, raising concerns among frequent flyers that their points could be lost or devalued. All airlines include provisos in their program agreements reserving the right to modify or eliminate them on relatively short notice. But since miles are a strong customer incentive, troubled airlines avoid their elimination in bankruptcy proceedings, and indeed may expand them or make them more generous to elite members and high fare passengers in order to win sales.
Furthermore, since most airline miles are never claimed, the programs represent a relatively small liability, and indeed can represent a profit center. Since the 1990s, U.S. airlines have sold billions of miles to partners such as credit cards, hotel chains, and car rental agencies, who offer this "currency" as an incentive to purchase their own services. Any effort to curtail the awarding of miles would thus endanger partner relations and another revenue stream. Notably, the banks backing several airline-branded credit cards have been a key source of airline financing, including United Airlines (Chase), US Airways (Barclays), Delta Air Lines (American Express), Northwest Airlines (US Bank), American Airlines (Citibank), Continental Airlines (Chase) and Copa Airlines (Visa).
Historically, the record is mixed. U.S. airlines have usually honored miles held in the accounts of acquired airlines. For instance American Airlines converted members of TWA's "Aviators" program to its own, as did Air Canada for Canadian Airlines' "Canadian Plus" program members. Sometimes, miles were honored by a close partner; Continental Airlines assumed Eastern Air Lines' program when it failed, as did Delta of Pan Am's. Bankrupt Swissair miles were transferred to Swiss International Air Lines Travel Club who were transferred to Lufthansa's Miles & More after the acquisition of the Swiss carrier.
Members are at greatest risk of losing their miles when an airline liquidates. All miles and privileges were lost, without recognition from any other carrier, as in the cases of Midway, Braniff, and Ansett Australia.
Accounting issues
Business travellers typically accrue the valuable points in their own names, rather than the names of the companies that paid for the travel. This has raised concerns that the company is providing a tax-free benefit (point-based awards) to employees, or that employees have misappropriated value that belongs to the company, or even that the program acts as a kind of bribe. The U.S. Internal Revenue Service has not as yet made any move to tax mileage programs, though for instance the Canadian taxation authorities consider mileage redeemed for free travel to be a taxable benefit. Most companies consider th
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