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You may not have heard the story of the salesman who is summoned by his boss to explain an egregious item in his expense account. ‘Now see here, Joe. I know you’ve had a tough month chasing the Fingelstein order up in Niagara Falls. But $2,000 for an overcoat! You know there’s no way I can approve that. You’d better go away and re-work these expenses.’

            The next day, Joe’s boss is apoplectic. ‘Joe, these expenses of yours come to exactly the same amount as before. How come; what about that overcoat?’

Joe is unchastened. ‘Ah, yes, Mel, I know it’s the same total. But you find the overcoat!’

Had Joe’s company given him a fixed daily allowance for meals and entertainment expenses, he could perhaps have bought the overcoat with a fairly clear conscience by skipping a few lunches or dinners – or getting himself invited. Or, by making a pre-emptive call to his boss. ‘Mel, I’ve landed the Fingelstein order. And he has invited me up to his place in Yellowknife for the weekend… Mel, listen, it’s cold up there; I’m going to have to buy an overcoat.’

The moral: Travel expenses – however outrageous – should be transparent, or seemingly so. The best place to hide something is out in the open; you can get away with (almost) anything if you can show that you are (1) saving the company money and (2) getting results beyond the call of duty. Always make the most of your moral mileage – not to be confused with frequent flier mileage.

Traditionally, ‘Travel Management’ in most organizations is mainly about accounting control of ‘travel and entertainment’ – who gets to travel first, or business class, stay in certain categories of hotel, how many signatures are needed to sign off on expenses. Nobody bothers much about whether a trip is necessary as long as the company gets the best value for money and the correct procedures are followed. Look after the expenses and the trip will look after itself.

The converse of travel management is Management by Expenses, which can range from creative exploitation of the rules (enshrined in the corporate travel policy) to grand larceny. It’s rather like the legal difference between ‘tax avoidance’ and ‘tax evasion’ – between being smart and being dishonest.

Expense account aficionados swear by corporate plastic. A corporate credit card helps no end with personal cash-flow. But it can lead to hassles with the bean counters when you’re trying to sort out who owes whom at the end of the month. This is fairly clear cut when you’re ‘extending’ a business trip from say, Hong Kong, to a long weekend in a Thai resort with your loved one by getting the travel agency to ‘pro  rata’ the difference to your account. Trying to get a hotel cashier to let you pay for personal items on the bill with cash or your own plastic can be a nightmare. Checking out is bad enough at the best of times.

In my corporate days, I preferred to use my own plastic in felicitous conjunction with a cash advance (better you owing them than them owing you) and then ostentatiously deducting personal expenses, like personal phone calls, drinks in the disco, or the cost of a friend joining me for breakfast. There’s no point in being virtuous unless you are seen to be virtuous.

Make the most of full-fare business tickets by exploiting two-for-one promotions or free or half-price companion fares. Some airlines offer a free 24-hour stopover package as an incentive to fly through their home hub. Or combine a money-saving point-to-point fare on the way out with a fare that allows stopovers on the way back. And, of course, traveling full fare allows you to earn more expense-account miles to buy yourself upgrades or free tickets.

‘Planning business trips can be more daunting than doing business when you arrive – assuming you still know what you’re supposed to do there – says Stanley Zilch, director of Blue Skies Research Institute in Broken Springs, Colorado. ‘We’ve developed a kind of “yield management” system for the expense-account traveler called Expenses Monitor which flips the whole expenses reporting system upside down.

‘Let’s say your boss wants you to visit customers in Hong Kong, Bangkok and Tokyo. But you could also visit customers in Sydney, Chicago and New York. And yes, it would be nice to spend a weekend in Bermuda. Expenses Monitor allows you to “model” these factors, along with how you can maximize your earning of frequent flier miles, and come up with an optimum travel solution – such as a first-class round-the-world ticket.

‘You might even get your boss to believe that it’s his idea.’

Then you could say you have arrived – expenses-wise.

With All the Deals Around, How About a Program To Keep Executives Busy in Their Offices?

In today’s buyers’ market for business travel, many corporations are spending more management time on finding travel bargains than doing business when they get there, according to Stanley Zilch, chairman of Blue Skies Travel Research Institute in Broken Springs, Colorado. And business strategy often stems from travel opportunities. Travel discounts are changing patterns of international business.

Stanley and I are intimate enemies from my corporate days. So I called to ask what he meant.

“It all stems from the cutback in travel during the recession. Airlines worldwide lost $4 billion in 1991. And when you think that business travelers account for a third of seats but more than two-thirds of revenue, that’s an awful lot of leverage. Hotels too. Occupancy levels in the States fell to 62 percent, less than break-even. That is a lot of leverage. What’s happening is that companies are putting all that leverage to work by smarter purchasing of travel services.”

“So there are some great bargains. What else is new?”

“Stay with me. The problem is just that there’s such a blizzard of great deals from so many sources - airlines, hotels, travel agents, club membership and card companies, not to mention all the frequent-flier and frequent-stayer programs - that travel planning can be even more of a nightmare than the trip itself.”

“Frequent travel can mean frequent confusion.”

“Absolutely. Even straightforward trips -such as Paris to Los Angeles - can involve heavy management decisions. Do you fly Air France to earn the last 5,000 miles that you need for a free round-trip ticket between North America and Europe on United Airlines’ Mileage Plus program? Or American Airlines via Dallas to top up your AAdvantage miles for a free Caribbean cruise? Pay with American Express at the Hilton and get double points in the hotel program. Or get the corporate rate somewhere else. Then you might want to fly KLM through Amsterdam for a free stopover package. And if you want to rent a car you have as many options as possible moves in a game of chess: fly/drive and fly/stay/drive packages; discounted rack rates; non-discounted pre-booked rates. And so it goes.

“This is why travel management has become an end in itself, rather than a means to an end. Instead of asking: Is all my travel really necessary? people are traveling more often just in order to save money. I am therefore I travel: I travel therefore I am.”

“I think I see what you mean. But how does all this affect how and where business is done?”

“Simple. Every piece of research we’ve done confirms that people travel more to places that are easy to get to and where they can get the best deals. The hassle factor is important. People are looking for user-friendly airports and convenient schedules. Remember the number one rule for business travel is never to do business in the office you are visiting, but constantly be on the phone to somewhere else. It’s one way to beat jet lag - or pass on your jet lag to somebody else. And keep people in the subsidiaries on their toes. We call it Management by Absence. So from the business point of view, it doesn’t really matter where you travel, if the price is right.”

“This is why it makes sense for my English friends to meet me in New York. It’s cheaper for them than flying from London to Nice.”

“You got it. That’s another thing about bargain travel - companies often find it is more cost-effective to keep around 50 percent of executives on the road rather than at their desks. There is widespread recognition that foreign travel, especially to conferences, has made a major contribution toward full executive employment. I mean there are tens of thousands of executives flying around, and attending conferences, who might otherwise be standing in line atemployment agencies and executive soup kitchens.

“As more companies change from centralized, functional types of organizations into decentralized, divisional ones made up of profit centers, or business units, they are shedding up to 30 percent of their staff. In fact, up to 50 percent of personnel can be casualties in a major reorganization.

“Instead of firing these people, however, many companies find it more cost-effective to send them out on the road or the conference circuit. It’s a question of balancing travel costs against the expense of golden handshakes.

“What’s more, companies are finding that they can cut overhead costs by allocating one office to several executives. There are special computer programs for this. We find inventory control software is useful in working out the probability of any one manager needing the office on a given day.”

But to come back to the mechanics of travel: what can we do to keep track of discounts through a maze of airline and hotel tie-ins, corporate rates and bonus offers?”

“You’re talking about our new super CRS, which should come on stream in the summer.”

“A computer reservations system?”

“No, we call it a consumer research system. We enter your personal profile, likes and dislikes, what discounts you already have, whether you are primarily interested in saving money, or comfort and convenience. We search through the jungle of options for the best deal for you.

“You should join our frequent-flier program called The Program of Programs. It’s based on membership in all of the 40-odd airline and hotel frequent-flier and frequent-stayer programs. The big payoff at one million expense-account miles is two weeks in the office. Along with a full no-trip guarantee.”

“That’s quite an award!”

“Yeah, it comes down to ‘contingent liability.’ Airlines and hotels lose less money by paying frequent travelers to stay at home.”

In the spirit of Bravo TV’s Millionaire Matchmaker, we bring you Mileage Matchmaker, a.k.a. Merger Madness. In preparation for this article, we polled frequent flyers visiting WebFlyer.com and found that more than 75 percent expressed an interest in the outcome of the swirling rumors about airline mergers. And why? Well, it’s all about the miles. Thirty-six percent of those polled expressed a concern about the fate of their frequent flyer miles, easily surpassing the 25 percent of those polled who were worried about passenger benefits. And these worries are not without merit, although most frequent flyer program members aren’t sure what to worry about at this stage. Even here at InsideFlyer, we’re worried. Not about the fate of members’ miles, as we absolutely believe there is no danger whatsoever that members will lose of any of their hard-earned miles — regardless of the outcome of any of the rumored airline mergers. But we do worry deeply about the fate of the makeup of some of these programs if certain rumors come true. And more importantly, what the landscape will be in the near and far future for benefits and competitive partnerships. We’ll look at several possible mergers: Delta-Northwest, United-Continental, United-US Airways and American-(fill in the blank).

The Background

Unlike the environment of past mergers, currently there are no airlines near the bankruptcy cliff driving these mergers. Rather, the possible mergers are driven by what appears to be a colossal mistake by Delta Air Lines.

Sure, record fuel prices are enough to make any airline take the big gulp and start searching for a partner to help share expenses. But with the handiness of added “fuel surcharges” popping up in places from FedEx to UPS, and even on the local level, it’s a bump in the road that most businesses can adjust to. And you don’t have to look any further than across the pond to see how high fuel prices can impact an airline’s bottom line. For years Europe has had much higher fuel prices than the U.S., and yet airlines there seem to be flourishing.

To get back to the colossal mistake by Delta, which may put into play the very scenario that has been suggested since the first Gulf War — the consolidation of the airline industry. Delta’s mistake? Not being very good at running their airline. When Delta was in bankruptcy recently, they decided to “manage” their future by turning down a respectable $9.5 billion offer from US Airways. Sure, we’ve got the same joke list as others as to whether they would have been better off with that offer than they are today, but Delta seems to have based much of their ability to emerge from bankruptcy on oil being at $65 a barrel. Now that oil is at $100 a barrel, it looks like they did not leverage or hedge their fuel in a manner that would have proved that strategy a good one.

We’re sure there is much more to this than our simple view of the matter. But it is that particular mistake by Delta and their inability to make the right decisions during these difficult times that now leads them scurrying to merge with another airline. In all news reports we’ve seen, they are the aggressor, which means they feel they really need to find a way to share the costs of doing business.

And there is more. From 1998 to 2003, Delta Air Lines shared a frequent flyer program alliance with United Airlines which by most measures worked fairly well. It would have been during this time that Delta would have sized up the advantages and its “fit” with United. But of course in 2003, Delta left that partnership to amend their new relationships with both Continental and Northwest during the evolution of the SkyTeam alliance.

With the reported demands of Delta to retain its name and headquarters location, there is little doubt that Delta would be laughed at by United if the airline asked to return to the merger table with United. And that is where we are today, Delta pursuing a merger with Northwest, an airline with shared experience of the senior management of Delta, and for whatever reason, the shadow of still being “Northworst” Airlines.

So, with all that in mind, let’s take a look at the differences in the frequent flyer programs between the various merger partners and take a look at what members of the programs might be looking at in the future — if the mergers go through. We’ll try to keep the speculation and wishful thinking to a minimum.

Delta SkyMiles — Northwest WorldPerks

This is the most logical and easiest of mergers to happen. Since 2003, these two airlines have shared a partnership in not only a domestic alliance of their two programs, but an international alliance as well in SkyTeam. Philosophically, SkyMiles has changed more over the years than WorldPerks, with WorldPerks having long been seen as lenient on upgrades and offering other imaginative promotional efforts. So let’s compare these two programs.

Change: We’ll start with the important stuff — change. SkyMiles reserves the right to change program rules, benefits, regulations, travel awards, fees, mileage Award levels and special offers at any time without notice. However, they will give us all six months’ notice if they decide to terminate the program. WorldPerks may change the program rules, regulations, benefits, conditions of participation or mileage levels for awards, tickets and cities served, in whole or in part, at any time without notice and has the right to terminate the WorldPerks program at any time. We sure hate to start things out this way.

Expiration of miles: For SkyMiles members, accounts with no activity for 12 consecutive months after enrollment will be deleted and after that period, miles will expire after 24 months unless there is some activity in the account including earning miles not only from Delta flights but from earning miles with program partners, redeeming miles for an award or buying miles from Delta.

WorldPerks rules for expiring miles are a bit more murky, though more positive: WorldPerks miles have no expiration date. However, consistent with the general terms and conditions of the WorldPerks program, Northwest Airlines reserves the right to change the WorldPerks program at any time without notice, including imposition of expiration limits or reactivation fees. If a WorldPerks member’s account does not have any mileage earning or redemption activity within three consecutive years, the account is subject to termination, including forfeiture of all accrued mileage. See what me mean by “murky”?

Bottom line: Should this merger come to pass we believe that the combined program will include the language that governs the SkyMiles program. Not a real loss to WorldPerks members and melting WorldPerks miles into a SkyMiles account will count as activity so everyone who has the two types of miles can be guaranteed at least two years before the mileage police come knocking at your door.

Elite Membership: Over the years these two programs have progressed to about a 90 percent overlap of benefits and rules, but there are some differences. WorldPerks members can gain elite through segment qualification. You can earn Platinum when flying 100 segments, Gold with 60 and Silver with 30 segments within a calendar year. Delta does not allow elite qualification through segments, only miles.

However, Delta has had this second elite qualification ability in the past and we believe that the combined program would go with the WorldPerks program, thus adding segment qualification again to SkyMiles.

And there are more differences. WorldPerks has an extra award level for elites called ExtraPerks. Only Gold and Platinum elite members can qualify for this and once members reach 60,000 Elite Qualifying Miles (EQMs) they have a bonus choice of 1) 2,500 bonus EQMs; 2) two WorldClub day passes; 3) $50 Marriott Bonus Bucks coupon; 4) $100 NWA WorldVacations discount certificate or, 5) a $50 FTD.com gift certificate. Additional bonus awards are available at 90,000, 120,000, 160,000, 200,000, 240,000, 280,000 and 320,000 EQMs.

What is outstanding about this is that as members reach each EQM threshold, you are eligible to select an ExtraPerks award. From 160,000 miles upward your picks include 1) 30,000 bonus miles; 2) one-year WorldClubs membership; 3) four one-way confirmed domestic upgrades; 4) two one-way confirmed system-wide upgrades or, 5) 50 percent off World Business Class PerkPass award (value up to 120,000 miles).

Delta has their version of extra benefits for those who fly the most. Delta’s Million Miler program awards Silver Medallion status for members reaching one million MQMs, Gold status for reaching two million MQMs and Platinum status for those reaching four million MQMs.

At this time Northwest does not have a formal million miler program and we predict that if this merger goes through, ExtraPerks will be discontinued and the SkyMiles Million Miler program will be adopted.

Furthermore, SkyMiles currently has an exclusive benefit for all their elite members called the Medallion Marketplace which allows elite members to redeem miles for merchandise and other assorted non-flight awards (TVs, DVD players, hotel stays, golf outings, gift cards, etc.) and we feel that this program would replace ExtraPerks for WorldPerks members.

Another difference is the flight mileage bonuses for elites. SkyMiles elite-level members earn mileage bonuses of 25 percent (Silver) and 100 percent (Gold and Platinum). WorldPerks elite-level members earn 50 percent (Silver), 100 percent (Gold) and 125 percent (Platinum). Advantage goes to WorldPerks. But, if this merger goes forward, we believe that the current SkyMiles policy would prevail because it is similar to both American and United’s elite mileage bonuses.

Want more differences? WorldPerks members earn a 50 percent elite qualification bonus (not award miles) when flying Y or B class on Northwest, while SkyMiles members earn the same 50 percent bonus when flying Y, B or M fares. The difference here is that the WorldPerks bonus is for elite qualification, while the SkyMiles bonus is for award miles. Other subtle differences are that Gold and Platinum elite members of WorldPerks enjoy unlimited confirmable (one day prior) upgrades on both PerkSaver and PerkPass award tickets (a wonderful benefit) while SkyMiles Silver members enjoy unlimited companion upgrades in select fares, something that only Northwest Gold and Platinum members currently enjoy.

Fees: While we find it unfortunate that this part of frequent flyer programs is even an issue, it is a reality that the convenience of redemption is not a free ride.

If you wish to redeposit your awards you can do so for $25/$50 (nwa.com/agent) if a WorldPerks member and for $75 if a SkyMiles member, although Platinum members of both programs escape this fee.

Roughly all other fees are similar including government and airport imposed fees such as Federal Excise Tax, PFC and September 11th Security Fee and International Air Transportation Taxes. However, SkyMiles does nick members in a day and age of “e-tickets” — $75 per ticket for award redemption 20 days or less from departure (Platinum Medallions are exempt from this fee). Our best guess here? Show them the money. This means sticker shock for WorldPerks members.

Awards: When it comes to awards, there are distinct differences such as WorldPerks requiring a Saturday-night stay over with most PerkSaver awards (domestic flights) and SkyMiles offering a new Pay with Miles option. Of course, we’re pretty partial to the mixed one-way awards (PerkChoice) that Northwest recently introduced which allows members to mix one-way awards with money, while SkyMiles members can mix coach and first class awards one-way for better award availability.

There is likely no other merger that could offer the breadth of award redemptions as these two programs. Northwest might have a slight edge since they would probably continue their popular Cash & Miles options that SkyMiles members do not have. Overall, a few mileage redemption levels here and there are different such as Delta’s biz to Europe at 90,000 miles vs. 100,000 for either biz or first class in the Northwest program, but the programs’ award redemption charts match up for the most part.

As for award redemption, both programs have above average reputations for redemption. In 2006 (last year of available statistics prior to bankruptcy) Northwest flew 9.3 percent of their passengers on awards while Delta flew approximately 9.1 percent of their passengers on awards. The industry average is 7.2 percent of passengers flying on awards.

Intangibles: The most striking challenge for this merger would be who gets to keep the plastic. American Express has long been the exclusive credit card partner for Delta and the airline owes its very survival to American Express because Amex ponied up hundreds of millions of dollars in advance miles purchase to get Delta through bankruptcy.

US Bank did the same over time with Northwest, but does not have the history and favor that American Express has. Looking closely at the US Bank card and WorldPerks, you’ll discover several unique and rewarding benefits for members, such as award discounts. US Bank also offers an ATM/Check Card that earns miles (American Express does not) and US Bank for non-elites has prohibited rules such as for purchases less than or equal to $10,000, earn one mile for every $1 spent. For purchases over $10,000, you earn one mile for every $2 spent. And there is a yearly award level: If during the calendar year, purchases exceed $50,000 (WorldPerks Visa Card), $60,000 (Platinum Card) or $80,000 (Signature Card), all miles for the rest of the year are earned at the rate of one mile for every $2 spent.

In contrast, the Delta American Express card does not have these types of earnings dilution. And American Express has the popular every day double miles and the new Pay With Miles program.

In the high stakes game that plastic is for these carriers, we just don’t think there’s room enough for two credit card issuers and unfortunately, we predict that over time US Bank will be voted off the island.

Any good news? Well, since Delta is the main partner to the American Express Membership Rewards program which Northwest is not a partner with, we can see that program getting stronger with the addition of Northwest into Delta. And for all those WorldPerks members who wanted that relationship, well, while it’s a long way around, you could soon have it.

United Mileage Plus — Continental OnePass

This potential merger is an example of why we wish mergers were not pushed to happen — it brings with it more heartache and headache than any other merger. Why? In an age when a majority of members (and pundits) think that all frequent flyer programs are the same, we’ll define these two programs’ vast differences and what the result could be if our greatest fear comes true. Fact is, we’re fans of both programs for their individuality and are not convinced a combined program would be better than each is now.

It all starts with understanding the vast cultural differences of these two frequent flyer programs. While both have pursued the business traveler, they go about it in a much different manner and with differing amounts of success.

Let’s start with each airlines’ attempt to thwart the low-cost carriers. Continental introduced Continental Lite in 1993 as a pilot program that quickly got out of control with the wrong management. Among the first major airlines to launch low-fare service, it heavily promoted and trumpeted Continental Lite as an industry-leading innovation. But it turned out to be a mistake and was later cancelled, although at one point it commanded nearly 40 percent of Continental’s domestic system.

United had its turn at the concept with the introduction of Shuttle by United, a low-fare, short-haul service on the West Coast. Like Continental Lite, it represented an effort to establish a so-called airline-within-an-airline, and existed from 1994 to 2001. “U2″ as it was called, was folded back into mainline United when it became clear that cost savings had not materialized to justify the separate operation of the airline. In December 2002, when United declared bankruptcy, it hinted at a revival of the Shuttle. But instead, it created a leisure destination carrier called Ted, a second generation of “airline-within-an-airline” which continues to this day. “Ted” comes from the last three letters in the United brand name, which gave rise to the joke “Ted is United without “U-N-I” — get it, you and I?

But beyond these similarities of success and failure, there is the role of the airlines’ frequent flyer programs. The biggest differences are Continental’s very generous upgrade policy vs. United’s and United’s very generous commitment to legroom with its Economy Plus seating vs. the seating in coach at Continental.

And say what you will, we’ll take Star Alliance over SkyTeam any day of the week. Don’t think we’re done with these two programs just yet, there are many more differences, so let’s take a look.

Change: With mergers come change. According to the Mileage Plus terms and conditions, United has the right to terminate the program or to change the program rules, regulations, benefits, conditions of participation or mileage levels, in whole or in part, at any time, with or without notice, even though changes may affect the value of the mileage or certificates already accumulated.

Continental on the other hand reserves the right to change any aspect of the OnePass program at any time with 60 days notice to active members or discontinue the OnePass program with six months notice to members.

We have no doubt that United’s more restrictive notice of change will rule out — but only after the 60 days notice to active OnePass members one last time.

Expiration of miles: For Mileage Plus members, accounts will never expire as long as you have account activity at least once every 18 months. This activity includes flying, using Mileage Plus partners, redeeming miles for award travel and buying or transferring miles.

OnePass miles however, currently have no expiry date. Our guess is that a combined program would have definable expiring miles under the current Mileage Plus rules.

Elite Membership: Before we discuss the different upgrades offered by the two programs, let’s start with the difference between elite mileage bonuses. Mileage Plus elite-level members earn mileage bonuses of 25 percent (Premier) and 100 percent (Premier Executive and 1K). OnePass elite-level members earn 50 percent (Silver), 100 percent (Gold) and 125 percent (Platinum). Advantage goes to OnePass.

However, if this merger goes forward, we believe that the current Mileage Plus policy would prevail because it is similar to both American and Delta’s elite mileage bonuses. And why be more generous than you need to be with less competition?

As for upgrades, Mileage Plus and OnePass come at the benefit from different directions. There’s little doubt that the upgrades OnePass offers have been a major reason for the success of the program. Unlimited complimentary upgrades for the member and companions (Gold and Platinum) goes a long way toward loyalty to this program.

But while most of the upgrade attention is on Continental, United does have an upgrade policy. For every 10,000 paid miles flown on United, members earn four free 500-mile upgrades valid for travel in Region 1 (North America, Hawaii, the Caribbean and Central America). And similar to OnePass, United offers full-fare coach upgrades on Y and B fares within this same Region 1.

The upgrade window between the two programs varies slightly, OnePass upgrading their top elites 120 hours in advance, Mileage Plus at 100 hours in advance. They are even at 72 hours upgrade advance for mid-level elites and United holds honors for base elite members with 48 advance hours vs. 24 hours for OnePass.

While we have loved the unlimited upgrades and companion upgrades over the years with OnePass, the winner of this tug-fest of benefits is anyone’s guess. We would normally tip the hat to Mileage Plus controlling this outcome, but if this merger happens because of Delta-Northwest, United will have to compete with Delta’s unlimited upgrade policy which mirrors that of Continental. Too close to call. United does offer their elite members the opportunity to purchase additional e-upgrades in 500-mile increments at $50 per upgrade.

Both programs have stealth elite levels, United with Global Services and Continental with both Chairman’s Circle and Co-Stars. It’s likely that both versions will continue with slight modifications. Other differences between the two programs are how they treat their million-mile members. OnePass does not have a formal million mile program, although a limited number of their top Platinum members have earned lifetime elite status from a promotion that OnePass offered years ago. OnePass is rumored to be near announcing a million miler program, though it is unlikely to be related to a possible merger with United.

United on the other hand has a Million Miles and Beyond program in which once you have flown one million lifetime base miles with United, you earn Premier Executive for life, two confirmed regional upgrades at the end of every year and three system-wide upgrades to be used one-class, one-way. When reaching two million miles flown, you earn additional rewards such as a lifetime Red Carpet Club membership (can you say HELLO!), a choice of several gifts and four system-wide upgrades to be used one-class, one-way. If you really have wings, flying three million miles earns even more: personalized status upgrades, another exclusive gift and four more system-wide upgrades to be used one-class, one-way. Advantage clearly is to United here and this program would certainly continue forward with any possible merger. Recently United invested in a fancy dual-lane boarding benefit which means that the only choice in the future would be what the entrance carpet color is — red or blue.

Both programs have elite qualification by segments, United’s being by flight segments and Continental’s being by points earned by air fare paid. It is likely to be United’s flight segment qualification as the survivor here.

Fees: When it comes to fees, United is all business. Cancel an award and need to redeposit your miles? United charges a flat $100 while Continental charges $50 for non-elite and $35 for Silver/Gold. Both programs do not charge their top elite members. Need to change an award? Continental charges $50 for non-elite and $35 for Silver/Gold. United charges different fees based on the time and type — some aren’t too bad, others will cost you dearly. A change of city pairs or routing connection will cost Mileage Plus members $100. However, for flight and date changes (same itinerary) there is no charge for United members unless these changes occur within 7-13 days prior ($50) or six days or less ($75). But OnePass is no saint here, they do charge a fee for award requests less than 15 days in advance which is $50 (4 to 14 days) and $75 for travel three days or less. Both these fees are $15 and $25 less for elite members with even the Platinum elites paying on this one!

We believe that with a merger United will make the rules here and OnePass members will have to cope by earning more miles when paying these fees with their Chase-issued credit card.

Awards: When it comes to awards, this is going to be tricky, but because of the 60-day change notice which we outlined before, OnePass members may be able to take advantage of some extreme award differences. For instance, in the Round the World award category, OnePass members enjoy the award at 140/220/280,000 miles for coach/business class/first and BusinessFirst. The same award on United is 200/300/400,000 miles. Advantage goes to OnePass but surely with Star Alliance being a big part of this, OnePass members will see their “value” fly away.

Little things like Continental’s stopover “rewards” for U.S. travel that are ingenious awards that allow members a way to creatively get around road blocks for award redemption will likely go away. But there is one other thing likely to go away which can’t come too soon — Continental’s insistence on a Saturday night stay over at the 25,000-mile redemption level. Actually, this might not be that easy to make go away. Many years ago United introduced a similar policy and it was overturned by some intense lobbying by this magazine. We’ve never been able to make that same case with Continental and so while it might be assumed to go away, United may revisit the Saturday night stay policy. (The concept of the restriction is to thwart business use of award redemption, those very welcome $800 fares for single and two-day travel).

Also likely to go away is the OnePass 20,000-mile short haul award for awards less than 1,500 miles roundtrip. United has a similar award for 15,000 miles for award flights less than 700 miles in distance one-way. Because American has a similar award at 15,000 miles, it’s our guess that United will stay with their status quo.

All other general domestic awards in OnePass and Mileage Plus are similar for both saver and standard miles, as are awards to Hawaii. Differences occur because United still has three-class service internationally while Continental has its popular two-class service featuring BusinessFirst. At this point, we can’t even speculate as to what will happen to the Continental product vs. United’s three-class system.

For awards to Asia, coach awards are similar while business class on United is 90,000 miles and Continental is 120,000 miles. The largest difference here is a standard award on Continental to this region is 300,000 miles while a similar award on United is 200,000 miles in business class and 240,000 miles in first class. We beg Mileage Plus to not raise the rates here and perhaps for OnePass members to see this bargain for what it is. European awards are similar with differences up to 30,000 miles for premium awards at the standard rate.

Upgrade award honors go to Continental which is consistently thousands of miles lower in their requirements. Domestic upgrades at most discounted fares match up at 30,000 miles roundtrip, although upgrades to Hawaii with United cost 5,000 miles less. To Europe, United is 60,000 miles roundtrip against most discounted coach fares while Continental is 40,000 miles roundtrip. Upgrading to Asia is 60,000 miles on United and 50,000 miles on Continental, although on both Europe and Asia flights, Continental requires a co-payment service fee to upgrade using miles.

As for award redemption, United has a slightly better history and reputation. In 2007, United released 2.2 million awards to their members and Continental released 1.5 million awards. In terms of statistics, United had 8 percent of passengers flying for free on awards while Continental had 7.2 percent of passengers flying for free (a higher percentage equates to a more generous redemption policy).

Intangibles: Continental employs a service fee system for members wishing to use their miles for upgrades — miles are only part of the redemption. These associated fees range from $200-$450 in addition to the miles when upgrading from select economy fares to BusinessFirst. American AAdvantage has already adopted this policy and we believe should this merger happen that United would adopt this Continental policy. We’re not saying we like it, we don’t, but it’s too tempting for United to pass up.

As well, we believe that United will push forward with their Economy Plus seating on Continental metal including adding a limited number of first class seats to their RJ (regional jet) system. While an expensive push forward, United has had extraordinary success with forging revenue from their Economy Plus Access program.

Another intangible is the Choices program by United’s credit card partner Chase. Since Chase is also the existing credit card partner with Continental, we easily see this program being expanded if for no other reason than the fact that Delta SkyMiles has now introduced a similar Pay With Miles program and this looks like a trend going forward.

As for the “Tums” moment. It is well known that Chase does not play well with American Express and protects their plastic turf very well. So, what happens to the OnePass relationship with American Express Membership Rewards? Well, we don’t think it looks good long term. Over the years United has resisted every recruiting attempt from Membership Rewards and given that this merger will only happen if the Delta-Northwest merger happens, then maybe it’s a draw since Membership Rewards would get Northwest in the deal with Delta. This is just one more of many relationship decisions that will need to be made by these programs once the trigger is pulled.

United Mileage Plus — US Airways Dividend Miles

Should the Continental-United scenario not fall into place because of Continental’s pride in running a very good airline, there’s always the back-to-the-drawing-board option for United to return to US Airways to “pump” themselves up.

This scenario has been brought out before since they were close to a deal at one time. The problem this time may be that US Airways has yet to settle down from their merger with America West and it just may be too soon and too much of a headache to move the cheese one more time. But don’t fool yourself — airlines will do whatever it takes to stay competitive. Same global alliance, same existing mileage partnership, so there is great familiarity with this possible pairing.

American AAdvantage — (fill in the blank)

If and only if the Delta merger happens which forces a change at United, then there’s no doubt that American will be under even more pressure to also pair up. We know from previous reports that some American Airlines shareholders are impatient with the airline wanting it to monetize some of its assets. And certainly industry consolidation would be another pressure point.

If the other two go as rumored, then that leaves American with the possibility to either rejoin former partner US Airways or strike a deal with Alaska Airlines which has a current frequent flyer and business arrangement with American. Of the two pairings, American and US Airways were the earliest to bring partnership benefits to the market. In 1998 American enabled Dividend Miles members and AAdvantage members who belong to both programs to combine miles when claiming travel awards on either airline. The pooled miles could only be used toward an award on American or US Airways, not for an award ticket on program partners.

So indeed, these airlines have virtual frequent flyer program experience and oneworld would no doubt like to have more U.S. partners to help serve their international flights into the U.S.

And as we know, US Airways also has a history with another oneworld partner — British Airways. This situation might be like a class reunion. Of course if anything were to come from this, it might tear down the current wall that both American and British Airways have toward each other in relation to their frequent flyer programs -(the second longest feud running in the industry right after the American-American Express Membership Rewards feud).

We mention only US Airways because it might be difficult for United to continue their relationship with US Airways, which is not fully compliant yet anyway, given the addition of Continental (if that happens). The reason why we suggest this is that there may be a challenge from regulatory oversight if United and their current US Airways relationship were to then try and add in Continental as a full merger. That’s way too much consolidation for the industry at this point for any government approval.

Then of course American may go with the cleaner Alaska Airlines which has a really superb reputation and leave US Airways out on its own because it still seems slightly dysfunctional from their current merger pains. Alaska provides a complimentary addition without a lot of headache and together would combine many of the best practices in frequent flyer programs today. Since Alaska is alliance agnostic, there is far less headache involved.

Bottom Line

While we could go on and on with the various scenarios, we’ve tried to give members of these programs insight into what the differences are between various merger partners along with some thoughts on where the winners and losers will be. As we hear more about any of these deals being completed, we’ll do a more in-depth comparison as well as offer advice on how to take advantage of the changes to come.

‘I’ve accumulated enough miles for a free flight, but when I try to book, the airline tells me that there are no award seats left on the date I want to travel.’ ‘I tried to use miles for an upgrade to business class but the airline told me that I was not traveling on an “eligible fare.”‘

These are typical laments of frequent flyers, frustrated and angry at finding themselves snagged in a thicket of arcane rules and small print of airline frequent flier programs. As everybody knows, it has become far easier to earn frequent flyer miles than to redeem them; too many miles are chasing fewer airline seats.

No wonder insiders estimate that there are a staggering 14 trillion unredeemed miles floating around in the system, earned by 250 million mileage junkies, each typically members of 3 to 5 frequent flyer programs.

Airlines do not make it easy. Remember that frequent flyer programs are a marketing tool for airlines; they are not run as a benefit to travelers. Loyalty is not measured in miles alone, but in how much revenue you bring to the airline; rewarding people who pay the most for their tickets.

You are looking to book a reward ticket at an airline Web site. The site asks you to put in a departure date and come back, ‘not available.’ And you have to go through the whole process again with another date. The site tells you what is not available, not what is available. And it is hard to figure out from an airline site, without a lot of scrolling, how many miles you’ll earn from Los Angeles to Dallas, and bonuses for ‘elite’ or ‘high tier’ folk.

Programs, such as Mileage Converter, MaxMiles Mileage Miner, and Mileage Junkie, help you to monitor your miles with your preferred frequent flier programs, show balance summaries in one view, compare mileage awards from all airlines flying all routes globally and with which partners, without needing to visit individual airline Web sites.

Mileage Junkie, one of the membership benefits offered by IAPA.com, has added a ‘mileage planner’ function that allows a frequent flier access to 750,000 flight segments (city pairs) from 700 airlines, showing how many miles they would earn between say, London and New York, depending on their status in one of 30 frequent flier programs, monitored on their behalf.

‘We’re building up to 70 programs,’ says Norman Bakker, head of development at IAPA in Zurich. ‘We show you the best way to earn miles in your preferred program for a particular trip. For example, if you’re a British Airways Executive Club Silver member and type in ‘Rome to Dubai,’ we’ll show which partner airline offers you miles. Same will work for hotels: You can ask to see hotels that offer miles on your BA program, or any hotels in Dubai.’

What frequent flyers need is to view availability of award seats across all their programs for a specific trip; had they such knowledge, they may wish to adjust their itineraries, or flight times, accordingly.

‘We haven’t cracked this one yet,’ Bakker says. ‘We need to search for redemption availability across multiple programs, not necessarily city pairs, but perhaps lifestyle destinations. We can go to the airline site, sign in on behalf of the members, then display it in Mileage Junkie. For example, you would select the program, plus a choice of departure airports for direct flights to the Caribbean, and we would show you options, up to say three destinations, how many miles you would need and which award seats are available.’

The three main airline alliances, Star Alliance, One World and SkyTeam, allow travelers to earn and redeem miles on their partner carriers - a total of 32 major carriers. Thus, by pooling mileage in one or the other account; for example, by giving your Lufthansa number to United Airlines, or vice versa, when you fly with either carrier. This has allowed many travelers to reach gold, or platinum, status by concentrating their miles on a single program. Sometimes it pays not to use the obvious choice, such as your home carrier, but to earn miles on a partner airline.

Oli Dervey, research & development manager at IAPA, has come up with a ‘matrix’ that compares earning and redemption rules across the 17 frequent flier programs in the Star Alliance, so far, for long-haul business travelers based in Zurich, London and New York, which will later be integrated in Mileage Junkie.

For instance, a London-based trans-Atlantic traveler who chooses to earn miles with United Mileage Plus, can reach Star Gold status and 1.1 free business-class tickets, versus only Silver status and less than one free ticket with Lufthansa Miles & More. But with United Mileage Plus, he or she would earn enough miles for three one-way upgrades to business class, but not enough for a free business-class ticket.

The message is, choose wisely before you fly. ‘Within the Star Alliance, not all programs are alike. Some make it easier to attain Star Gold Elite status, coming with perks like lounge access and extra baggage allowances, others offer inexpensive free tickets, or non-air partners to earn and spend. Set yourself a reward goal and then put the miles into the program that gives you the kind of rewards you want.’

Few airlines outside North America allow you to earn miles on any published fare, or to redeem miles for upgrades. European and Asian carriers tend to award miles only on the more expensive, fully-flexible, fares.

Dervey says, ‘This reflects a fundamental difference. While American carriers tend to fill planes from the front to the back, making sure that every seat in the premium cabins is filled, if not with paying passengers, but with upgrades from elite FFP members who have bought an economy ticket, European and Asian carriers, give you what you pay for, either with money, or with miles, to sit in a premium cabin; only if they are seriously overbooked at the back will they upgrade for free; they think of premium cabins as an exclusive environment for people who can afford to pay the price, which is why you have a chance of a free seat next to you, with no free loaders; whereas the Americans say, we want to satisfy all our passengers, giving them a better seat than they have paid for - why fly with empty seats?’

-IAPA, previously known as the International Airline Passengers Association (www.iapa.com), offers a range of services to members, including Mileage Junkie, free insurance, preferred rates on hotels and car rental, and flight planning and booking, for annual dues of $129.

-Mileage Converter (www.webflyer.com) shows travelers how to transfer miles or points between any two loyalty programs. Users select a program they would like to transfer miles out of, enter the mileage amount they would like to transfer, and select a program into which they would like to transfer the miles, and the Mileage Converter finds all possible ways to make the transaction, indicating the ‘conversion rate’ for the miles/points between both programs.

-Global Flight (www.globalflight.net) allows you to check the status of more than 160 FFPs and airline and hotel partners, and plan the strategy that suits your travel pattern, and priorities, for earning and redeeming miles.

-MaxMiles Mileage Miner (www.maxmiles.com) manages your mileage programs for you. It automatically gathers all your frequent flyer balances and account information from airlines, hotels, credit cards, analyzes current mileage offers, monitors expiration dates, reconciles your FFP statements, and assists with mileage redemption planning. One-year membership costs $29.95.

If you are not currently enrolled in one of the many frequent traveler programs, the question is why not?

For better or worse, frequent traveler programs are here to stay. The fact that most travelers are in love with the quest for free travel bonuses from these programs is a given. After all, a free lunch is always hard to resist, and, in this case, much easier to get than you might think. The typical program requires the traveler to log 20,000 to 25,000 miles before collecting his or her first free trip, and with all the various program “partners”, you can often earn a free flight after only flying three times. But understanding and using the benefits of travel programs is not as simple as it once was. In fact, many travelers complain that they have to earn their awards twice: once by accumulating the necessary miles and points, and again by tracking the shifting rules and requirements of the various program.

When all is said and done, it is still those leisure travel benefits that keep the busiest of travelers coming back. The promises made to a spouse for all those nights away form home or missing your daughter’s thirteenth birthday will certainly encourage that special trip away from the rat race. Although business travelers have been known to “fly that extra mile” to earn bonus points, leisure travelers too are quickly realizing the benefits.

Do more miles, points and mail guarantee you free trips? Many awards go unredeemed because the most frequent travelers do not have the time to use them. Still others have not learned to concentrate their loyalty, thus ending with miles and points everywhere except in the program they want free travel from. For those of your still trying to figure out which way is better, let us offer you these time tested tips:

1. Focus on a particular program. It works best if you go out of your way to fly on a particular airlines, stay at a certain hotel or rent from a partner car rental company. Since most travel agencies tend to develop “profiles” to their customers, take the time to make sure your “preferred” list is in your file along with the traditional window- or aisle-seat request.

2. Determine what you want from a program. Before miring yourself in bonus miles, compare programs and decide what it is you want. First class upgrade? Some are easier to get than others. Free international travel? Not every program will fly you to Australia. Merchandise? Stereo equipment vs. golf clubs. Low mileage requirements? Not all awards are created equal — some airlines require 40,000 miles for a free domestic airlines ticket, while others have the same awards available for only 20,000 miles. Transferability? Some programs only allow you to use the award while others allow you to transfer them to a friend or business associate. There are many choices and benefits that are a part of the programs and it is always best to decide on them beforehand.

3. Choose proper program partners. Most people do not realize that between 30% to 50% of their total miles and points can come from proper program partners. Every time you travel and use a “partner’ airline, hotel or car rental company, you increase your chances of earning an award faster. For example, on a flight from Chicago to Denver, you will earn between 1,500 and 2,000 miles (roundtrip) depending on a your airlines program. An affiliated hotel partner can add 500 to 1,000 bonus miles to that total, and a partner car rental can add another 500 to 1,000 bonus miles. Using this method you can simultaneously earn miles and points toward numerous separate awards during a single trip.

4. Take advantage of affinity credit cards. Let’s face it, it is almost impossible to travel these days without some kind of credit card. Smart travelers are those who have traded their existing Visa and Mastercard credit cards for those of the airline or hotel program they belong to. Affinity credit cards offer the same credit privilege as your other credit cards, but, in addition to enhanced travel benefits such as bonus miles and points just for signing up and additional insurance and collision damage waivers for car rentals, they offer the ability to earn one bonus miles or point for every dollar charged to the credit card. This is your award inflation fighter. Should your program increase the number of miles or points for the award of your choice, using your affinity credit card can help make the difference.

5. Plan award use. Occasionally it is possible for forget that millions of other program members may want to go to Europe with their free awards at the same time as you. Be realistic and plan ahead. Popular international destinations are often booked up to three to 15 months in advance. Be flexible. Plan your travel so that you depart midweek and remember that business class is easier to get than first class. And whatever you do, protect your awards; they are not replaceable if lost or stolen. Allow one month to get the proper awards sent from the service center, and if you are not able to get the seats or hotel space for the destination of your choice, keep trying. Most awards are capacity controlled and, although there may not be a seat available today, someone may change their plans tomorrow and you could end up getting their reservations with a well-timed call.

BOTTOM LINE
These programs are a plus whether you travel regularly or infrequently. A little more graciousness and cooperation seems to be extended to the members of travel programs by personnel at airlines ticket counters, clubs, hotel registration and car rental counters. The programs are especially handy when your travel plans have changed and you need an exception to the rules. The policies of the programs are not easy to keep track of and many times you will feel that you could probably devote a day of every business week trying to keep up. But when the plane is full and you are in seat 1-A, or sprawled out on the sofa in a suite at the Hyatt, you will quickly forget what it took to get you there. Instead, you will be planning your next free trip.

If there is a single element of a frequent flyer program which you can measure to determine its worth, it just might be award redemption. While frequent flyers treasure their miles and go to great lengths to accumulate them, the fuse grows very short if flyers are unable to use those miles. We estimate that nearly 27 million awards were redeemed in 2006, a staggering number to be sure. But the airline industry is experiencing record load factors — almost 80 percent — and 27 million seats is still not enough to satisfy the demand of the award-traveling public.

Cynics may snipe that the airlines aren’t doing enough, (or anything at all depending on who you speak to) to resolve this situation. Part of that statement is true, part of it is likely false. We are entering the age of Award Redemption 2.0, which offers more tools for the member to take advantage of to access discounted award availability — though the fact remains that 100 percent of all seats are available for award redemption with most major frequent flyer programs.

The problems both members and programs are facing have been documented for some time in this magazine. In the airlines rush to move members from booking with reservation agents to online, (industry-wide, nearly 70 percent of members now book their awards using the airline online booking tool) they forgot to include any tools that would make that process easier and more accurate. Still today, there is a pronounced difference in award availability when looking online vs. speaking to a call center reservations agent. Invariably, your chances increase with the agent’s skill in tracking down the bottlenecks and others challenges. Against the good advice of many, most of the first generation online booking tools didn’t show partner award inventories, thus limiting the actual availability of seats for members of the program.

While much of this is slowly changing, we still feel the industry must learn to communicate to its members what award inventory possibilities are included with the online booking tools and what are not. We still grind our teeth when looking at the “No Seats” screen on the online US Airways award redemption booking tool, which is one of those that does not include partner inventories. Even just a note stating that awards can also be redeemed on partner United (perhaps a link could even be included) would be better than nothing at all.

There are, however, finally a couple of signs of advancement across the industry. The first of these is calendaring, first introduced by Continental OnePass nearly six years ago. This visual representation of award availability does not produce more awards, but it does provide an easier way to see your options, sort of the way we see our news from USA Today — charts and graphs. The other advance is the new trend of one-way or combinable awards. Several airlines offer combinable awards — the ability to mix and match “saver” type awards with “anytime” awards, but interestingly enough, this change is not being led by the leaders in award redemption, American AAdvantage or United Mileage Plus. Rather, programs like Frontier, Alaska, and Delta have jumped to the front. The hotel frequent guest programs have taken notice as well. Hilton HHonors recently became the first in its sector to introduce calendaring, enabling members with flexible travel dates to view award availability at-a-glance across a 31-day period.

Calendaring
The latest airline program to introduce calendaring (in fact, just as we were going to press) is Delta SkyMiles. After 12 months of studying various Web sites, conducting member testing, interface research and trial and error testing, the folks at Delta might just have something here. Delta is referring to this version as Phase I of a continuing effort that will make it easier for members to view award seat availability. There might be something said for being one of the last airlines to introduce a calendar online; they’ve undoubtably learned from others.

Interestingly, Delta’s new calendar is only available on delta.com and is not yet accessible by their reservations agents which is in contrast to everyone else’s efforts.

To access Delta’s online award calendar, SkyMiles members should:

Who are the elite? What are the elite programs offering their members? What do frequent flyers want? And what trends are we seeing?

American AAdvantage and United Mileage Plus are credited with introducing the first elite programs. The AAdvantage Gold program was launched in 1987 to the approximately top two percent of flyers and with a budget of only $100,000. United Mileage Plus was the first program to introduce qualification thresholds- an idea that has become the industry norm. Most programs won’t reveal membership numbers or the percentage of members who are elite. It’s interesting to note that American AAdvantage admits to an elite membership that is only five percent of the program’s total membership while United says that fifteen percent of their members are elite. To give you an idea of what an average program elite level membership looks like, we’ll dissect those of United before their most recent additions — 535,000 Premier members, 239,000 Premier Executives and 46,000 1K’s. It looks slightly different when you add in the Global Services and Premier Associate members but the ratio is about the same.

Along the way, thousands of frequent flyers have discovered the thrill of getting their first elite-level membership card in the mail. But has the gold tarnished? Have flyers and the programs who serve them become jaded? Yes, perhaps. But through all the changes and challenges, ups and downs, the final result is the same: Elite programs are there to reward and express thanks to the most loyal customers and those customers in turn express their thanks with loyalty and hard-earned cash going to their chosen airline.

For this article, we are examining the elite programs of frequent flyer programs only — we will examine the elite programs of hotel programs and others in a future issue of InsideFlyer.

Who are the elite?
To become an elite member in a frequent flyer program, most programs have imposed thresholds — those magic numbers set by the airlines where members are awarded different levels of membership based on how many miles the flyer has collected.

Collecting miles is not the only way to become elite. For years, elite members have been lured away by competing airlines. Airlines have been known to match the elite level of their competitors. And frequent flyers have been known to ask airlines to match their elite level.

We posed questions to the frequent flyers who post at FlyerTalk.com and found that they generally do not ask for a match unless they are truly interested in flying the airline that matches their elite level — they want to make the best of the match and only ask for it when they know that it will do them the most good. About 50 percent of our FlyerTalkers said that a frequent flyer program has matched their elite status (we should mention here that we suspect this number is probably higher for FlyerTalk members than the average member in the program because of the wealth of information found on FlyerTalk about getting your elite status matched). Just over 5 percent said that when they asked they were turned down, and about 43 percent said that they have never asked. Not all programs will match elite but most will consider the requests on an individual basis and make their decisions by whatever means they consider fair — their criteria are generally not published. And some airlines have been known to match elite only after a frequent flyer shows good faith by flying their airline a set number of times. For tips on getting a status match, see the master thread in the FlyerTalk forum Miles&Points MilesBuzz!.

Our FlyerTalk research revealed that of the elite members who responded to our questions, 46 percent are elite in one frequent flyer program, 31 percent in two, 15 percent in three and 8 percent in four or more. (Note that these are elite members in frequent flyer programs only — not hotel programs.)

The percentage of those who are lifetime members in their chosen program is just over 20 percent, but keep in mind that this number can be misleading since not all programs offer a lifetime membership level.

Over the years, the way in which members earn miles to reach elite has changed. In the beginning, if you flew and were awarded miles for your flights, all those miles would count toward elite status. That policy can only be viewed as the good old days for today’s frequent flyer. Today’s flyer knows all too well that it takes elite qualifying miles (EQM) or elite qualifying segments (EQS) to earn elite status. These miles are also sometimes called status miles. Elite qualifying miles can be tied into the class of service a person flies — where deeply discounted fares might get you miles, but not count toward elite status; or miles will not count toward elite if they were earned flying a partner airline or through car rentals and other partners or other variables determined by the programs in their Terms and Conditions.

The EQMs have led way to special promotions such as US Airways “Anything Counts” promotion at the end of last year when earning miles for purchasing items at the US Airways online shopping mall counted toward elite when normally those miles would not.

What are the elite programs offering their members?
Frequent flyer programs are constantly evolving their elite offerings based on finances, feedback from members and what other programs are offering. Perks of elite membership can include upgrades, lounge access, bonus miles with every flight, additional miles earned with credit card purchases, guaranteed seating, early boarding, waitlist priority, exclusive awards, waived fees, priority check-in, preferred seating, VIP treatment and exclusive award inventory tools to help members get those sometimes elusive free tickets. North American elite programs differ from international programs where lounge access is more common. And members appreciate different benefits depending on the airline and their elite membership level.

Years ago, a good number of the programs offered threshold bonuses when a member obtained a certain membership level, or a set number of miles as an elite member. In American AAdvantage or United Mileage Plus, a member could earn up to 75,000 bonus miles a year in this way and in Delta SkyMiles and US Airways Dividend miles, 50,000 bonus miles. But in the late 1990s, threshold bonuses started disappearing. American and United ended these bonuses in 1997, US Airways followed in 1998 and Continental and Northwest in 1999. One by one, the airlines stopped giving threshold bonuses until today only Air Canada Aeroplan and Alaska Airlines Mileage Plan of the programs we looked at for this article offer threshold bonuses.

Why did they disappear? A number of reasons, such as the growing popularity of mileage runs. More significantly, threshold bonuses disappeared with the advent of airline alliances, which saw high flyers accelerating their mileage accumulation because they were less likely to have miles spread over several accounts.

Let’s remember that before the threshold bonuses disappeared, the programs were already giving away elite flight bonuses, in some cases 150 percent of the mileage flown. With threshold bonuses, it was not uncommon for a typical elite member to earn 300 percent of the actual miles flown.

For instance, with the AAdvantage threshold bonuses, members could earn up to 75,000 additional miles. They earned a 10,000 mile bonus after flying 35,000 miles, then an additional 10,000 mile bonus for every 10,000 miles flown afterward (45, 55, 65, 75,000 mile levels) and then finally a 25,000 mile bonus when they reached 100,000 miles flown. And don’t forget the normal elite bonus of 25 to 100 percent for all miles flown. The traveler flying 100,000 miles actually earned 275,000 miles total and that was just from being an elite level member. With the growing international networks of their flights, the miles were growing to astronomical heights. Keep in mind that when frequent flyer programs were introduced in 1981, American and United did not fly internationally so earning 100,000 miles domestically was quite a feat.

Also of note at this time, elite status was obtained at lower levels. For instance, Continental OnePass elite levels were reached at 20, 35 and 50,000 miles, meaning that members were earning threshold and other bonuses at an earlier point. Today, OnePass elite levels are at 25, 50 and 75,000 miles.

Through the years, the airlines have struggled with how to acknowledge not only the most frequent flyers, but also the highest spenders. Delta has a fourth tier for it’s high-paying customers, what they call an “under the radar” tier for a subset of the airline’s highest revenue-generating customers. These members were recently contacted by Delta through the mail. As Jim Rausa, an IT Program Manager from Wayne, PA, who was one of the members chosen for the fourth tier said, “All in all, I thought this was a great gesture on Delta’s part! Definitely a very nice, unexpected but VERY appreciated holiday gift.” United’s Global Services memberships are also by invitation only to its best customers.

A few programs offer lifetime memberships for those customers who have racked up more than a million miles. United offers its one-million milers lifetime Premier Executive status (the airline’s second-tier elite level) while American offers its one-million milers Gold status (the airline’s lowest-tier elite level) for life and those achieving two or more million program miles are awarded AAdvantage Platinum status (the airline’s second out of three tiers). Delta goes a step further offering those members who reach four million or more Medallion Qualification Miles a lifetime Platinum Medallion status (Delta’s highest elite tier). One million milers get Silver Medallion status (the lowest tier) and two million milers get Gold Medallion status (the second tier). Additionally, every time a customer reaches a new level of Million Miler status, they receive an exclusive gift by Hartmann Luggage. These policies can change without notice. Of the larger programs, Continental Airlines, Northwest Airlines and US Airways do not offer lifetime status.

What do frequent flyers want?
Last year, InsideFlyer’s Freddie Award for the best elite-level program went to Alaska Mileage Plan with Continental OnePass following closely, and Southwest Airlines Rapid Rewards not far behind. What’s interesting about this is that Southwest does not have a true elite program as most of us think of one — their approach is quite different. Southwest offers the Companion Pass program in which members become Companion Pass Holders when they earn 100 credits in a 12-month period. Companion Pass Holders may designate a companion who can accompany the member on any flight for free. The member may change their designated companion up to three times during the 12-month validity period of the pass.

In our mind, this demonstrates that elite programs don’t have to offer a laundry list of perks as long as the perk(s) is truly worthwhile to the customer. Having said that, the laundry list of perks is valued and, yes, expected, by a vast number of frequent flyers.

We took a very unscientific poll of the vocal and experienced frequent flyers who frequent FlyerTalk.com to see what frequent flyers appreciate and want in their elite program and this is some of what we found:

Among perks, the ability to upgrade wins hands down. The bonus miles an elite-level member receives as a benefit on qualifying flights follows. These perks are almost universally offered by elite programs. Upgrades are seen as the ultimate perk for many frequent flyers — everyone wants them and there’s a great deal of frustration on the part of elite members when they see their upgrades disappearing or becoming harder to use. “Don’t Mess with Upgrades” could very well be the frequent flyer’s motto.

After those two time-honored favorites, the list is divided between many different perks including preferred seating (many mentioning they appreciate an Exit-row seat, probably from those who are a good bit above six feet tall), early boarding and priority check-in. Lounge access is surprisingly low on the list, but we suspect that’s not so much a reflection of travelers indifference to the perk but rather the limited availability of free access through the North American programs. We also found that what the members expect and appreciate changes as they move through the different status levels — makes sense — the more they fly, the more they want benefits that allow them to travel in comfort. Kevin Hartmann of Dallas, who is an Executive Platinum in American AAdvantage echoed the thoughts of many of his fellow frequent flyers on FlyerTalk. When asked what he would ask the managers of his favorite frequent flyer program, he said. “If I could ask them one question, let it be this: I know that you are running a business, and the bottom line ultimately is important. To the business traveler, the experience of travel becomes a large part of life, and we endure in the hope that our loyalty will be rewarded by some comfort and respect. My question to them is how can you make 150,000 miles a year more comfortable and respectable, so that we do not defect to a career that will require no travel at all?”

Members of several programs mentioned that their favorite perk as an elite member is the general feeling of better service — that special VIP feeling that only comes with being elite.

As far as a wish list for members, other than the usual suspects of more/better upgrades, quite a few members of several programs would like to see one-way award options. As one flyer explained, there’s a large market of cruise passengers who would appreciate the flexibility.

Looking at the responses from members of the various programs, we put together the following list of “Have and most appreciate” and “Want.” We thank all the FlyerTalker members who gave us their opinion. Generally, the listings below list the most popular responses toward the top. We are not able to list all the responses here and have edited for clarity. For a full list, and to see the ongoing posts, see the FlyerTalk.com postings under the various frequent flyer program headings and search for the subject line “Elite-Level Members: Please Answer.”

Air Canada Aeroplan
Have and most appreciate:

mileage run [mahy-lij ruhn]
noun, adjective - verb (used without object)

To make a quick trip for the sole purpose of aggregating frequent flyer miles and/or to achieve a level of elite status on one’s preferred airline: (usage): I am taking a mileage run next week to re-qualify for Premier Executive status with Mileage Plus.

Though you won’t find the term “mileage run” in the American Heritage Dictionary, it does appear 346,000 times when Googled and is actually included in the new online Urban Dictionary as a modern slang term. There are even two movies on YouTube about mileage runs — produced, directed and filmed by frequent flyers, of course.

Given that the first elite levels were not introduced until the mid 80s, it’s a good bet that the first mileage runs began in 1986 when programs initially started to promote new levels of membership that included added benefits and extra bonus miles. At the time though, no one had coined a term for a flight that was taken for no other reason than to earn miles and status.

In these early days, the mileage runner crowd was, for lack of a better word, exclusive. Like most first adopters, these early mileage junkies were tech savvy, detail-oriented and diligent in their research. They studied the membership guides they received in the mail and realized the value of the elite benefits being offered. They learned to slice and dice the data of airfares and create scenarios whereby they could piece together a three-day overnight trip to Singapore earning 40,000 miles for only $463. These 40,000 miles would turn into an upgrade to Europe for the frequent flyer and their companion against an economy ticket, thus saving approximately $10,000 in the process. To them it became a game; how to get the most value for the least amount of money.

And, like most first adopters, they were considered kooks by the majority of travelers.

But all of that began to change in 1988.

In that year, Eastern Airlines launched a first-of-its-kind, a credit card triple miles promotion. The promotion was an instant and enormous success with members of the Eastern Frequent Traveler program. So successful, in fact, that before long most of the other U.S.-based airlines had matched the offer. The number of members who flew Oakland-San Francisco, Colorado Springs-Denver, New York-Philadelphia, Dallas-Houston, or Ontario-Los Angeles became legendary, since in those days, many airlines offered 1,000 miles minimum per flight. (Some longtime readers might recall early stories in this magazine of members flying Oakland-San Francisco several times a day just to earn a 3,000-mile bonus on each flight.)

The interesting thing with this promotion is that it created members who were more interested in the miles than the elite-level status. It created a generation of members who analyzed programs on a cost-benefit analysis.

Mileage run mania was on. No longer relegated to the fringe types who initiated the concept, thanks to triple miles systemwide, mileage runs had now gained acceptance and popularity among the general business traveling public.

In the late 80s, many of the frequent flyer program executives began to change their thinking with regard to promotions and were less interested in promoting mileage runs. As quickly as they came, the triple miles promotions were history. And with their demise, so to were gone the legions of mileage runners, save for those early adopters who were still scanning for deals that would gain them additional miles and perks. Until, that is, a new form of promotion reignited interest in mileage runs in the early 90s.

The promotions could generally be categorized as “Fly Threes” and were introduced to encourage frequent flyers to stretch their travel. Generally, the “Fly Three” style promotions rewarded members with either bonus miles or additional free awards if they were able to fly three flights in a given amount of time. Frequent flyers with two flights were certainly encouraged to fly one more flight to get to the bonus level, while the more frequent flyer stretched their travel to the six- and even nine-flight threshold.

These promotions proved profitable for the airlines as airfares were fairly stable, creating a win-win for all. And the Fly Three offers became especially useful to the airlines later in 1991 as the industry was trying to pull out of the effects of the first Gulf War and the various bankruptcies of several airlines.

But the airlines weren’t the only ones who enjoyed the benefits of these types of promotions, as frequent flyers once again flocked to the skies to reap the rewards. And once again, just like in the late 80s, travelers were booking trips they didn’t need to take because the deals were too good to pass up. The offers proved so popular with travelers, the airlines continued running them off and on for a solid five years, up until 1996.

Eventually all good things must end, and the Fly Three offers fell by the wayside with the advent of one-to-one marketing. The Internet created the next boom in mileage runs that continues today.

The Internet introduced to frequent flyers the ability to search for low fares and the ability to exchange information and advice with fellow travelers. In essence, it gave the typical frequent flyer easy access to all the tools the early mileage junkies had been using since 1986.

Though the number of travelers who had engaged in some form of mileage run over the years as a result of promotions and special offers had grown dramatically, the number of true, hard core mileage junkies were still relatively small. While most business travelers were winding down at home for the holidays in November and December, the true mileage runners were working on requalifying or gaining a higher level of elite status for the upcoming year.

The information superhighway and the sharing of information that came with it brought more status-seeking mileage runners into the fold and eventually led to the modern age of the mileage run. Today mileage runs are no longer an end-of-year only avocation. Mileage runs have become a year-round obsession, with tens and even hundreds of thousands of members of popular frequent flyer programs booking runs each year to leverage either the economics or the benefits of these programs in their favor.

Popular does even begin to describe the extent of this behavior, as we estimate that more than 1 million flights will have been flown in 2006 by members of frequent flyer programs for the sole purpose of earning extra miles. And as strange as it may seem, nearly 70 percent of those flights will be taken by members seeking to top off their account for award redemption purpose, not for elite re-qualification reasons. And the mantra of the modern mileage runner is “cost and effect.”

But Who Came Up with “Mileage Run”
No one really knows where the term “mileage run” came from, but it’s likely that it emerged from the community of frequent flyers that gather on FlyerTalk.com. We do know that the general media first started to mention the term in 2000 to describe the first popular mileage runs used for reasons other than for the requalification of elite status — the infamous LatinPass million-mile promotion comes to mind, during which a few thousand adventurous frequent flyers trekked throughout Latin and South America stringing together airlines and flight segments in hopes of securing either a 500,000- or 1 million-miles bonus. Several hundred achieved their goal and thus the general public soon found a name for what they had been doing for years, if on a somewhat less dramatic scale.

Mileage runs have even created a small industry in itself. FlyerTalk.com hosts what is arguably the home of advice, strategy and pricing information for all levels of mileage runners, from those who have been doing it since 1986 to travelers who just learned about elite status yesterday. Members even offer seminars in cities all around the U.S., often to packed crowds, for others seeking the basic information of how to plan a mileage run, how to price a mileage run and even what to pack for those single day marathons.

The Future of the Mileage Run
The day of the traditional mileage run is nearing an end as frequent flyer programs acknowledge the strategies for which many of these members see in the value of their miles — either as awards or for the benefits. When we see programs like Delta SkyMiles, United Mileage Plus, and US Airways Dividend Miles offer members the chance to earn some of their elite-level status by purchases made with their credit card, or the more recent Everything Counts promotion from Dividend Miles, which awards elite qualification credit with such activity as hotel stays and the purchase of flowers, many members start to worry about these promotions minting too many elite cards and leading to a demise of the once exclusive benefits.

Actually, that’s the problem many programs are hoping to avoid.

The airlines realized long ago that many members take extra flights to requalify for elite-level status. Their attention was drawn to this type of activity because these bookings were clogging up the front cabins of airplanes, putting a strain on the very benefits members hoped to keep earning and using. By allowing members who are really interested in earning and using the elite-level benefits of an airline an easier way to make that goal without flying, airlines hope to become more profitable and viewed as better able to make the benefits available to members when they are truly flying for business.

But wait you say, why would airlines want to discourage these types of flights, it’s easy money right? Actually wrong. Mileage runs by elite members are among the most unprofitable bookings an airline has because the elite mileage runner is seeking only to fly on the cheapest flights that have the lowest yield to the airline. On top of this, all current elite members enjoy flights bonuses ranging from 25-125 percent of the flight miles earned, which effectively makes awards too easy to get.

Yes, mileage runs are a bad business for the airlines. If airlines can convince existing elite members that there are other ways to reach their re-qualification goals, it takes pressure off the upgrades, leaving them again, for members actually flying on business and perhaps making the airline a bit more profitable.

Having said that, don’t make any funeral arrangements for the mileage run just yet. This old dog still has a little life in it.

As for elite status, it’s now more valuable than ever before. With flights as crowded or more crowded than at any time in the past, the ability to board the aircraft first and actually claim a fair share of overhead space is a real benefit. With kiosks and online check-in negating the value of separate check-in areas for elite members, these members have now found something else far more valuable-elite-level lines at the security areas of airports. Just when you think you’ll never make your flight because the line for taking off your shoes is 100 passengers deep, the idea of being able to move to a special, and much shorter line makes re-qualification for the first or twentieth time a real benefit. And, with a growing number of airlines reserving extra award seats for their elite members, mileage runs seem all that more important.

Oh, and don’t forget the upgrades. With the industry just about maxed out on the use of regional jets, upgrades have become an elusive, but still cherished benefit. Today, the special seating zones for elites carry just as much, if not more ,importance with flights invariably elbow-to-elbow.

Today, these programs have created mileage runners out of just about everyone. Retirees are a favorite for mileage runs, as they have plenty of disposable time and they often have another purpose to their flights — million mile status. As we have discussed, chasing miles via mileage runs for elite status is a temporary thing. Annually one must repeat the process if they are not lucky enough to have flown enough during the year to earn their precious metal card.

But retirees see life in a different way (and that isn’t exclusive to mileage runs). They often use mileage runs not for the sole purpose of the annual elite qualification, but rather to achieve what they were likely short of in their business travel days — lifetime elite status. Many programs award infinite elite status once a member earns 1 million flight miles (American AAdvantage is a little different since they count all miles toward their million-mile program, including those earned with a credit card).

And of course mileage runs have created a sense of elitism. “Purists” only take single day mileage runs (two-day if international) and often turn right around and come home again without even leaving the airport. This created interesting scenarios for the new security procedures put in place right after 9/11. Many mileage runners reported much more inspection when they exited a plane only to get back on, time and time again.

For elites, it is often worth the time and money to requalify. Let’s take a look at the difference between the typical Silver and Gold member of a frequent flyer program. Silver members often earn a 25-percent bonus when flying, all the usual check-in, and early boarding privileges. And, if available to them, Silvers often make the upgrade list 24 hours in advance of a flight. The Gold member earns a 100-percent flight bonus plus all the other privileges AND makes the upgrade list 48 hours in advance. If the member was only to fly 40,000 miles the following year (re qualification is 50,000 miles) that means they would have earned a 40,000-mile bonus (100-percent flight miles) vs. a 10,000-mile bonus (25-percent flight miles).

Many would say that with the extra 24 hours of upgrade time and the extra 30,000 bonus miles making the extra effort to re-qualify for elite is well worth it.

And mileage runs aren’t confined to airlines. Similar efforts are put forth by members of hotel programs as they also worry about earning enough stays or nights to requalify for suite upgrades and extra bonus points as well. And behavior for the less than elites can even focus around car rentals and other types of partners that programs have added over the years. Over the years there has been proof that members have rented as many as 10 cars in a single day, all returned after a simple drive around the airports perimeter and all for the purpose of earning additional bonus miles.

New strategies:

One of the most frequent questions we get is, “What’s the best airline program for me?” Not surprisingly, the second most frequent question is “What’s the best hotel program for me?” Each year in the Freddie Awards, members around the globe have the opportunity to vote for their favorite hotel programs, rating all aspects of their experience, from the customer service at booking, to elite-level perks and special award offers. Everyone seems to have a staunch scheme preference; they cling to it, singing praises while plugging their ears to the other programs’ enticements, much like a familiar primary-school taunt, “la la la la, I can’t hear you.”

Well, playing favorites is exactly what these programs have commissioned their advertising budgets to accomplish, but the only tricky thing about it is the tendency to forget about the bottom line: the payout. Ads are great, but what is the return on your investment with your program? How fast are you earning status and redeeming free award nights compared to similar travelers out there? We asked this question two years ago and wanted to revisit the comparison in today’s standards, to see which programs came out on top this time.

We all know how quickly the industry changes: prices, elite thresholds, benefit losses and surcharges are just a few of the initiatives that incite the wrath of our readers every month. All business travelers are not created equal (just ask the ones standing in the Priority boarding line at your gate). Some are on the road one weekend a month, others for over 300 days a year. Some hoard points for the 7-day stay at a Caribbean resort, while others cash theirs in for regular suite upgrades.

Hotel programs also vary widely in their point offerings and award structures. Differences can be exaggerated when linking earn and burn levels to average room rates in various cities — New York City is not Bismarck. Also, not all travelers stay at exclusively one level of hotel. Some stay at low to midscale properties the majority of the time, and stay at luxury properties on vacation, while others split their stays between midscale and upscale chains.

So, in the interest of helping you make informed, objective decisions about loyalty, as part of our public service (or was it community service?) for the year, we ask these programs, in the infamous words of Paula Abdul, “What have you done for me lately?”

It is impossible, given all the intricacies, to come to a conclusion in black-and-white. But after much pondering, we concluded that the fairest method of comparison was to start with identifying several “frequent traveler profiles” and compare the yield each could expect from each of the major programs at a given spending level.

We began with the profiles: one is a high-spend traveler with at least 100 annual nights in a hotel; the second, a moderate spender with 48 nights, and finally, a low spender with 19 nights. Based on opinions of our wise-flying friends over at FlyerTalk, we came up with fractions of total nights likely spent in each level of hotel for each traveler type, using the Average Daily Rate (ADR) figures for the different chain scales in the U.S. There are seven chain levels: Independent, Economy, Midscale without Food & Beverage (F&B), Midscale with F&B, Upscale, Upper Upscale, and Luxury. (And the difference between Upscale and Upper Upscale would be…? The hospitality equivalent of ordering your pizza a la carte, versus “with extra cheese?”). Most programs have a hotel chain in at least two levels — think of the differences between the JW Marriott, Courtyard by Marriott, and TownePlace Suites properties.

One interesting trend we noticed is that the more frequent the traveler, the higher their stays in the Upscale and Luxury category hotels. Low-frequency travelers tend to accumulate the most stays in Economy and Midscale hotels, with only a few spent in the high-end properties. In the interest of relevance to this average, we weighted our ratios of night per chain scale for each traveler profile accordingly.

For the purposes of our comparison, we eliminated the Independent category — as this category, by its very definition, consists of hotels that are not part of a frequent guest program, making them irrelevant to this study. We also simplified the categories into four main types to avoid overwhelming you, the harried business traveler, with a plethora of fancy calculations. We chose to compare Economy, Midscale, Upscale, and Luxury, thinking of Midscale without F&B and Economy as a single category, and Upper Upscale as a category within Upscale. The reason being, business travelers in general are more concerned with amenities that make their lives easier, such as breakfast, so we assumed for simplicity sake that Economy and Midscale without F&B would be generally seen as comparable choices, but significantly different than Midscale with F&B in a business-person’s eyes.

We calculated the amount spent annually according to our traveler profile formulas of nights at each hotel level by ADR, resulting in the Spend figures. We chose to use a spend comparison simply because the programs’ award values are determined by program spend. There is no standard currency value, with one program you’ll earn five points per dollar spent, with another it will be 10. Despite these differences, the total amount you are forking over is what determines your award options. In addition, several of the programs only have one or two levels of hotel, therefore, any levels that did not apply to the program were not considered in the calculations.

Allow us to clearly explain our use of the term “Average Daily Rate.” The ADR represents the aggregate room rate for each chain level, irrespective of brands or locations. We assume that the average traveler likely spends nights in various cities, some with higher ADR’s, like New York City’s $238.05 scale-topper, versus other destinations like St. Louis, with an $81.42 ADR. Using the U.S. average evens the playing field, making our results more easily generalized across a population.

In addition, according to a leading lodging industry research firm, Smith Travel Research, Inc., a typical traveler spends another 30 percent over the room rate on amenities. Therefore, for this comparison, where applicable, specifically for the Starwood Preferred Guest and Hilton HHonors programs, we added in this 30 percent to the point yield, as they are the only programs that allow points to be earned on full-folio spending, not just on the room rate. In all other cases, the extra 30 percent that may or may not have been spent would have no bearing on the point yield, as points wouldn’t be earned on the incidental spend. Additionally, with regard to the annual nights spent at a hotel by each traveler type, we were trying to establish an average spend for a typical traveler, and realize that a spend of $2,000 will net you more nights at chains with only one level of Midscale or Economy hotels, like Best Western or Choice, than the same $2,000 spent at a mixture of Hyatt Hotels and their more affordable chain, AmeriSuites, for example. We are calculating points based on the dollar, not the number of nights, which may vary between programs.

Finally, with regard to elite level, with the moderate and high-spend profiles, we assumed that these were typical members who had carried over their elite status from the previous year, and we applied any applicable elite bonuses, netting them an increased point yield of between 10 to 15 percent, depending upon the program. In addition, we also assumed that the higher-frequency travelers were likely to spend the highest frequency of nights in the Upscale to Elite category hotels versus infrequent Economy and Midscale stays. Alternately, the low-spend travelers likely spend the vast majority of their stays in the Economy to Midscale hotels, and their comparison was also weighted accordingly. We also assumed the low spenders were new to the “points and miles game,” and are coming in at a base level, having not carried over an elite status from the previous year, therefore, no elite bonuses were applied.

We realize that no comparison of this kind can be perfectly accurate, given the many variables here. Our travel profiles are in no way identical to real frequent traveler behaviors, and we recognize these limitations. However, we simply hoped to use relevant information with generally representative profiles, which will provide the majority of travelers with an “apples to apples” type comparison, and to find the program with the richest awards, irrespective of the number of points earned. After all, what good are the points if you can’t use them, or spend them at your favorite destination?

Profile: The Low-Spend Traveler — $1,900
This profile is based on an annual hotel-stay spend of $1,900, representing the ADR of 19 nights a year spent at a mixture of Economy, Midscale, Upscale, and Luxury properties. This traveler type would likely not annually qualify for elite status, and would have earned no elite bonuses. However, we must point out that, since the last time we did this comparison, the elite thresholds for several programs have lowered, meaning that this traveler could possibly qualify for elite level after reaching 80 percent of their annual stay total. Where applicable, we have calculated point yield by including any elite bonuses earned on nights over and above the elite threshold.

At this level, travelers can’t expect to sleep for free in the lap of luxury. Sure, you’ll probably earn a free night or two, but generally you’ll need to spend more than $2,000 to stay in a high-end hotel, unless you consider La Quinta’s Tier C your flavor of the month. Hilton offers great value with their top category award in the PointStretcher program. Of course, for a standard stay in a solid lower tier hotel, Marriott gives solid value with their multiple night PointSaver award offering, but Choice is right up there with their solid three nights at a Level 1.

Moderate-Spend — $5,200
This traveler spends 48 nights annually in hotels, on average, and prefers to spend more nights in the Upscale and full-service Midscale hotels than the low spender. We are assuming that this member annually earns qualifying status at the mid-elite level, therefore we included the appropriate elite bonuses and incidental spending in our calculations.

Program	$ Spent	Elite	Point Yield	The Rewards
Best Western Gold Crown Club	$5,200	Diamond	53,560	One free night at a top category (Level @ 36,000 points, or two free nights at a Level 5 hotel @24,000 points per night (i.e., Best Western Lighthouse Hotel, Pacifica, CA)
Cendant TripRewards	$5,200	None	52,000	Three free nights at a Wyndham Hotel (i.e., Wyndham Garden Hotel-Pleasanton, CA) @ 15,000 points per night, or eight free nights at a Level 1 hotel @ 6,000 points per night.
Choice Privileges	$5,200	None	52,000	Four free nights at an Orange level hotel (i.e., Comfort Suites San Francisco Airport) @ 12,000 points per night, or eight free nights at a Blue level hotel @ 6,000 points per night.
Hilton HHonors	$5,200	Gold	69,290	One free night at a top level (Category 6) hotel @40,000 points per night, or two free nights at a Category 3 or 4 partner hotel (i.e. Embassy Suites Hotel San Francisco-Airport, South) @25,000-30,000 points per night, plus enough points left over for one night at an Opportunity (level 1) hotel another time.
Hyatt Gold Passport	$5,200	Platinum	29,900	One free night in a Category 4 Suite (i.e., Grand Hyatt San Francisco) @ 23,000 points per night, or nine free nights in a Hawthorn or AmeriSuites hotel.
InterContinental Priority Club Rewards	$5,200	Gold	57,200	Two free nights at a Special Destination hotel (i.e., Holiday Inn San Francisco Fisherman’s Wharf) @ 25,000 points per night, or three free nights at a Holiday Inn Express Value Destination @ 15,000 points per night.
La Quinta Returns	$5,200	Elite	67,600	Six free nights at a top tier (Tier C) hotel (i.e., LaQuinta Inn San Francisco Airport) @ 11,000 points per night.
Marriott Rewards	$5,200	Silver	62,400	Three free nights at a Category 4 hotel (i.e., Courtyard San Francisco Airport/Oyster Point Waterfront) @ 55,000 points per stay, or four free nights at a Category 3 @ 52,000 points.
Radisson goldpoints plus	$5,200	Gold	91,000	Three free nights at a Tier 3 hotel (i.e., Radisson Hotel Fisherman’s Wharf) @30,000 points per night, or six free nights in a Tier 1 at any other partner hotel @ 15,000 points per night.
Starwood Preferred Guest	$5,200	Gold	20,280	Two free nights at a Category 4 hotel (i.e., Palace Hotel San Francisco) @ 10,000 points per night, or six free nights at a Category 1 hotel during the week.

At this moderate spending level, all of the programs offer a variety of choices, the importance of which we can’t accentuate strongly enough. There is a slight bias in our results in favor of the chains on the lower end of the ADR, like La Quinta, Cendant, and Choice, however, by looking at the mid-level awards in the other chains, we uncover some surprises. Hyatt’s partnerships with Hawthorne, AmeriSuites, and Summerfield Suites are clearly valuable, serving up an outstanding nine free nights. Choice and Cendant finish next with eight free nights, and both Starwood and La Quinta trail closely with six. For top level awards, Hilton and Starwood definitely know how to dish up the quality enticements.

High-Spend- $12,900
This “high-spend” traveler profile is based on an annual spend of $12,900, and somewhere around 100 nights per year. This profile assumes the member annually earns enough stays to qualify for the highest elite level, so appropriate elite bonuses and incidental spending were included where applicable. This high-flying, full-service type of traveler is also the most likely to spend the highest frequency of nights in the Upscale to Elite category hotels versus their infrequent Economy stays, therefore, we assumed the majority of their stays would earn points at the highest level in each program.

Ahhh, now this is the life! Thanks to those elite bonuses, the points multiply almost magically. Want to spend a week at a resort? No problem. All these programs have properties near Orlando, Florida that allow us to compare redemption values. The shocker is that the biggest payout comes from the La Quinta Returns program, although their top tier is not a luxury style property along the lines of Marriott, Starwood, Hilton, or Hyatt’s top tiers. The highest level (Category 2) of Starwood hotel in this area has Preferred Guest coming in a close second, which is a bit misleading since you’d only get two to four free nights at a Category 3 or 4 hotel, making it more comparable to the other programs. InterContinental and Cendant are hard to beat with their week-long stays in luxury properties. What we find here is that the members have more than enough points for that much-needed getaway. All that’s left to do is decide where you want to go, and how pampered you want to be when you get there!

We’ve said it before, and we’ll say it again: there isn’t a “best” program for every member. But the important thing is to evaluate your stay patterns and annual spending habits, and take into account your hotel and chain level preferences, to decide where you want to spend your nights. Point yield is certainly a great thing, but at the end of a long day of meetings and flights, the customer service and comfort of the bed is just as important to factor into your program choice.

Our advice? Find the program that gives you the value, flexibility, and quality you want, and adjust your spending and stays accordingly in order to bring you the rewards you are looking for. When it comes to a good night’s sleep, it’s hard to beat the satisfaction of knowing you’re racking up the maximum points while counting sheep.

Legend:

Unlike some modern myths, frequent flyer programs did not begin in a garage, they weren’t scribbled out on a napkin in Bob Crandall’s kitchen, nor are they a dot-com wonder. The fact is that frequent flyer programs, which are celebrating their 25th Anniversary on May 1, aren’t anything they started out to be except one thing — successful.

The roots of these programs can be traced back to 1979 when Bill Bernbach, CEO of Doyle Dane Bernbach — the advertising agency for American Airlines — proposed that American do something special for its best customers. At that time, Bernbach was watching with wonder as banks were offering toasters and electric blankets to their best customers and to new customers for opening up accounts. They were having great success with the idea. The agency’s idea was to offer American’s best customers a special “loyalty fare.” Following deregulation in 1978, the airline industry was afloat with ideas that all evolved around airfares. Bernbach’s idea was passed around until Nick Babounakis, then director of Marketing Plans for American Airlines, discussed the idea in mid-1980 with Rolfe Shellenberger, who was manager of Marketing Plans at that time. They both came to the conclusion that frequent travelers would not likely feel rewarded by a special fare. The two were supported in their conclusion by the pricing department at American Airlines, which offered up the conclusion that a loyalty fare would likely be matched by any other airline and American would likely lose some revenue from decreased yield. Pricing then handed the file off to then Senior Vice President of Sales and Marketing, Tom Plaskett, who passed it along to Nick Babounakis and Rolfe Shellenberger asking them to try and salvage something from the variety of opinions and research that had been done.

About the same time, Western Airlines (”The Only Way To Fly”) introduced its Travel Pass program, which might well be called the first real frequent flyer program. The Travel Pass program awarded $50 in travel certificates to passengers who flew five trips with Western. While not mileage based, it did pass the reward test and moved beyond the “earning copper” programs that were already in existence. These earlier programs were designed for the business traveler, and were literally the only marketing efforts by the airlines to this important group. At that time, the airline industry had abandoned the business traveler and was comfortable in turning this customer over to the travel agency.

After some ideas were kicked around at American, the Marketing Plans group agreed that a free trip would mean a lot to a frequent traveler if it included a deal for a companion and a first-class upgrade. At the time, first class was a relative unknown to the frequent traveler; the space was usually occupied solely by movie stars and VIPs. The idea was then defined in a short paragraph for Tom Plaskett, asking to pursue a concept that offered a frequent traveler the equivalent of a free first-class trip to Hawaii from any domestic point, with a free upgrade for any companion for whom a ticket at even the lowest fare was purchased. Of course, Hawaii was kind of a symbolic destination because most business travelers would not have traveled there on business and would find it an attractive incentive to fly American Airlines.

The group went on to define the rules and the rewards, the lowest award being a free upgrade from any fare. Its “cost” was pegged at 11,000 miles, because American’s longest city pair at that time was Boston to Los Angeles, and they didn’t want travelers to be able to get a free upgrade after only two transcontinental roundtrips (10,444 miles). They also offered discounts from any fare at levels of 25,000, 30,000, and 40,000 — 25 percent, 50 percent and 75 percent respectively. The grand prize was 50,000 miles for the first-class roundtrip plus the companion upgrade. When these programs began, there was no such thing as free coach tickets; the closest thing was discounts off a paid ticket in coach. Also, the emphasis was on first-class as an award, not a benefit. Times have changed, as today most awards are redeemed in coach and the reward of first class is usually defined as a perk of the program’s elite-level program.

The early rules of the program included caveats. Awards would not be transferable to anyone. Accumulation must occur in the 12-month period beginning with the first trip. First class would give you a 25-percent bonus in mileage accumulation. Actual flown miles or nonstop distance between origin and destination on through flights would be credited. One free layover in addition to point of turnaround would be permitted.

Interestingly, it doesn’t seem as if Bob Crandall, then president of American Airlines, was directly involved in the creation of AAdvantage, except insofar as he and Tom Plaskett discussed what was being done.

Plaskett hired Hal Brierley, a successful direct marketing consultant whom he had met at Harvard. Brierley helped to define the rules and to add professionalism to the direct mail program. Brierley went on to found his own company and has successfully directed the frequent traveler efforts of many programs, including United Mileage Plus, Hyatt Gold Passport and others.

But while it seems that American orchestrated a smooth and successful launch, there were times when the program almost didn’t get started. Early on, some vice presidents and sales managers tried to derail it, mostly because of the turf war it was starting. The argument was that it wasn’t the right time, that there was too much on the plate right now. Finally, Bob Phillips, vice president of Passenger Services, sprang to defense of the concept and gave his complete commitment to its success, saying that his boss (Tom Plaskett) thought highly of the concept. In a meeting with sales and marketing guys, Phillips said, “I think we can do a good job of it, I think it’s a great thing for American Airlines. And we’re finally doing something for the customer.” It was a courageous move and really made a difference.

And then there is that name — ‘AAdvantage.’ The decision to name the program fell to the advertising agency. They called all the marketing people from American together and, from a list of names on a blackboard, voted unanimously for AAdvantage. They discovered that, by using a typewriter, they could type the two A’s and half way up between the two AAs put a little “x” and it looked like a bird. But there was a slight problem. While American called the program “AAdvantage,” many early customers called it “A” “Advantage.” Over time, the name became a brand and the double A became silent. Clearly, the launch of this program wasn’t a completely smooth ride. In fact, some of the public, and CEO’s and CFO’s of companies who used American for much of their business travel, soon began to contact American complaining of this “immoral” thing that American was doing. Today, some of that sentiment stills exists.

Financial justification for the program was based on incremental tickets purchased by award redeemers for their companions, plus “stretch” a word that was used to define extra trips generated by the program. All the research done by American in this period indicated that all costs of the initial program would be covered if each traveler in the program took a quarter of an extra trip per year. Later on, it was discovered that the induced “stretch” actually was more like six extra trips on American Airlines per traveler, per year.

In The Beginning…
The first news covering frequent flyer programs was published on May 7, 1981 when The Wall Street Journal reported that United Airlines, which had launched a half-fare coupon promotion some two years earlier, was beginning a new program to lure frequent travelers. The story went on to recap the award schedule and even cite the fact that United was offering a sign-up bonus of 5,000 miles without having to fly. Mysteriously missing in this first article was the name of this new United program and any mention of American’s similar program, which was launched days prior. In fact, United responded so rapidly to the American program that United has often been credited for launching the first program. In truth, though, the United Mileage Plus program celebrates 25 years of operation on May 6, just six short days, (and many late nights), after the launch of American’s AAdvantage program on May 1.

On May 12, 1981, The Wall Street Journal printed yet another story on this emerging trend, announcing that TWA was launching its own program. In the article, TWA boasted that its program offered the “greatest potential benefits because the airline has a more extensive international system than carriers with similar programs.” Even early on, no single program dominated the headlines, or the members choice. Our favorite early news coverage occurred on Sept. 9, 1981, when The Wall Street Journal reported the following news: “Airline bonus games, which reward frequent fliers with free air travel or discounts, were early causalities last month when the air-traffic controllers went on strike. As a result of the strike and the accompanying confusion, passengers scrambled to get any flight they could, and the ‘Brand Loyalty’ that the games were supposed to inspire was diffused.” It seems that the early media coverage was suspect of these “games.”

This same article goes on to quote Mark Lambrecht, United’s Direct Marketing and Promotions Manager as having said that United, “…may have opened a Pandora’s Box” and that the airline may have to increase its awards to stay competitive with the smaller airlines. That’s an interesting twist, given that today, many are trying to convince Congress that these programs are driven by the bigger airlines. And, finally, the article states that “Airline-industry observers doubt whether the bonus-flight programs will generate any new traffic for the airline system, which has been losing passengers for nearly two years.”

And so the program was launched. At the time, American had about 60,000 members in its Admiral’s Clubs and another 130,000 members in the American Traveler program. So on launch day, they simply mailed letters to these people, pre-enrolling them in the program and giving them their new AAdvantage number. In a second wave of membership growth, American bought the American Express list, which brought many new members to the program. The thing that surprised American at this point was that it was only witnessing the tip of the iceberg. Its good customers from the Admiral’s and Traveler programs were not nearly as numerous as the people that eventually became new members of the program. That was a surprise, as American realized it had under-defined the market.

It wasn’t until United and TWA got involved that the programs became liberalized. In the fall of 1981, United offered a deal where six trips would qualify any traveler in its program to receive a free trip. However, the rules did not restrict it to members only, so American matched United, worrying about what might happen as people earned, then sold free trips to friends and strangers. That behavior, of course, would cut deeply into the risk factor because now any free trip might deprive American of full-fare revenue from somebody who used a scalper.

After a few months of success, an element of the program emerged: nobody really jumped at the discounts for coach-class tickets and everybody was after the free trip, which was only available in first class. American had calculated something like 3 to 5 percent of the regular travelers would qualify for free tickets. It turned out to be more like 7 to 10 percent. American ran out of first-class seats to Hawaii and could not fulfill the demand for first-class seats at the end of the first year. The big question was: What was the program going to do? The demand was larger than the supply.

The First Five Years
Launched on May 1, 1981, it wasn’t until October 1981 that AAdvantage started to issue a monthly mileage summary. Special award statements were generated separately whenever a mileage award level was achieved.

Also in October 1981, AAdvantage introduced Hyatt and Hertz as “award” partners and its newest innovation: two first-class roundtrip tickets to any American Airlines destination for 75,000 miles. Fifty thousand miles was one first-class ticket plus a free first-class upgrade for a companion. The original award structure allowed you 12 full months to accumulate mileage toward an award and when you claimed that award, you automatically began a new AAdvantage year. The original newsletter contained messages from Tom Plaskett. From Nov. 15, 1981 through Jan. 31, 1982, AAdvantage held its first “AA Holiday Special” a promotion much like today’s offers. If you flew 7,000 miles with a minimum of five flight segments, you received a free first-class ticket to any American Airlines destination. In those days, the airline didn’t fly globally like it does today, and the free award certificates were redeemable at travel agencies.

One of the more unusual promotions involving AAdvantage was in February and March of 1982. The program offered “AAdvantage Happy Hour” on all Dallas/Fort Worth flight departures. Show your AAdvantage card on board, and you received a second cocktail, wine or beer free. In 1982, the program also had several “day-of-the-week” bonuses. You received extra bonus miles for Tuesday or Saturday flights.

In April of 1982, another promotion involving miles and flight segments was launched: Fly 5,000 miles with at least five segments and you earned a free first-class ticket plus first-class upgrade on American to Mexico, the Caribbean, Bermuda or the Bahamas.

On May 1,1982, AAdvantage ushered in a new twist to its program — mileage-earning partners. British Airways joined the program, allowing members to earn mileage when flying British Airways, but more importantly for many members, the ability to use an award to Europe on British Airways. There was one caveat with British Airways — only 50 percent of mileage flown in Tourist Class was awarded.

August 1982 began with an award travel option to London: 20,000 miles earned a free upgrade from first-class to Concorde on British Airways while 40,000 miles was good for a free companion roundtrip economy ticket plus one free roundtrip coach ticket to an American gateway city or a roundtrip upgrade from economy to business class on American. And July of 1982 turned the world of privileges upside down — AAdvantage Gold was introduced.

One of the great offers for AAdvantage members was in September or October of 1982 when members were eligible for special discounts from Hyatt Hotels in Mexico. Imagine a double room at the Hyatt Cancun Caribe for only $37.50 or a double room at the Hyatt Regency Acapulco for only $30.50. Ah! The good old days.

In September of 1982, AAdvantage introduced Hertz awards as part of its program, followed by the addition of Holland America Cruises on Oct. 30. You could earn miles for each day you were on board ship and it included the ability to earn mileage based on total cruise mileage.

From Oct. 21 through Dec. 15, 1982, the highly successful “AA Double 7 Special” promotion took place: Fly 7,000 miles with seven segments during this time period to earn two free coach tickets.

In April 1983, the AAdvantage program was extended indefinitely. During the “Winter Special” from Jan. 31 through March 15, 1983, members could earn one free coach ticket for flying 8,000 miles with six segments for $150 per segment, if you had enough mileage to qualify for the free ticket(s) but not enough flight segments. The purchased segments counted only toward eligibility and no mileage credit was issued. On the other hand, if you had enough segments, but not enough miles to qualify, then you could exchange some of your current AAdvantage miles to qualify. You could exchange 5,000 AAdvantage miles for 500 “Winter Special” miles, or 10,000 AAdvantage miles for 1,000 “Winter Special” miles.

Also in 1983, the AAdvantage program boasted that it had the only frequent flyer program that was fully automated and required no tickets or coupons. In June of 1983, Frontier Airlines joined the program, offering mileage accumulation and award redemption.

The next year turned out to be a very busy year for AAdvantage. Inter-Continental hotels and Sheraton hotels joined the program in January and February of 1984, and Avis signed on as a car rental partner. Hertz and Hyatt dropped out of the program during the early months of 1984 as AAdvantage began to develop a full complement of partners.

In 1984, Frontier Airlines ran the first of the “Fly Twice, Fly Free” bonus promotions which are still around today.

KLM joined the program in June, and from July 1 through Oct. 31, 1984, members could earn 20,000 miles for purchasing a used car from Avis. Also in July, Holland America Cruises left the program, and in October 1984, Singapore Airlines joined the program.

In the fall of 1984, the AAdvantage program introduced its “Something Special” bonus promotion, which gave a 50 percent mileage bonus on all American and Frontier flights. The first free transatlantic first class travel awards were introduced in November of 1984.

In 1985, the AAdvantage program became involved in the first of the many social causes that it has become known for through the introduction of the “AA Liberty Club.” If you made a tax-deductible contribution of $100 or more to the Liberty Centennial Campaign, you were given a 10 percent bonus on all actual mileage flown in 1985. The program ran again in 1986, allowing members to earn a yearlong bonus of 10 percent for a $100 contribution.

This was also the year that coupon brokers became a nuisance for frequent flyer programs, and in April of 1985, AAdvantage published its first notice of rules governing the barter or sale of awards. Frontier left the AAdvantage program in mid-March, 1985, and at about the same time, AAdvantage introduced a “minimum mileage balance” program which ensured at least 5,000 miles remained in an account.

AAdvantage had another banner year in 1986. It introduced Qantas as an international partner and on June 1, Pan Am joined the program. Although Pan Am would leave the program after just a few years, it was keeping an open mind on the growth of services and benefits for its members.

Also in 1986, AAdvantage introduced its award expedite service as a way for the growing number of members to claim awards at the last minute.

In 1986, AAdvantage celebrated its 5th birthday with an “Anniversary Special.” If you flew 10,000 miles with eight segments, you earned a free coach ticket. Eighteen thousand miles with 14 segments qualified you for two free coach tickets. From 1987 on, we trust you’ve been paying attention to InsideFlyer and can remember for yourself.

But What of United Mileage Plus?
Launched just six days after the AAdvantage program, this program deserves equal attention, as it forced AAdvantage to change direction early on. United had the Mileage Plus program all mapped out and sitting on a dusty shelf while it used script discounts to calm an unsettled passenger list because of a prior strike that had disrupted its route system.

Actually, sitting on the shelf was the United AirScript program which had been developed by Bernie Milinsky of Western Direct Marketing, which wasn’t quite the same as what was launched by American Airlines.

United had its own “godfather” in the form of Steve Grosvald, United’s manager of Merchandising and Promotion at the time, who remains today a foremost expert on the topic. Although admitting that the AAdvantage program announcement caught United by surprise, it wasn’t unexpected. With deregulation in full force, the United team believed it would only be a matter of time before some sort of “rewards” program would become a reality.

At the time, United executives had been using Western Airlines Travel Pass as a compass. United’s recognition program at the time was the Executive Air Travel Program (EATP) which had some 300,000 members. While the nugget of an idea for rewarding customers at American Airlines came from its agency at the time, so did a similar idea from the direct marketing firm that handled the EATP program for United. This “Air Script” idea used currency-like script to reward frequent flyers with free transportation. But Dick Ferris thought it was a bit premature and would be a costly foray. In the meantime, the EATP as a recognition device was going just fine, and people were collecting their little city strips and the 500,000-mile medallions to add to their plaque. So that program really gave United the mechanism and it was able to turn on Mileage Plus instantly.

Don Moonjian, then vice president of Market Management recalls, “I will tell you that we thought we followed up very quickly; the program was sitting on the shelf. We had gone out some time before that and developed a whole bunch of programs that we basically felt we could use to come back from strike on. And basically at that time we elected to go with the half-fare coupon because we were looking for something with an immediate response.

As the frequent flyer program was something that would build over time, we said okay, we’re going to go with the half-fare coupon and let’s put this frequent flyer thing on the side in case we need something else further down the line, and we did.

Then lo and behold, not long after that American came out with AAdvantage and we basically pulled that thing off the shelf, dusted it off, called it Mileage Plus and put it to work.”

The Mileage Plus name came about because United was looking into many things that were a “plus.” “Not only mileage but there were a lot of other things that we were using the terminology “plus” with,” said Moonjian. “I think even outside the airline industry the word “plus” was being used in the same way you would use-and I hate to use this analogy-a new and improved detergent. People were using the word as something that would be descriptive, something new and bright, and something to be called attention to. And that’s one of the reasons we would use it.

At that time we were even planning on naming what became United Express the name of United Plus. We had a whole series of things that we were looking at labeling with that ‘plus.’ Most of them didn’t come to fruition but Mileage Plus did,” says Moonjian.

In those days Finance and Marketing were always at each other’s throats. But fortunately United had some senior level executives in the company like John Zeeman and Dick Ferris who were basically making decisions. And it went all the way to the top before it got done. It was a little bit easier for United because American had already been there. Dan recalls, “If we had been trying to do it ourselves, I don’t know if we would have it out today.”

The advantage that United had over American was in the area of technology. United felt that it could use the same technology as its EATP and to keep track of the account activity of the program. That proved to be right, and days later United Mileage Plus was launched. Grosvald says that he asked for thirty days to launch the program, but Zeeman, then senior vice president of Marketing and John Blackman, then vice president and general sales manager, nixed the idea and decided that United had a window of a week to ten days to get it launched. The solution to neutralize some of American’s early advantage was a 5,000-mile enrollment bonus.

Grosvald recalls: “We responded so quickly that The Wall Street Journal gave us the credit for launching the program. I found out about that after the newspaper article came out. I got a call from a fellow employee, Chuck Novack. Chuck said he got a call from a reporter from The Wall Street Journal asking about the new frequent flyer program. So he chatted on and on about all the wonders of Mileage Plus, what we were doing, when we were launching, this and that. So the reporter writes the story that United was the first out with it. And American Airlines raises hell about it. The reporter called Chuck back and said “Why didn’t you tell me you were responding to American?” He replied, “You didn’t ask!” And so the stage was set for one of the longest running topics in publishing.

And Then Along Came Delta
It wasn’t long afterwards that the other airlines saw the success of both American’s and United’s frequent flyer programs. Delta Air Lines was one such airline. But Delta wasn’t prepared to compete with a “mileage” based programs since they did not have a database or automated system that could handle it. Bob Coggins, Delta’s marketing manager at the time, recalls, “American caught us off guard with their automated program. Our customers had to mail in their boarding passes and we would file them in shoeboxes. Members picked their seats by what stickers were up on the board at the check-in counter and the agents would put that on your boarding pass, and that was what the member had to mail in to Delta. In no time at all, Delta had We must have had 130 people working in a warehouse where the boarding passes were mailed. Because of the volume of mail, it would take up to two months for Delta to respond to members about their credits and program information.”

Others in 1981
There were other airlines launching programs in 1981, among them TWA. Their program worked similarly to that of American (who later acquired them) but it had a secret weapon — the international routes that American did not have at the time. Members learned quickly that they could fly for free to Europe and the Middle East and TWA became an early leader because of this.

Braniff’s Travel Bonus Bonanza was another program to launch in 1981, shortly after United’s. Essentially their program was a promotion to match the others with no forethought into making the program permanent until years later.

The program started on June 1, 1981 and went through May of 1982. Members were required to keep ticket receipts or photocopies of them as well as boarding passes and send them in to Braniff to collect their free awards. This program was really the model for Delta’s launch of Frequent Flyer. Each one-way domestic flight on Braniff earned the member from 1 to 21 bonus points, which like mileage-based programs were based on flight distance. New York to Chicago earned the member eight points while the longer routes, like New York to Honolulu, earned the member 19 points.

When the member accumulated the first award level — 30 points — they could submit their boarding passes and flight information to receive a first-class upgrade from the lowest economy ticket to anywhere that Braniff flew in the U.S., including Honolulu. As with most any program, the more flights one took, the more award choices they were offered.

Braniff folded before the program was over and Delta stepped forward to honor the members of the Travel Bonus Bonanza by allowing their free awards on Delta, hoping to lure them as customers. Braniff later was resurrected two more times and two more times folded leaving members of the new frequent flyer programs without any free awards. No other airline stepped forward after 1982.

Another of the early adopters of a frequent flyer program was the Eastern Airlines Frequent Traveler program, featuring books of coupons which the member turned in before each flight to receive credit in the program.

Similar to that of TWA and United, it actually raised the bar a bit by offering members that earned 50,000 miles a 50-percent discount on one of Eastern’s ”Super 7” vacation packages in Florida. Members needed 70,000 miles for two free roundtrip coach-class tickets.

Eastern also had the advantage of the Eastern AirShuttle, which awarded members 1,000 miles for short flights between New York and Washington and New York and Boston.

Among the other major programs launching in 1981 was Northwest Orient’s Free Flight Plan. Later, in 1986, both the airline and the name of its frequent flyer program changed as they acquired Republic Airways. Like other early non-automated programs, Northwest’s was segment-based. What’s interesting is that the orginal program had restrictions that flights costing less than $75 did not earn credit for free flights. A nonstop roundtrip counted as two segments; connecting flights counted as four segments. At least 10 segments entitled you to one free economy roundtrip to any domestic Northwest destination, including Alaska and Hawaii; 20 segments, to the same by first class. Thirty segments allowed one business-class roundtrip to any Northwest destination in Europe or Asia and 40 segments to one first-class roundtrip to any of the same destinations.

All these programs learned early on that they had to be proactive, and all featured double miles promotions in 1981.

And So…
The first elite programs were released by both American AAdvantage and United Mileage Plus. The AAdvantage Gold program was launched to the approximately top 2 percent of flyers on American Airlines and started with a budget of only $100,000. United, on the other hand, not willing to simply play follow the leader with American, went after a specific threshold level which has become the standard in the industry today.

Delta’s Frequent Flyer program, learned early on that their best members weren’t always who they thought they were. Hal Dupont was one of their early mileage millionaires and they looked into how he was getting all these miles. What he was doing was buying tickets for his whole family in his name with his frequent flyer number.

There is plenty that goes into the history of these programs and for the next 25 years, that history will be written daily.

And so, after 25 years, what have we learned? To some extent, these programs have become a victim of their own success, with members in almost every household in America, not to mention the world. You can always read something relating to frequent flyer programs in almost every newspaper, magazine or news show you can mention. The earning power and liability is measured in the billions and trillions these days, and while there are pockets of award destination drought and member resistance to change, there’s no doubt that awarding over 20 million free airline tickets a year is something that even the most optimistic founder of any of these programs could not have predicted. Do these programs make the world a better place, or are they a backhanded slap measuring our capacity for greed? We vote that we will never answer this question, so enjoy the party. AAdvantage, Mileage Plus, SkyMiles and WorldPerks, please blow out the candles and may everything you wish for come true.

So you’ve got some frequent flyer miles, or you need some frequent flyer miles? With all that’s happening with frequent flyer programs, you need a strategy and effective tactics to take advantage of free travel offers and the benefits of loyalty.

One of the most popular books of all time for business people is the New York Times best-selling, The 7 Habits of Highly Effective People by Stephen R. Covey. Given that this guidebook has become so popular as a means of learning principles of personal effectiveness, rather than mere practices, we thought we’d examine our own code for frequent flyers that we’ve developed through the years.

We’ve noticed through the years that whether you have over a million miles, no miles, or are somewhere in between, there’s always a struggle to keep up with the ever-changing world of miles and points. You have to adopt strategies and change old habits from time to time. And while it once could be said that your success in any frequent flyer program depended on being loyal, we found that this idea has become dated.

No matter what type of frequent flyer you are, it is important to understand that these habits are not quick fixes, but rather a guide to getting on top of the miles game. What makes the effective frequent flyer different from other travelers? Well, we looked at the notes we’ve collected through the years when chatting with travelers. Some traveled domestic flights only, while others traveled worldwide. We combined our notes and experiences with the experiences of our readers to come up with what represents a true blueprint for the frequent flyer. Some of the suggested habits will be as familiar as your browser bookmark for award redemption, while others will require you to read and re-read to get the point we’re trying to get across. We’re convinced that the following habits can be applied to frequent flyers at all levels and can help you understand what makes the effective frequent flyer stand apart from others.

1. Prioritize Your Goals
When was the last time you thought about what it is that you want from your frequent flyer program? If free flights are what you want, some awards are becoming overpriced for the infrequent flyer and it might be time to switch programs. In this past year, both American and United had short-haul awards for only 15,000 miles and Continental now offers short-haul awards for 20,000 miles on destinations less than 1,500 miles. If it is discounts you want, look no further than the Alaska Airlines program, which offers a 50 percent discount,
up to $250, when redeeming 15,000 miles (one of their most popular awards).

Frequent flyer programs are changing. No longer are they able to be all things to all members. As a result, you’re going to have to decide what it is you want from a program and pick a program which can support your goals. Some of you will still want to go to Hawaii. If so, you had better forget belonging to the Southwest Rapid Rewards program in the short term — at least until they have their alliance with ATA straightened out. If you want upgrades, you should take into account which programs do not allow upgrades from the lowest fares. It’s these program restrictions that make prioritizing your goals so important. And you’ll often have to compromise. For example, savvy members know how many weekly flights to Hawaii an airline flies and divides it by total membership of the program. Obviously the lower a percentage is, the higher the odds are on getting to that destination. Is it Hawaii you want, or are you saving miles for a rainy day?

2. Turn Award Redemption into a Plan
You are not alone in the quest for miles. The American AAdvantage program now has over 50 million members, and when it comes time to redeem an award to a popular destination from a major market, you’re going to find that you’ve got some competition. Frequent flyer programs in the U.S. alone gave away nearly 30 million free airline tickets last year.

Developing a plan for award redemption is very important for new members of programs or those with relatively low mileage balances. In fact, among those who voice concern over their inability to use awards, more than 87 percent are base members of programs; that is, they haven’t traveled enough to earn elite status and it’s often the first time they’ve ever redeemed an award. Redeeming an award is a combination of timing, knowledge and luck. Learn more about award options. Become familiar with the award schedule. Did you know that United has discounted awards to London right now? Did you know that American AAdvantage and Continental OnePass have weekly awards available on the Internet with domestic awards sometimes available for only 10,000 miles? Did you know that there are often dozens of limited time awards available from virtually every program (see Special Awards, page 29)? An example is the Point Stretcher awards from Hilton. Every year in the spring and fall Hilton offers a selection of room night redemptions at select properties that represent savings of up to 79 percent of the normal points required. Knowing in advance when these become available and matching them to airline award availability may make the use of miles and points a “low-point” of your vacation.

Furthermore, travelers should be aware that all major airlines have standard awards available which have no restrictions. A reader shared a story with us of an associate who didn’t have an affinity credit card because he says that the has “too many miles.” However, the same person has trouble using the miles he has. He is obviously not aware of standard awards without restrictions, because he would never have a problem claiming an award. Given he has more miles than he’ll ever use, he wouldn’t miss the extra miles.

3. Set Realistic Goals
Most programs have miles or points that expire. And most travelers wait too long to use the miles and run the risk of losing them. Set up a calendar of what miles and awards you have earned and when they expire. Never let miles go into the last three moths that they are valid. Also, set up deadlines to reach mileage goals. If you can have a redemption plan, it makes sense that you should also have an earning plan. Just as you save for college expenses or an addition to your house, a good habit is to save for an award. Decide which award you want to use, know how many miles or points you’ll need and establish deadlines for achieving that goal. Set deadlines for signing up for an affinity credit card, switching credit cards or for enrolling in one of the dining programs. Turn these deadlines into miles and points.

4. Reward Yourself Frequently
Frequent flyer programs were originally viewed as “Travel IRAs” — awards that you could save for a rainy day. These days award redemption is an ever-increasing problem, so it might be wise to reevaluate. Consider rewarding yourself often and keeping just enough miles to use on upgrades on your next paid vacation flight. It might be a better idea to purchase that ticket to Europe this summer and use the miles you have for weekend getaways. In the words of one of our readers, “Be willing to use miles on an upgrade to first class rather than see them go to waste. Treat yourself like the frequent flyer you are.” A full 35 percent of advice requests that InsideFlyer receives are from readers asking for help redeeming an award. The bottom line is, “Never redeem tomorrow what you can redeem today.”

5. Find a Program That Fits Your Travel Style
Merely joining a frequent flyer program doesn’t guarantee a free trip; choosing the right one does. Many travelers simply join the first program they hear about, and then take years to earn anything of value. Then there are those travelers who boast about having miles in many different programs. But having miles in too many programs can become a problem. The primary rule for any frequent flyer is to concentrate on a single program (but always be prepared to switch allegiance temporarily for the right promotion), but as you will read elsewhere, this line of advice might be outdated. Getting the most from your frequent flyer program works best if you go out of your way to fly on a particular airline, stay at a particular hotel or rent from a partner car rental company. Many booking Web sites keep profiles of their regular customers, so take the time to ensure that your preferred airlines, hotels and car rental companies are in your profile along with your chosen membership number and window or aisle seat preference.

6. Find an Effective Solution for Earning More Miles (or Points)
Most people do not realize that 30-60 percent of their total miles and points can come from program partners. Every time you travel and use a partner airline, hotel or car rental company, you increase your chances of earning an award. For example, on a flight from Chicago to Denver, you will earn 1,500-2,000 miles (roundtrip) depending on your airline program. An affiliated hotel partner can add 500-1,000 bonus miles. Using this method, you can simultaneously earn miles and points toward numerous separate awards during a single trip. These tie-ins aren’t limited to hotels and car rentals, but include affinity credit cards, magazine subscriptions, referrals (read about the Northwest WorldPerks referral program in this month’s Best Bets) and more. When investigating program partners, look for those that allow points and miles to be earned without a flight or stay in conjunction. That way, even a casual stay at your local Holiday Inn for a special celebration will help you accumulate the miles and points necessary for your chosen awards.

Other effective solutions for earning more miles are to closely examine hotels programs such as Hilton HHonors, which offers double dipping, allowing you to earn points in the hotel program and miles in an airline program at the same time.
However, be aware that this double dip offer may not be the best any longer. We have been advising for some time now that more points is better — not more miles. With hotel room rates rising, points have become more valuable, and the good news is that hotel redemption charts have not been changed. A stay at a discount will often earn you only the hotel points.

Another way to earn more miles is to qualify for elite-level memberships. This advice was unanimous among all the readers we talked with. Not only do you earn more points or miles per stay, but elite-level membership leads to additional upgrades and even the voiding of blackout dates on awards, and special award offers.

We find that the number-one advantage of elite-level membership is the mileage bonuses. For example, Continental offers a 125 percent bonus on all Continental flights as part of their Gold Elite membership. That’s more than double miles on each flight. Another way to look at these bonuses is that awards are less than half price if you’re earning miles only from flying.

Also, know the differences between the elite level tiers. One reader points out that sometimes, “The second best elite level is no use. An example is that American AAdvantage Gold only gives a 25 percent bonus whereas Platinum gives 100 percent. Do extra vacation, cheap or out-of-season fares to qualify at a higher tier level.” Program members have been known to make an end-of-the-year trip to Europe (off-season) just to earn enough miles to re-qualify for an elite level knowing that the cost of the ticket is small compared to all the bonus miles that will be earned the following year. And remember, these days miles come from sources far beyond the typical. You can even earn frequent flyer miles for renewing the office copy of The Wall Street Journal.

7. Earn the Smart Way, Not the Hard Way
It really doesn’t matter if you have belonged to programs for years or are a new member; learning to earn the smart way is the most difficult task facing any member of a frequent traveler program. Just as in your corporate environment, the idea that “you’ve always done it that way” doesn’t mean it’s the “best way.”

Here’s an example of earning miles the smart way: The first is flight routing. For example, if traveling to Hong Kong from Toronto, there are many choices. But it usually means having to change planes at least once, except for Cathay Pacific. If the airfare is about the same price from Toronto to Hong Kong for almost all airlines, you might consider choosing United Airlines, as they partner with Aeroplan. Flying Air Canada involves changing planes in Vancouver, but buying a discounted airline ticket means a member would only earn 50 percent of the miles within Canada. (In Canada, flights with Air Canada earn less than one mile flown when flying on a discounted ticket.) A 8,500 mile one-way trip becomes 7,500 miles because of the initial 2,400 mile trip from Toronto to Vancouver. Whereas on United, members would change planes in San Francisco and get full mileage value for the whole trip, which become Aeroplan miles as a partner.

This is a strategy that works for one reader when flying to Phoenix on business. Flying American (company policy), he always chooses to change planes in Dallas rather than Chicago. The first reason is that he ends up with more miles routing through Dallas by going YYZ-DFW-PHX than YYZ-ORD-PHX. The second reason is also just as smart — flights through Chicago are often delayed.

Another way to earn miles the smart way is by purchasing tickets to Europe rather than using your miles. You earn greater rewards later on, and may not even need to make a mileage run.

The basic principle is to get the credit you deserve. While technology is getting better at tracking the various credits for partner activity, the mere expansion of ways to earn miles and points has made this task even more daunting. Even making sure your membership numbers are in with a transaction does not mean that later on it will not have been deleted or never have reached the processing point. We can never emphasize enough the need for all members learn to manage their miles and points.

An example during a recent promotion makes this clear. British Airways promised that members flying transatlantic would earn at least 50,000 Executive Club miles when flying on a business or first class fare. The promotion was open to all members and required registration. However, their registration system had not been programmed for the promotion, and many of those registering at the start of the promotion were told by a screen that they were not eligible for the promotion. Smart members printed out the screen message, and later on, when this problem was described here in InsideFlyer, the “smarter” members were able to prove to British Airways that they did in fact try to register and thus should have been credited for the extra bonus miles. This very same situation happened to our editor, and as it turns out, he was practicing what we preach — he’s 50,000 miles more loyal to British Airways.

Another part of the “earn the smart way” is staying informed. It is very evident among those readers we interviewed that a habit among the effective frequent flyers is to stay informed. With electronic newsletters and email it is more difficult but the smarter members have adopted and still skim through all the news about their frequently traveler routes and look for things that may fit their vacation plans.

The secret of frequent flyer programs is to make each action you take earn miles. For those that pay attention to the details, the next trip is free — from a financial and hassle perspective.

Earn and burn: The two most important words in the language of the frequent flyer. While the industry has made it easy to earn more miles and points than most of us will ever use (wishful thinking…), it’s the topic of the burn — award redemption — that gets the most ink.

InsideFlyer has for years researched and published an ongoing look at award redemption — research that actually makes includes test calls and determines where and why the bottlenecks occur. We not only rely on our test calls, but the analysis of redemption results for the tens of thousands of awards that the http://www.AwardPlanner.com group books yearly.

While we’ve been fairly good at other predictions in past years, we decided we’d go out on a limb and predict that 2006 will be the first time since 1988 in which programs generally take huge strides toward making award redemption more acceptable to their members. These programs were first introduced in 1981, and the early years were a dream — there were no such things as restricted seats. You wanted a seat, you got a seat. Granted, award levels were a bit different back then, and membership number were smaller, but we must also remember that earning miles in those days meant truly being a frequent flyer. There were no large credit card bonuses, and no 100-percent elite bonuses. We can’t go back (in 1987, a coach domestic award on American was 35,000 miles), but we can give you some hope for the new year and repeat some of our best advice on the topic.

Before that, here’s our take on the current problems. They seem pigeonholed into three categories: 1) Too many miles chasing too few seats; 2) Airlines cutting back on award availability and 3) Downsizing of route systems means that many members won’t be able to use their awards.

Too many miles chasing too few seats. Partially true. Too many miles would actually mean that everyone could afford to spend whatever miles were necessary to claim their free award. It may be too many members chasing too few seats since program redemption is often not just the airline’s best customers, but rather many other industries’ best customers. Here’s a look at members by average account balance:

Under 10,000 miles: 33.7 percent of members
10,001-19,999 miles: 32.8 percent of members
20,000-29,999 miles: 13.2 percent of members
30,000-39,999 miles: 6.7 percent of members
40,000-49,999 miles: 3.9 percent of members
50,000-74,999 miles: 5.0 percent of members
75,000-99,999 miles: 2.1 percent of members
100,000+ miles: 2.6 percent of members

Airlines cutting back on awards. This is probably the worst observation going.

Some of the so-called “experts” now like to spout off comparisons of an airlines 10-K as “official reports” on award redemption. As we have previously reported, this is no longer an accurate measure in the wake of domestic and international alliances. As we have also noted, most redemption on partners does not accurately show up on an airlines 10-K. Combine that with the emotional roller coaster of the past few years for bankrupt airlines and the fact that in 2005, members of these programs donated nearly a billion miles to the relief efforts of the tsunami and hurricane Katrina. Our generosity contributed to the appearance of fewer awards being made available. Then you factor is such anomalies as “ghost” redemption (more on that later) and maybe things aren’t so bad.

Route system reduction. We have noted that any reduction in routes by major programs has been more than made up for by the adoption of strategic airline alliances that actually offer far more award ability than the seats available on the airline itself. We find that nearly 30 percent of award redemption is off-program.

But let’s start with a simple, if hard-to-believe fact. On any given day, 100 percent of airline seats are available for award redemption with most major frequent flyer programs.

We thought that would catch your attention.

One hundred percent?

Then how come you’re never awarded one?

To understand award redemption, we need to take a step back to 1981. When frequent flyer programs were invented, every seat on the aircraft was available to members each and every day. No blackout dates or capacity controls existed. The price? Awards were set at 35,000 to 50,000 miles for coach class.

By 1988, concern that the number of outstanding frequent flyer miles could become a problem for the airline industry in the future was a reason to reevaluate. United Mileage Plus began to let miles expire after a certain period of time. Members weren’t exactly thrilled with the idea, so to ease the pain, programs began to offer new awards at lower levels, that at the time started at 20,000 miles. These lower-level awards came with restrictions limiting the number of free seats per flight.

Members clamored to take advantage of these new, lower-cost awards, later adjusted in the 1990s to an industry standard of 25,000 miles. Today, nearly 83 percent of all awards are at the lower, more restricted level.

Nonetheless, the fact remains that 100 percent of airline seats daily are available in most major programs for award redemption at the original, higher level–a category often referred to as “any time” awards.

The past few years have been particularly difficult for the redemption of frequent flyer awards. Because a number of airlines are in and out of bankruptcy, and the possibility of labor strikes and mergers is so real, a significant number of award redemptions have “ghost” itineraries. That is, they are being redeemed solely to protect miles should an airline liquidate.

For instance, during the past two years, many members of the US Airways Dividend Miles program redeemed their miles on partner United Airlines, fearing that US Airways was not going to make it. Of course, this made it even more difficult for members of United’s program to redeem their miles. In this case, US Airways members were booking only temporary awards, hoping to redeposit their miles upon news that US Airways would survive.

Even in the best of times, many frequent flyers report not being able to redeem award tickets. This is especially true for elite-level members who have followed all the correct procedures. Even the Delta SkyMiles membership guide specifically states: “Seats available for Award Travel are limited and may not be available on all flights.”

In 2006, we believe that airlines will begin making an effort to structure their award redemption processes with less mystery and difficulty, although many frequent flyers consider these efforts to be too little, too late.

Toward this end, we know that both American and Delta will relaunch their online booking tools for awards. As it is now, most of these tools do not contain complete award inventories, and that is driving some of the reported unavailability of awards. Members are not being savvy enough to use other methods to secure possible award seats.

But until some of our predictions come true, here’s a collection of our best advice for planning your award travel:

10. While the attention has always been on redeeming frequent flyer miles, we advise members of all programs to brush up on the value of hotel points. Hotel points have much more flexibility than airline miles based on the variety of “brands.” If you have a problem redeeming hotel points with Marriott, then inquire about other brands in the Marriott family: Courtyard, Renaissance Hotel, Residence Inn or Fairfield Inn properties. Fact: we rarely hear complaints about hotel redemption. Also consider that hotel rates have been climbing while airline prices have been falling.

9. You’ve heard about planning frequent flyer award redemption early. Try this: Plan late. Airlines are getting better at releasing seats at the last minute for award redemption. Best time? Try two weeks before a scheduled flight. Even better is to know the airlines’ “sweet spot” for seat inventory adjustment. In recent research, Continental’s award availability was spotty at 330 days in advance, six months in advance, 30 days in advance and even two weeks in advance. However, in the test, which involved 12 different city-pairs for award redemption, awards were available at the three-month advance time frame 100 percent of the time. This does not mean you’ll be so lucky, but it does mean that Continental has a sweet spot.

8. Codeshare an award. With airline alliances, sometimes airlines only have half the plane to give away as awards, since their codeshare partner owns the remaining seats. Since one airline will only see their available seats, try asking about their codeshare program’s free seats.

7. The family plan. Most people don’t have enough miles for the whole family to fly for free and often purchase a ticket for one of the kids to go along on the vacation. Tip: Whenever you have to purchase a ticket along with an award, transfer your award to a family member and fly on the purchased ticket yourself. Why? You’ll replenish your miles; plus you’ll qualify for selected benefits like upgrades when using a revenue ticket. Other tricks for using miles for a family vacation include using miles from one of the airline’s partners. Perhaps you can only get a single award seat using your SkyMiles on Delta. Try using your Continental or Northwest miles (either you have them or can redeem them from a credit card or hotel program) for other seats on the same Delta flight. Sometimes, each partner has a different award bucket and seat allocation for a particular flight.

6. Mini-awards. Both American and Continental offer weekend awards to select cities for fewer miles than normal. Fly out on late Friday or Saturday, and return Sunday, Monday or Tuesday. While restrictions do apply, you can claim an award for as few as 7,500 miles. Very few members we’ve ever talked to even know these special award offers exist. They do, and it is a great way for a savvy traveler to find awards at only 12,500 miles or less.

5. Use your mileage pool. If you’ve been smart, in addition to your airline miles, you also have points with American Express or Diners Club or hotel programs like Starwood Preferred Guest, Hilton HHonors or Priority Club Rewards. If so, take advantage of these programs’ flexibility, and try award travel on an airline other than the one you normally fly.

Remember that you can transfer points from all five of the programs named above directly into an existing or new frequent flyer airline account for award redemption. Just because you haven’t flown with an airline doesn’t mean that you can’t redeem an award with them.

Again, there is no loss of miles points for conversions here because we are only referring to a single redemption, not an “exchange” in which a member will likely lose some value.

4. Know the best days to travel. Best Days within the United States: Monday, Tuesday, Wednesday; to Florida: Monday, Tuesday, Wednesday; to Hawaii: Tuesday, Wednesday, Thursday; to Asia: Tuesday, Wednesday, Thursday; to the Caribbean: Tuesday, Wednesday; to Europe, Tuesday, Wednesday, Thursday; to Mexico: Tuesday, Wednesday; to South America: Tuesday, Wednesday. Worst Days within the United States: Friday, Sunday; to Florida: Friday, Sunday; to Hawaii: Friday, Saturday, Sunday, Monday; to Asia: Friday, Saturday, Sunday; to the Caribbean: Saturday, Sunday, Monday; to Europe: Friday, Saturday, Sunday; to Mexico: Friday, Saturday, Sunday; to South America: Friday, Saturday, Sunday.

3. Go where no one else has gone (yet). The secret is to look for new routes opening up. Those seats haven’t been available for either sales or award redemption before, which means everything is available.

This requires you to read travel news about an airlines new “second daily flight” or their newly released “winter schedule.” Frequent Flyer Magazine’s Regional Updates are great sources for new routes.

2. Book an award by segments. Because of the “hub and spoke” system that most major airlines use, the problem with getting a free ticket is not that the entire route is booked, but that a single segment of the award request is unavailable. You may want to try to book each segment separately, and once done, ask the airline to combine them for a single award. An example: A Delta award request from Dallas to Honolulu reads as not being available. So, try to book a flight segment from Dallas to Salt Lake City. Then from Salt Lake City to Los Angeles, then from Los Angeles to Honolulu. Once you’ve got that done, then have the airline combine all the segment bookings into a single award. (The airline’s booking engine would have looked only at Dallas-Los Angeles-Honolulu).

1. Pick up the phone. Many programs have worked hard to convince members to book their awards online. The unfortunate problem with this is that most programs have faulty online award booking systems. Most do not include the award inventory for their airline partners. Most do not intelligently reroute a member through various hubs or city pairs. Most do not identify the problem with the award request such as a single segment not being available, etc. Most do not allow you to register and be notified later on if a seat becomes available.

Because of these limitations and more, we suggest that if you have any problems booking an award online that you take the request to the phone line and try to work out the award though a reservation agent. Most programs will now charge you for this, but we feel it is worth the cost.

And if all else fails, and sometimes it really does, consider plan B:

We suggest the following alternatives:

- Don’t get hung up on free airline travel. We find that many travelers make the mistake of assuming that miles should always be redeemed for airline tickets. Here’s something to consider: Many flyers complain about not getting the free ticket they want due to capacity controls, and yet they spend hundreds or thousands of dollars on hotel rooms. Consider purchasing an airline ticket and applying your miles to a hotel room.

- Combine paid and award travel. For example, you could pay to fly to Los Angeles or New York using a low-cost carrier and then pay for the next leg of your trip with miles as you continue on to Hawaii or Europe. Or simply buy the extra miles you need. Many programs allow mileage purchases if you have accumulated close to the necessary amount.

- View companion awards and upgrades as viable alternatives to free awards. Airlines always want to sell a seat — even if it costs them one. The airline considers it a sale, because to qualify for a companion mileage award, it must be in conjunction with a paid published fare.

- As strange as this might sound, unless you are an elite member of a program, consider switching to a program that has a better history of providing awards. Among the programs that have the best award seat availability are Alaska Mileage Plan, Southwest Rapid Rewards and American AAdvantage.

Now that we have ruined your day, here’s one of our best tips, which we have saved for last. Most members only know how to “talk coach” when redeeming their miles, and for good reason — they tend to go further. But if you are facing spending 40,000-50,000 miles for a coach award because none of the 25,000 mile awards are available, it’s time to “talk first class.” Here’s why. In the Northwest WorldPerks program, a saver award is 25,000 miles. A “Rule Buster” award for that same coach seat is 50,000 miles. Did you know that a saver first-class ticket is only 45,000 miles? That’s right, when coach is not available, ask about the availability of a saver first-class award before paying double miles for coach. In this example, you would have saved 5,000 miles and felt better about it.

We think 2006 will become the best year in a long time for some positive news about award redemption — at least that’s what we are predicting.

As we look at the who, what, where and why for frequent flyer programs in 2006, we’ll first pause to look back at what we said about 2005, because if we didn’t get last year right, what makes us think you can believe us in 2006? In a nutshell, we are pretty good at this. In the specific predictions we made, we were more than right on — nailing such predictions as our guess that Southwest might move close to offering Hawaii and international destinations in their program. We were first out with this prognosis, and it will likely come from the alliance between Southwest and ATA, since ATA serves both Hawaii and Mexico. Our bonus prediction from last year was probably our riskiest, claiming that there would be a consolidation of two programs in 2005. As we now know, that came at the end of the year with America West FlightFund and US Airways announcing their program merger.

Also last year, we named five programs to watch in 2005 and all of them made news-though we have to be honest, some of the news wasn’t exactly what we were hoping for: Delta SkyMiles with their not-so-kind changes involving loss of Crown Room privileges for their Platinum members and loss of the previous Medallion award chart and non-expiring miles for former Frequent Flyer members (prior to the SkyMiles name change); Hyatt Gold Passport increased the value of its program through a major acquisition of additional hotel properties; America West FlightFund finally stepped up to the plate and formally aligned themselves with an alliance, as in a merger alliance; Southwest Airlines made changes regarding their award redemption restrictions which may point out that the frequent flyer gap between low-cost and full-service airlines is narrowing; and finally Citibank’s Diners Club brand met with the reality of other programs’ stronger interpretation of “exclusive,” by losing strategic partners for frequent flyer mileage conversions. Funny thing there is that we thought that Citibank might make news by issuing unique American Express cards. My how the wheels of programs turn.

In celebration of the Year of the Mile (May 1st will be the 25th anniversary of these programs), we are asked to consider the dear old frequent traveler program. With this great perk you’re guaranteed an immediate, essentially unbeatable return on the time you spend traveling (upgrades anyone?), especially if your company is footing the travel bill. What’s more, the miles and points sit with subtle changes until you decide to use them — an act of true largesse from airlines, hotels, car rental and credit card companies.

Yet most frequent traveler programs are a long way from perfect. All too often members are stuck with restrictive award usage policies, growing tightwad fees for express redemption and, worst of all, changes that come without much warning (Did members of Continental, Northwest and US Airways programs spend their holidays trying to convert Club Rewards points into frequent flyer miles before the ball dropped on January 1?).

If you don’t think it matters much which program you choose, think again. Are you one of those sweating out the future of the Independence Air iClub program?

To help identify the trends (and needs) for 2006, we actually thought we’d identify the best and worst features of some of these programs and see if you can spot where the trends could be — that’s right, we’ll try and force the future, ala who, what, where and why:

Alaska Airlines Mileage Plan
Good: A wide variety of partners with which members can earn and burn miles is the defining characteristic of the Mileage Plan program. This is easily validated by their ability to partner with American, Continental, Delta and Northwest in the domestic and international market. Mileage Plan’s credit card offerings are above average in total benefits.

Bad: They had their performance problems as an airline in 2005 and members were not very happy. There was nothing new in 2005 that an airline this size has not experienced before, so let’s hold the excuse list to three words or less.

In 2006: Do as we say — a program this size cannot exist with reciprocal benefits among other airlines with only two elite levels. They must find a way to add a third tier. Their qualifying levels, 20,000 and 40,000 miles for MVP and MVP Gold, are admired, but this airline now flies from coast to coast and partners with American and the Delta, Continental and Northwest alliance, each with three main tiers of elite. Also, this program needs to fix the non-MVP earning miles with partner Continental. Other partners named above earn MVP qualifying miles: why not this partner? Details, details. We look for a letdown in 2006 and would not be surprised if American drops out of the program. Heck, the writing is on the wall that it is easier for Mileage Plan to do great things with Continental, Delta and Northwest regardless of any apparent non-alliance relationships.

American AAdvantage
Good: Your award redemption reputation is much admired among the larger programs.

Bad: It’s the first two letters of the alphabet. No, it’s not AB, it’s BA. It’s time for the two of you to finally find a way to gatecheck your egos and get the wrinkles of your partnership sorted out over the Atlantic. We continue to get questions from your members showing that they did not know they could not earn or burn AAdvantage miles while flying BA over the Atlantic from the U.S.-until it was too late for them. We’re not big on your “money plus miles” strategy for international upgrades, but you already know that, and so we’ll continue to agree to disagree on that issue.

In 2006: Our guess is that the single domestic alliance with Alaska Airlines will not be enough for you over the next five years in the U. S. and with a shrinking domestic footprint, what are you to do? We also think that Citibank needs to come up with something additional for you. Granted, they win big kudos for their special award chart for members, but the credit card world is moving pretty fast right now.

Delta Air Lines SkyMiles
Good: This space left intentionally blank. Seriously, they formerly had several strong points that made them stand out from the other programs. That list today is empty and they aren’t as sorry as we are.

Bad: OK, they repented on the L, U and T fare mileage-earning decision, but what happened to the 30,000-mile Hawaii award, the Frequent Flyer Medallion award chart, and the Crown Room benefits for Platinum members?

In 2006: SkyMiles has to hit a home run in 2006. We firmly believe they will do it with introducing a remarkably different program. Could it be that they “micro” invent their mileage currency, allowing members to redeem them in individual miles against award redemption (that will be 12,143 SkyMiles and $114.16 to travel today)? And how will they do something with their Medallion level that acknowledges that Delta Connection partners American Eagle, Atlantic Southeast Airlines, Chautauqua Airlines, Comair, Freedom Airlines, Shuttle America and SkyWest are not adding any elite level benefits and yet they account for nearly 60 percent of the Delta metal flights today?

Diners Club Rewards
Good: For many of the right reasons, this card remains a best value and choice for the frequent traveler.

Bad: Card acceptance good, loss of airline partners bad. Need we say any more?

In 2006: Unless they find something that will become the “buzz” like that having all those airline partners was this program could become just another credit card program. Hint: why not adopt a permanent conversion bonus, ala Starwood Preferred Guest?

United Airlines Mileage Plus
Good: Mileage Plus was able to keep its composure through a seriously long period of bankruptcy by United airlines without losing much member loyalty.

Bad: You’re getting very close to that edge where you’ll be labeled a greedy program. We understand the pressure from others in the United Airlines organization to produce more revenue, but you already were profitable before the airline went into bankruptcy. It’s time to start backing off the money train and get back to doing something just for your members. We’d love to see something that didn’t require an additional fee.

In 2006: Fix the problem with hotel partner Starwood Preferred Guest. Relaunch Mileage Plus upon coming out of bankruptcy by adding a new benefit to the Premier level and look strongly at reintroducing the 750-mile award level, as both Frontier and Southwest will not be backing down. Suggestion — no capacity controls on awards for Premier members. No, we’re not dreaming.

Southwest Airlines Rapid Rewards
Good: Still simple.

Bad: Relationship with ATA seems to remain undefined. Granted, it will take time, since you aren’t used to this partner thing, but the world awaits, and as the gap between low-cost carrier frequent flyer programs narrows with those of the legacy carriers, it’s going to be important to define this.

In 2006: Many of your members have already decided that the change in capacity controls on award seats is bad. We challenge you to prove them wrong. You mange everything else in the company well-we expect nothing less from you in this category. Two words: small steps. Aloha (hint, hint).

Starwood Preferred Guest
Good: Consistent delivery. Consistent results.

Bad: The 2:1 exchange rate with United Mileage Plus is a definite drag on the value of your program (Hint: they are the second largest frequent flyer program in the world). How Gold or how Platinum are you? I guess you’ll need to ask your members if only two elite levels are enough.

In 2006: Fix the United conversion problem, though we understand you might not have caused it.

US Airways Dividend Miles
Good: You saved two airlines.

Bad: There is still much work to do. In the merger, you have not created anything unique other than still being in business.

In 2006: Your members will forget you saved their miles and will start to demand something of value. Until you can name three things that Dividend Miles is known for, it will be a long year. Sure, you’ll need to look like your partner United and other Star Alliance programs, but at least look good at looking like their parrtner. Since Juniper Bank invested so much in being the new credit card partner, let’s see them come out with something really unique.

Of course, each of these programs contain much more than a single best and worst feature. To get an even better idea of what makes some programs special, and relegates others to the second and third tiers, we decided to take a close look at some of the intangibles. You may be surprised by some of our comments.

Best Idea at the Time
Elite-level programs. What ever happened to this? In the past ten years, there has been a steady decline in the number of tangible benefits caused by economics, the industry itself and a general lack of maintenance of the best customers of the airline. It was a great idea to measure your best customers, but today, is it “best members” or “most valuable members?” Time for someone to pay attention to this potential problem.

Worst Idea at the Time
It’s still the move by Delta SkyMiles to eliminate Crown Room privileges from their Platinum Medallion benefits. Apparently they have drunk the United Mileage Plus kool-aid, and think that everything has a price, as in pay-as-you go and there is no such thing as a free ride. Granted, we may be the only ones complaining publicly, but to us, there is an undercurrent similar to the L, U, T decision.

Best Idea Today
SkyPoints credit card from American Express. OK, we do beat up on SkyMiles from time to time but this new credit card product does have some promise, since it easily checkmates some of the challenge by CapitalOne, in that members can earn no-blackout date award travel and leverage their spending for real dollar savings against airfares they shop for.

Worst Idea Today
Charging payments to become elgible for certain bonus offers. Enough already. You’re either in the loyalty bonus business or the banking business but please, don’t confuse the two.

Biggest Undiscovered Value
Drum roll please… It still might have to be Frontier EarlyReturns. This airline continues to add cities and yet refuses to raise their basic mileage award from 15,000 miles, making it very hard for some competitors to get past their sometimes brilliant marketing campaigns. The other thing we’ve noticed is that they recently raised some private equity money, and if the opportunity arises, we might see this airline do something really BIG in 2006.

We don’t think there will be additional trends in 2006 that we did not cover from our predictions in 2005. 2006 will become known as a watershed year-a year in which two programs will have re-invented themselves (Delta and United) and a year in which something new comes along in award redemption, that it is not for merchandise.

It’s been said change is good. But for a growing number of frequent flyers, change feels more like broken promises. In a age when it is assumed that frequent flyer programs run the airlines, it might come as a surprise that airlines still run their businesses based on profit and loss and the ever-changing level of competition. This creates the need to drop routes that don’t perform, add restrictions to products that out perform to protect revenue, and re-price a product when it’s priced below market value. Sound familiar? It should, if you’re the typical frequent flyer who is involved in the same type of decision making in your own company. Certainly the difficult times that airlines in particular have faced going back to 2000 might be factored in to accepting these changes, but it’s becoming more and more difficult to understand the reasoning of some changes in light of missteps by programs themselves. In an industry that built its legacy on the word “loyalty,” it’s becoming easy to point out where this term is being redefined.

It’s been said that the only thing wrong with frequent flyer programs is that they are now considered a “God-given right.” And every time an airline even contemplates a change to a program, they’ll hear from those travelers who feel the rules and conditions are sacred. At some point nearly every program has implemented changes that caused dismay among their members. We have gathered some examples of these changes-changes that were made primarily for the good of business, but at the expense of customer loyalty, leaving a growing number of our readers asking, “Whatever happened to rewarding me for my loyalty?”

When frequent flyer programs began, awards had no capacity controls, no blackout dates and the miles in your account did expire. Over time, the airlines realized that they had to make changes to deal with all the miles building up toward free flights. It was openly a matter of time before an airline took the chance and changed the rules. In 1988, United Airlines was the first airline to introduce expiring miles. The changes that took effect on July 1, 1989, introduced miles that expired three years after accrual. Saver Awards were introduced with a domestic coach ticket being offered for 20,000 miles instead of 35,000 miles, but with blackout dates and capacity controls. Premium awards were also introduced for 40,000 miles (thus the term “double miles”). Another change introduced was the ability of members to transfer their awards to anyone they chose instead of only to family members. All of these features are now considered basic elements of frequent flyer programs. Looking back, there was a sense that programs tried very hard to balance these changes. While introducing expiring miles, they also offered reduced awards, albeit with restrictions. That seems fair. And that premise still exists today to some degree with changes recently announced by Southwest Airlines Rapid Rewards. While introducing some sort of controls on the redemption of their awards starting in 2006, they balanced that change with doubling the life of the existing credits being earned from 12 to 24 months.

But we must be clear that members of such programs often have short memories. For instance, when members complain that they can’t ever use their miles at a 25,000-mile award level, they aren’t factoring in the balance they got years ago when these awards became available for the first time. Would we not all choose to have the opportunity to redeem at 25,000 miles and risk staying active over a three-year period rather than have totally unexpiring miles and awards still at 35,000 miles?

Longtime readers might remember that ten years ago, the last major domestic coach award changes went into effect. American, Continental, Northwest and United changed the cost of their domestic awards from 20,000 to 25,000 miles, and Alaska Airlines went from 15,000 to 20,000 miles for a domestic ticket.

Members definitely were not happy with the new award redemption levels — especially if they had 19,999 miles in an account. But life goes on, and travelers have adjusted. Considering that programs had been around for 14 years and had raised the cost by 5,000 miles one time, the rate of inflation was low. Furthermore, if you take into account the vast increase in ways to earn miles other that flying, the 5,000-mile increase was reasonable.

Broken promises don’t always mean bad news for frequent flyers. There have been many examples when programs have offered additional value, assuming broken promises at the time. For instance, in 1995 when most programs were raising redemption levels, members of the Delta SkyMiles (then Frequent Flyer) program experienced the reverse. The award redemption for domestic flights was 30,000 miles and was lowered, not raised, to 25,000 miles. In changing these rules, it wasn’t considered a broken promise at all, but more like customer loyalty. Should Delta have said that miles earned before the change would have to be redeemed by the old rules? Delta could have, because miles earned to that date were “promised” as 30,000-mile domestic awards. But they decided not to take the risk. This type of reverse broken promise is prevalent today with American and United, from whose programs members can now redeem regional awards under 750 miles for only 15,000 miles. These are miles that had been earned with the understanding that the lowest award level was 25,000 miles.

In recent times, programs have not been so generous in balancing the changes, thus raising the suspicion that promises are being broken. Take for instance, three years ago, when all major programs set about repricing their upgrades. Not stopping at raising the prices for upgrades in some cases by over 100 percent, they also raised the number of miles required for cashing in miles as upgrades. The reasoning was that because fares were being lowered, these adjustments were necessary. Fares at the time were not and have not been lowered by 50 percent, which would have balanced the raising of prices by 100 percent. As well, programs raised the number of miles required for many of their international business and first class awards, hoping obviously to keep them available for sale demand even in a market that may face discounting when low-fare carriers begin competing in these markets as well. None of these changes were balanced for the good of their members.

Hotel programs are not immune from this suspicion either. When Marriott and Hilton a few years ago revamped their award charts, members felt cheated. At InsideFlyer, we understood that in many cases, members had enjoyed awards to Hawaii destinations are real bargains for years. Do we want changes yearly for inflation purposes or changes in bigger lumps spread apart? We’ll never know, because we all want something different. What we do want is the feeling that we can believe the loyalty programs we belong to. No matter what.

At the end of the day, there will continue to be a large number of members in all programs that will feel that promises have been broken. We will be among that group on certain changes. But having said that, the following is the best advice we can offer to all our readers: Accept the changes in the long run, this is the final solution. If you are getting some benefit from the program, stay with it and hope that the perks will out-weigh the changes you don’t like. Be reasonable. There are very few businesses that haven’t had to adjust their product form time to time. And be grateful for what you have. As members of Midway Airlines, Legend Airlines, National Airlines, Braniff and even internationally with the Ansett know, there can be times when your program can go bankrupt and the airline, program and the miles disappeared.

Over the years, we’ve written extensively about the value that frequent flyer programs have in building customer loyalty, and on a monthly basis trump the bonuses and promotional offerings that continue to make these programs as popular as ever. During the dot.com craze, we even ventured to propose that several programs were poised to take advantage of the red-hot public market for anything — including frequent flyer programs. When that red-hot market fizzled, so did the loyalty programs’ ability to capitalize on the hidden assets that they have become for their sponsors — airlines, hotels and credit cards alike. And with the airline industry still in search of funding for its future, we believe that these programs can provide one of several keys to survival. We take a look at the interest in and the possible result of your frequent flyer miles as public companies.

First of all, frequent flyer programs are highly profitable and operate at a relatively low cost. To date, they have all provided a more than ample cushion to airlines seeking every bit of positive revenue. And arguably, they haven’t damaged their relationship with their members in the process. Sure, there’s continued grousing about award availability — but that existed when airlines were making money as well, and changes that have occurred over the past four years have been primarily based on the fact that these programs have become victims of their own success. Frankly, we all want our particular frequent flyer program to be what we want it to be without sacrifice or change.

Some months ago, we speculated that Air Canada would be the first, and would spin off its Aeroplan division (which has for some time operated independently from Air Canada itself) into a financial gain. With the Aeroplan Income Trust now being touted on the market at an estimated $10 a share, could you soon be a member who has shares in the miles you have earned?

And what value might we be talking about? We estimate that the Aeroplan program will land at a valuation of nearly $1.2 billion, and that a program such as American’s (which we pick along with Mileage Plus as the logical first candidates for the stock market among U.S.-based programs) could fetch a valuation greater than $2.5 billion.

Frankly, we’re surprised that this topic has not been mentioned by the airlines, as they continue to seek ways to raise capital. Granted, the trend seems to be in cutting costs, and we think the industry might be a little too narrow-minded for such consideration. We called several airline industry analysts and were even more surprised that the topic hasn’t even been considered by the likes of JP Morgan and others. American and United have for some time treated their frequent flyer programs as separate business units, so to spin them off would be no major concession and would undoubtably lead to a better prospects of raising even more capital.

Money Makers
Some of our readers might wonder how can this be — that a frequent flyer program would provide such value to the stock market, let alone the airline sponsoring the program. Beyond being one of the most recognizable assets of an airline in terms of driving passenger choice, as well as operating as a weapon used against low-cost carriers and new entrants into various markets, they serve as cash cows. The incremental revenue brought in from the growing stable of partners has changed these programs from solely being about the “frequent flyer” to being more about the “frequent buyer.” Take for instance the new partner for AAdvantage and SkyMiles: LoanToLearn.com.

Investor interest started to sprout just as the dot.com frenzy was dying out, no doubt because of the implementation of the SEC staff accounting bulletin No. 101 in December 1999. This new accounting standard required airlines to recognize frequent flyer program revenues on an accrual basis rather than as cash. This resulted in an increase in reported passenger revenue while lowering other types of revenue, since on an accrual basis, this partner revenue is recognized over a period of time. For instance, in the prospectus for the Aeroplan Income Trust, it is noted that there is a 30-month average lag time between Aeroplan selling its miles to partners and members redeeming those miles for awards. Since airlines and other loyalty programs are paid for partner participation, the pennies per mile add up in significant amounts. InsideFlyer has estimated in the past that more than $3 billion of miles are sold annually by programs in North America to their partners. The miles bought by partners are really a form of advertising and incentives to their customers.

We asked Fadi Chamoun, airline analyst, UBS Securities Canada about the Income Trust (a tax-efficient offer) for Aeroplan, and he noted “It is somewhat unique to Air Canada and Aeroplan. The main reason is that over the years, Aeroplan has become less reliant on Air Canada for its revenues then you would see in other propriety loyalty programs.” He went on to say that the interest is in high-yielding income and that “Aeroplan does provide a more sustainable and less risky business model than the airline.” At this time, not many would argue that point.

Would it be such a jump? As it is, many airlines already have collective bargaining agreements for employees of their frequent flyer programs. In the case of United, those CBA’s were represented by the International Association of Machinists and Aerospace Workers and any new contract would have to be ratified as all other types of contracts.

Standing Alone, Standing Tall
To get a glimpse of what United’s Mileage Plus program might be worth, we can take a look at the first quarter of 2002, when United made changes to its corporate structure and marketing programs. The changes were designed to increase the overall value of United’s loyalty businesses and to allow the airline to focus on enhancing the range of products and services for Mileage Plus members and its partners. Unfortunately, all has not gone as smoothly as planned, with the hiring and departure of several marketing executives and the challenge of convincing potential partners that the Mileage Plus mile as a marketing currency was stable. Nonetheless, United “sold” all of its stock in Mileage Plus, Inc. and Mileage Plus Holdings, Inc., to the new subsidiary, UAL Loyalty Services (ULS) for a $900 million unsecured promissory note payable over 12 years and bearing an interest rate of seven percent, plus the assumption of approximately $500 million of outstanding liability on miles previously sold. That $1.4 billion transaction was three years ago, before the IPO market started to heat up again, and in a time when everything was still reeling from the effects of 9/11. But the value at that time properly represented the value of net future cash flows.

Worth it? In 2003, ULS accounted for 5 percent of UAL’s 2003 revenues. In 2004, United recognized more than $400 million in revenues related to ULS, which would not reflect the entire business revenue of ULS for that year. In 2000, revenue for third-party mileage sales reached $220 million during the first six months alone.

But American AAdvantage is clearly the king of frequent flyer programs, with annual revenue related to third-party sales of miles exceeding $1 billion annually.

How might it work? A stand-alone public company would retain the gross proceeds and liability from selling miles. As members of a particular frequent flyer program use the miles earned through means other than air travel, then redeem a travel award on the airline or its partners, the stand-alone company would be obligated to compensate the airline for the value of this award travel. Likewise, the airline would be obligated to pay the stand-alone company for miles earned through air travel if they are redeemed for any non-air travel award. The price of a mile sold between the two entities as a result of these arrangements would always be expected to be contractually mandated and fixed. Terms would be updated on market factors and conditions such as alliances. The spin-off benefits from the so-called margin or spread between how much it charges to sell miles to the program partners and how much it costs to purchase a product or service from those partners, whether it be airline travel or merchandise.

The strength of such a public spin-off would be that it would make miles safer for program members, since with the huge cash reserves for liability, it could easily arrange to purchase free air travel from other surviving airlines or new entrants should the airline become a victim of a bad economy. This sense of security would go a long way toward soothing some of the highs and lows of members’ emotions regarding the safety of their miles, if an airline is in bankruptcy.

But even that might be secondary to the amount of cash that could be raised to help airlines today. For instance, Air Canada is selling off just 18 percent of Aeroplan, but that is likely to put more than $200 million in the coffers of Air Canada, which just recently came out of bankruptcy. Since these programs could become stand-alones, it’s conceivable they would turn their attention to acquisitions and actually running loyalty programs for many other industries and businesses — something most would assume that frequent flyer programs are good at anyway.

Partners Pay Off
But the concept is not for every airlines’ program. One needs innovative, entrepreneurial and accounting-minded top management without direct ties to the airline itself to make this work. Much like United, of course, it would still require airline personnel to actually run the airlines’ frequent flyer bonuses, elite levels and benefits. We’re just talking about the revenue engine. Growth in mileage sales used to be in the 18-percent annual average, and has slowed down quite a bit following 9/11, but recently we’ve seen an uptick in the types of partners coming into the programs, as well as the promotional efforts of key partners such as credit cards. It is interesting to note in the Aeroplan prospectus that financial services account for nearly 63 percent of the annual revenue the program produces, with Air Canada at 27 percent, other travel services 8 percent and consumer product partners contributing 2 percent. That’s more than $340 million from financial partners. The U.S. market is even more robust with credit card and other financial partners. This is witnessed by the advance of $500 million to Delta SkyMiles from American Express, and the recent pledge of $350 million to the new America West/US Airways entity from their frequent flyer credit card sponsors.

Among international programs, Lufthansa Miles & More, Cathay Pacific Asia Miles and Qantas Frequent Flyer would make excellent candidates for a public float.

Currently, partner revenue is growing at a rate of around 14 percent, which is respectable as the economy continues to rebound. Some programs have even seen years where partner revenue has grown by nearly 30 percent, but that is usually the smaller programs just adding an array of partners for the first time. These are very respectable numbers, coming eleven years after the introduction of American AAdvantage Incentive Miles and United Mileage Plus Reward Miles; programs which ushered in the idea of adding partners that were not inherent to the airline business itself. Hotels and car rental partners are natural, but car loans and realtors?

The plus to all this is the fact that partner miles now outnumber miles earned by flying, and the percentage has been growing every year. In fact, last year we noted that the total of miles earned by credit card spending was greater than miles earned by flight activity (bonuses not included). The average award being redeemed these days measures 31,113 miles — a blend of business/first class awards as well as the popularity of international awards with airline alliances accounting for much of the growth. Assuming that 54 percent of the miles for this award will come from partner activity and the industry might be averaging 1.33 cents per mile (remember, financial partners buy the most but pay the least), the business model for this might show a gross revenue of $223.45. Good for the airline, the spin-off, the investor and if these programs can make better use of revenue management; better for members. You might say that these spin-off programs could become a modern-day version of a ticket consolidator who can purchase inventory at a discount based on volume. In 2004, several of the larger programs redeemed two million free award seats (this does not include partner airline redemption). Imagine the buying power of two million seats!

We don’t believe that members of frequent flyer programs will be harmed if the industry follows through with public spin-offs. As noted, the best policy would be to spin off a portion of the business to raise much needed cash, and then take more out of it as the stock rises (as would be expected in a rebounding economy with the acquisitions of additional partners and leveraging the expertise these programs have in managing customer loyalty). We accept that if adopted by the industry, some will not perform, but that would likely be due to stewardship rather than the business model itself. Given how airline stocks have been languishing for some time, this could benefit the airline in two ways: provide instant cash infusion to convince employees and others that the airline is indeed doing all it can to maximize its potential to weather the current crisis, and bolster the actual stock price of the airline for equity and borrowing purposes. While the long term might be a full spin-off. Taking Aeroplan’s lead of around a 20 percent float would do well for airlines right now. While one could argue that this is risky given that these programs are a core value to most major airlines, the move to capitalize this asset would not interfere with the airlines’ current mode of operating the program for their own passengers.

And finally, while all this may be interesting speculation on the behalf of this magazine, let’s also look at what an investment in AAdvantage or Mileage Plus might bring to a prospective shareholder. Seems likely that IPO costs would be driven far down, in that the membership base of these programs is the market maker; no boiler rooms touting the stock to unsuspecting investors. Various analysts in Canada have pegged the yield of the Aeroplan Income Trust to be nearly 8.75 percent. Healthy by most regards.

Today’s frequent traveler programs are so engaging and rewarding that there’s only one thing they can’t seem to do-stop bugging us!

Whether it’s a missing credit that never seems to post, that simple upgrade on a seemingly empty plane, or what defines “best available room,” there’s always something that gets in the way of what you really want. Heads up — there’s another annoyance coming your way. And right behind it, an endless barrage of mileage-induced irritations, aggravations, and stress-causing hassles. Stay calm — and prepare yourself to be a little less annoyed. Frankly, most of these irritations are simply that — irritating. They bother some of us, but not most of us. And the career frequent flyer has become numb to the experience.

That’s why we’ve taken the time to devote a few words to the tips and tools you’ll need to eliminate these and many other hassles during the second half of 2005. Read on, and bid annoyances adieu. But we warn you up front — you’re likely to have to be pacified simply knowing there’s nothing you can do for most of the annoyances.

Redeposit Fees
The Annoyance: You made your reward reservation but you now need to change the date of award travel, and the program wants you to pay $50.
The Reality: Pay the $50. While we might argue about the amount of the fee, there’s a good reason why this makes sense. Nearly 27 percent of awards that are booked see some sort of change to the itinerary before the award is used. Since these programs are constantly under pressure to make award seats available, your change of dates might have meant that another member was told that there were no free seats available on the dates you had already booked. These fees are likely simple deterrents to keep award availabilty from being too undersubscribed.

Paying to Earn Miles
The Annoyance: For a number of years, most telecom and car rental partners of loyalty programs have assessed an additional tax onto your bill if you have chosen to earn miles from the loyalty program relationship. Some cite it as a government tax (nice try, but it’s not a government tax on the members’ activity) while others have simply had it in place to pay for their participation as a program partner.
The Reality: Change partners if it’s a matter of principle. Not all programs allow their partners to charge a fee to participate. Also, make sure that the program knows your feelings on this matter. Frankly, it’s less likely to be the amount of the fee; rather, it’s the feeling that “paying to play” has nothing to do with loyalty programs when you are bringing in the business.

No Notice
The Annoyance: That loyalty programs are allowed to make instantaneous changes to their rules (partner changes are another matter) without regard for the grandfathered value of past business. What is even more appalling is that the legal system under the guidance of the National Association of Attorneys General (NAAG) has never enforced this as a “bait and switch” provision. Granted, some programs are more responsible than others and allow a six-month notice of change, except in the case of partnerships, to the program.
The Reality: Sorry, there isn’t a fix. Programs are now 24 years old and despite the constant attention they get from the media, seem to have an ability to escape even the most sensible rules of consumerism. Want to do something? You’ll find a full contact list for the Attorneys General on the naag.org Web site.

Logging In
The Annoyance: Some programs have the idea that information about their loyalty program should be kept under lock and key. They require members to log-in before anything is available to use, such as award charts and other fairly generic information. Most require members to log-in before allowing them to search for the availability of award seats, even though on the general reservations Web site, the very same airline allows the general public to search for air fares and seat availability. Granted, the concept of logging in allows the program to better provide the correct information and availability for that particular member, but those we’ve surveyed did not have policies to allow extra award availability to their elite members, so the concept of pre-registration wasn’t all that important.
The Reality: Allow your browser to accept “cookies,” and search the log-in area for a check box that allows the Web site to remember you. A small sacrifice to pay for seamless use of the program Web site, despite the inconvenience of having the log-in each time you want to access the information.

Partner Rules
The Annoyance: Ever try to use partner coupons only to be told they can’t be used in conjunction with others? Try and use a free rental day with most car rental companies and combine it with a similar coupon from another of your loyalty programs. Somehow the idea that you have to return the car in between using the coupons doesn’t sound like a fun experience.
The Reality: Coupons of this type are usually “bearer-only,” which means it will likely pay for you to network among your fellow frequent flyers for a single coupon that will cover the entire length of your rental period. Frankly, most have days that go to waste and it’s highly likely you’ll have no problem trading favors.

Member Benefits
The Annoyance: This one always irritates us. Ever check-in at a hotel where among the benefits you enjoy as a preferred member is a daily newspaper? Makes you feel good, huh? Well, it does until you realize that at or near the front desk in the morning is a whole stack of newspapers available for any hotel guest. Sure makes you feel special.
The Reality: On the annoyance radar, this is pretty low, until you figure out that it’s one of the top benefits of the program according to the benefits guide. There is no fix.

Simplify the Annoyance
When something annoys you, you might choose to get mad or to get even. There’s actually another way to look at the world of frequent flyer clutter and stop aggravations before they begin. Eliminate unnecessary programs and you’ll rid yourself of many of the sources of your angst. Close out accounts that have no lingering value to you anymore.

Empty Seat Upgrades
The Annoyance: You — the king of elites, the member who logged more seat miles than income last year — board last because your connection was tight, or gaze toward the front of the cabin from your assigned seating in coach, only to see empty seats in first class. Hello? Why doesn’t the airline understand that a simple use of that rare commodity will give them unparalleled loyalty?
The Reality: “It’s the system stupid” (a quote, not you). There’s more reasons for this than for any other annoyance in the world of travel loyalty programs. There’s a few things that come in to play with this. First of all, it’s the reservation system that so many “players” of the game have come to fine tune. Yes, you’ve heard the one about the selfish elite member who ghosts several first class seats so that at boarding time they become available from the “no shows.” There are still those members that think this works, but ever since the programs went to tiered upgrades, it’s really just clogging the system to everyone’s dismay. The reality is that if a flight is delayed or the boarding gate is undermanned, gate employees simply don’t have the time to carefully check out the no-show list and make those last minute upgrade decisions. Combine that with full flights and other needy passengers on board and you’ve got less attention to this from the on-board staff, whose responsibility is mainly for passenger safety and service rather than the empty seats in first class. Yes, the list is long as to why this problem still exists and frankly, it is the system itself.

Missing Credit
The Annoyance: You can recite your frequent flyer program forwards, backwards and in your dreams, and know for a fact that you did not err when presenting your credentials for check-in with the program, their partner or anyone else ever wanting to give you a mile for your time. So, why is it that no matter the extent of your efforts, you of all people have to audit your account and become a paper shuffler for a measly 50 bonus miles?
The Reality: We know of no one that has ever escaped the problem of a missing credit or two among those who travel the most. At the risk of sounding like your mother, we will remind you to be nosy. Does the boarding pass you are flying with correctly identify your frequent flyer number for the correct program? Many of the problems here are related to the growing number of airline alliances. When you fly Alaska Airlines, do you claim Alaska miles, American miles or Delta miles? Sometimes the flight credit will not appear simply because the choice was incorrect at the time of booking if you didn’t update your program preference. This is especially prevalent when partners change. When using other partners, it’s always good never to accept anything unless it clearly shows your proper account in a legible format.

Most troubling is online Web site shopping. It’s fairly common to get popped out of a Web site and end up with a transaction whereby the frequent flyer “cookie” was not captured. For these and most other transactions, a simple “other” tickler file or email confirmation will suffice for use later on.

Paying for the Privilege
The Annoyance: You read earlier about the partners who charge you to earn miles, such as some telecoms and car rental companies. But what about those not mentioned — American Express Membership Rewards and Diners Club Club Rewards?
The Reality: No break for them in addressing the reality; they do indeed charge for the privilege of making miles from points. Annoyed? Yep, even us. However, in their defense, the fee is not that great a hurdle considering the advantages that comes from these two particular programs. Don’t like the fee? Simple: get a direct deposit credit card closely associated with a single frequent flyer or hotel guest program. You’ll most likely still pay an annual fee just as these programs require, but you certainly won’t have the flexibility to make the points you’ve earned into any type of miles or other points among your programs. Advice: be annoyed, but also be forgiving.

Tasks Made Easy
It’s not hard to see that managing your frequent flyer programs requires good habits and time you may not have. This is annoying for those that try to maximize their mileage and point income. Here’s our shortcut for making the rewards life hassle-free. Ever heard the phrase “time is money?” Take back your time and part with a little of your money and consider award redemption made easy by letting others do all the dirty work for you. Hours on the phone with partners and searching out rare dates of award availability can be made easy with awardplanner.com; mileage expiration dates and knowing all your miles and points balances can be made easy with mileagemanager.com. Seriously, how much time would it take you to pore through all your statements to know what amounts you can transfer into awards or even upgrades? One click does it all.

Award Availability
The Annoyance: You’ve earned the miles but can’t use them. Ever heard that story? We have too, but we’ve also heard stories of free vacations in Europe, attending class reunions in long-forgotten towns and sending the relatives away for the holidays. While this annoyance gets the most headlines, it actually doesn’t rank as the most annoying, since a majority of members are able to use their awards — to the tune of nearly 30 million free tickets worldwide last year.
The Reality: If you have the miles and points, there really is no reason to think you can’t go anywhere you please. Combine that with the fact that we rarely pick a program to participate in based on its award redemption history. Frankly, award redemption has gotten easier since the advent of airline (and other) alliances. Most readers of this magazine have at least one or two award redemptions a year on airlines other than the sponsor of their favorite frequent flyer program. In years past, without these alliances, the answer would have sadly been “No.” But of the next hundred members who will claim they can never use their miles, less than one percent of them will change programs.

Will it get easier? Perhaps. We know of some programs that at least have thought to move to no capacity controls, ala Southwest Rapid Rewards. But frankly, we think that it would be a mistake for most of you to wish for that. The reason is simple: Rapid Rewards expires its credits after one year. If major carriers were to adopt the same program, it’s likely that most members would never see Europe or Hong Kong from anything other than coach class, and for many of the others, their first miles would expire before their most recent ones, making the revolving door of award redemption only a dream. Adapt. Learn when the best times to redeem are and understand that there are hundreds of thousands of members of these programs who really never have redemption problems. Try to identify their best practices and become a happy person.

Expiring Miles/Points
The Annoyance: What happened to your miles in the British Airways program that you were planning to use but just haven’t got around to? Or the miles with Delta from when you formerly lived in Atlanta, but forgot about now that the job moved you to Dallas?
The Reality: A heartless clue is that these are still called “frequent” flyer programs, and if you are anything close to that description as a traveler, you’ll never worry. But the world of employment and other changes in lifestyles often means you’ll have miles and points in programs that can slip under your radar. Learn to stay active in these often minor programs by utilizing tools to track expiration and partners.

Last year at this time, the conventional wisdom coloring 2004 frequent flyer predictions was “cautious optimism.” The phrase hinted at a return to the basics of these programs — focusing on the elite flyer — while maintaining a kind of “let’s not jinx anything” ethos of conservatism around both the future of travel and the legacy of the Big Six airlines.

Thanks for joining us in looking forward to yet another year of miles, points and, unfortunately, the unknown. In years past we could fly from year to year with a high degree of expectations regarding our elite and other benefits, as well as a fairly comfortable assurance that our choice of frequent flyer program was something we did not need to leave to a New Years’ resolution to change. But time and money (the low-cost type) have changed that easy feeling for the time being.

What’s all the “Back to the Future” stuff? Beyond being a term used by many to indicate a return to “the basics,” there’s probably some validity in taking a few moments of your time to allow us to peek ahead. When we started thinking of this month’s story, we envisioned chatting with dozens of those actually running programs today. But over time we came to realize that many are paranoid that they might trip up on their next five-year marketing plan or were speaking with such a tight PR noose that we figured we’d be better off going it alone. The crystal ball offers up tips for your new year, as well as an understanding that nearly 24 years after the advent of miles for loyalty, not much can be radically new but a whole lot can be tweaked like crazy. Frankly, that’s the purpose of publishing InsideFlyer month after month, not just once a year: The better you know the nuances of a program, the more value you can reap from memberships.

In predicting what’s ahead in 2005, the editors of InsideFlyer want to borrow a phrase often heard in amateur sports circles: “learning to lose.” In today’s world of frequent flyer programs, that refers to the major airlines’ worry of low-cost carriers stealing passengers and thus, members of their more established frequent flyer programs. We might suggest that in 2005, the industry will fast forward itself and “learn to win.” It’s true that some programs have lost members to some of the low-cost carriers, but most of those members are still fair game to return to the majors’ mileage fold. A case in point is the way that the hotel programs have been able to leverage their multiple brands to keep members of their programs from all sleeping at Motel 6. One secret is simplicity.

InsideFlyer Top 10 Predictions
2005
(Plus a Bonus Prediction)

1. Simplify, Simplify, Simplify

The title of this trend may well be the mantra of Delta SkyMiles. After 23 years of adding layer upon layer of complexity to these programs, it was inevitable that an intervention of some sort would be necessary. Many months ago, the CEO of Delta Air Lines told the financial community that one of his goals was to offer a simple frequent flyer program. He and the entire team at SkyMiles have just delivered what is arguably one of the most significant steps toward starting that trend. The trend is simple — simple programs, simple rules and simple (common) sense. We think that there will be other players in the later months of 2005 that will reintroduce their programs with fewer rules and fees, thus simplicity. But we also think that some of the newer programs offered by low-cost carriers will actually become more complicated as they start to add layer upon layer. Ah, the perils of growth. While we don’t think that 2005 will herald the dawn of simplified award redemption rules and availability, the year will set 2006 up for a banner year on that topic.

2. Members in Control

While the SaveSkyMiles movement is the best-known example of the member in control, it set in motion the idea of icon toppling among members of these programs. No more would members fly to earn miles with a quiet sense of trust. While changes the last few years have been more accelerated than in prior years, none were groundbreakingly unique in the industry. But try to make that point to members whose benefits have, in their mind, become “devalued.” In 2005, we believe there will be another uprising of radicalism. Which program change will members band together to protest? Even we don’t know. But we have a sense that the edge to which members (and legislators) are willing to be put up against is nearing the breaking point once more.

3. Experiment and Innovate

Most programs have accepted the inevitable obsolescence of the old model of operating. The question now is whether they’re building new models. We see a return to marketing and some risks being taken, replacing some of the mass marketing of program benefits with short-term “exclusive” offers. Larger programs will find the “add water and stir” nature of programs irresistible, but the adoration of JetBlue and even its frequent flyer program wasn’t about adding water. Granted, some programs will embrace (or in some cases, begrudgingly capitulate to) something new, something blue. Programs will seek every conceivable hook to nurture loyalty, and members love a hero. Mark our words, the same will happen in 2005.

4. The Role of Community Takes Center Stage

While it might be that FlyerTalk taught the industry that there is something to be said for “community,” we expect in 2005 that dozens of programs will establish ways in which their members become more “sticky” to the program. There’s the idea of bulletin boards for members of a particular program, of ‘blogs’ and specialized “MyMiles” types of communication. Primarily this is now being lead by hotel programs, and in particular InterContinental Hotel Group’s Priority Club with its new blog, but we do believe that there will be “local” competition to FlyerTalk. “Local” being programs themselves. Why? Community influences decisions by members and serves as “listening posts” for customer service as well as sounding boards for the future — all in real time. Among those candidates who would be well positioned to pull this off? United Mileage Plus and Starwood Preferred Guest. Both programs have a higher-than-average emotional attachment among their members.

5. Taking Web Sites Seriously, Programs Begin to “Super-Size”

Here’s a quiz. What is the one and only reason you visit the Web site of your particular frequent traveler program? You’ve only got a moment to answer this… time’s up. If you could not think of an answer that was more than “checking my balance” or “redeeming my awards,” your program is in trouble. Web sites these days are the one and only conduit for communication with members. And frankly, after years of failure to understand what the replacement is for the printed newsletter, we believe that in 2005 several programs will introduce super-sized program Web sites. What is “super-sized” to the frequent flyer? Well, it might be in the form of bonus content, interactive games and tools to help the member maximize partner use and elite status. This is not to be confused with “community,” which is a member-to-member initiative. The super-sizing of program Web sites is purely program-to-member. Remember the old dot-com adage, “Content is King?” We do.

6. A Return to Value

If President George W. Bush can win reelection based upon “values,” then so can frequent traveler programs. The hand-wringing about the declining “value” of these programs will start to subside, and there will be a return to a focus on getting it right. The negative impact of airfares on program benefits and awards will become past tense, and once again members will see that despite the sense of “devaluation,” there are still hundreds of reasons to play the mileage game.

7. Programs Battle to Control Offers, Which Tip Toward More Individuality

There’s bad news here. In looking at the backgrounds of executives with most major frequent flyer programs (not hotel), you notice one clear denominator: Most came from the revenue/yield management side of the airline business. Who would have ever thought that the ticket to “brand” was not in the Steve Jobs- style of building relationships, but in tweaking pennies contributed to the front office? Well, this is where trendy and trends part ways.

It was trendy to move all major marketing to one-to-one. Being trendy denotes passing fancy. But a trend it something that lives a long shelf life and in 2005 you can expect more promotions for which you will not be qualified. The difference in this trend from previous years is that these programs now have the technology to prevent members who were not targeted for a particular promotion from registering for them. Bummer. Even those in the know will now be shut out.

8. Spam Spares Miles No Longer

We’ve written about this before in InsideFlyer and always thought that it fell on deaf ears in the industry. Considering that the line of communication (email) to members is at an all-time low read factor because of the deliverability of the medium and the spam factor, we think 2005 will be a breakout year for programs to act upon recommendations from experts in the field. By the end of the year, you may be getting your email newsletters in your inbox 80 percent of the time, up from about 30 percent before. Spam filters have been the problem as well as the dynamic way in which email was pushed to members with changing IP addresses and “from’s.”

9. The Battle for Members Moves from the Program to the Partners

We would think that if we lined up the marketing manager of every single program in the world and asked them where the growth of members is, they would all answer in unison: the infrequent flyer. But what does an airline know about enticing these “everyday” people to acquire a mileage earning credit card or put on the feedbag at a mileage-earning restaurant? Uh, not much, other than realizing that building a coalition of other partners will help. Why? These “everyday” people are more likely the target of the low-cost carrier, and if allowed to build a “relationship” with that type of carrier, it could be a tough gamble later on to move them into a full-service frequent flyer program. The last example of this ended badly: AOL AAdvantage. The market is wiser and more humble, and the timing is perhaps better than ever. Could a “partner of the year” award be in the offering?

10. Five Programs to Watch in 2005

You can bet on some innovations from this group. Here at InsideFlyer, we love to speculate on who the rising stars in programs will be. But the real question is which program will introduce the next big thing. Despite popular wisdom that breakthroughs are achieved only by the smaller loyalty programs, we think that in 2005 these advances will come from some of the larger players. That said, here are our five programs to watch in 2005: Delta SkyMiles, Hyatt Gold Passport, America West FlightFund, Southwest Rapid Rewards and Citibank.
* Delta SkyMiles. Their new decision to simplify the SkyMiles program will inspire to others to follow. Just how far they will push the button to reinvent things is still up in the air.
* Hyatt Gold Passport. Even as a smaller program, they have recently introduced promotions that have caused quite a stir. As they grow bigger they will likely have to adopt more traditional approaches to their program and partnerships. Let’s see if they stay traditional or take the road less traveled. While Marriott and Starwood have their hands full with the growth of InterContinental Hotels Group Priority Club, they just might have to swivel their heads to keep tabs on this one.
* America West FlightFund. Even the little guys need friends. After feeling hurt by a failed relationship with Continental and deciding not to pursue the assets of ATA, this mid-level airline now finds itself lonely, and may have to grow its frequent flyer program relations to ensure they don’t become just another low-cost carrier. Among the major airlines, they are alone with no alliances or codeshare relations. More partners equals more value to existing members.
* Southwest Rapid Rewards. The day that they admitted they might start to look at reserve seating was the day we knew that with the possible acquisition of ATA assets and the continued growth of smaller carriers such as AirTran and JetBlue, that this program is facing success but at what cost? Segments are simple, but miles are king, and so are partners. Might Hawaii and international destinations be in their future?
* Citibank. We think this credit card company may make news in 2005 with the aggressive move of issuing American Express credit cards. Sure, American Express recently issued cards through MBNA, but Citibank still has the alliance with American Airlines AAdvantage, and maybe 2005 will get the two “A’s” back together.

Bonus Prediction

11. Program Consolidation Continues as Competition Heats Up

The industry finally has arrived at another inflection point. At least one additional consolidation will occur among programs in the United States in 2005. In days gone by, Pan Am gave up its program to be run by American Airlines. Hint, hint.

If we’re wrong, forgive us. If we’re right, please don’t shoot the messenger. The good news: Things will improve relative to 2004.

After the events of Sept. 11, 2001, when the dust finally began to settle, literally and figuratively, news of the perilous condition of the airline industry permeated the radio and airwaves. The airlines had been grounded and had lost millions of dollars as a result, business and leisure travel had decreased dramatically and there were no clear indications of recovery on the horizon. The headlines declared none of the ‘Big 6′ would last another year and it looked to all the world like the skies would be inherited by the low-cost carriers — the survivors.

Amid all of this, stunned frequent flyers shook their heads clear and began anxiously worrying about the safety of their miles.

And they haven’t stopped worrying since.

The industry has recovered to an extent, as have the hopes of many frequent flyers. In contrast to the airlines’ positions during the 1990s, following the ominous clouds of the first Middle East war, and to a large degree as a result of that period, frequent flyer programs today have built stronger tools to weather these economic storms — these tools are called alliances and multiple airline partnerships. Still, there are almost daily reminders that few of these frequent flyer programs are likely to emerge unscathed from the airlines’ woes.

Threats of bankruptcy filings are becoming almost common place (not to mention the actual filings themselves), numerous travel-related companies have either been bought out or have closed altogether, and many of the so-called “experts” that cover the industry are going hoarse from three years of yelling “Burn (Miles), Burn (Miles), Burn (Miles)!”

A Little Volatility is a Good Thing
No doubt, the frequent flyer programs have had a bad scare, but most seem able to ride the bumps. So far, the ups and downs have had little bottom-line impact. We’ve analyzed the airlines’ financials relating to award redemption for the past three years and, despite the call from many blowhards to burn miles, the numbers seem to indicate most members are taking this airline crisis in stride. For example, When US Airways filed for Chapter 11 bankruptcy in 2002, Dividend Miles award redemption shot up 18.3 percent. However, redemption was up 29 percent that year at Southwest, nearly 15 percent at Continental, 42 percent at Alaska and 17 percent at Delta. None of these other programs were in jeopardy of going out of business at the time, so it appears there was not a run on the bank to redeem Dividend Miles. And, since United filed for Chapter 11 bankruptcy, its award redemption statistics have held virtually steady. United experienced absolutely no increase in redemption in 2003 or 2002, and in 2001 the Mileage Plus program only witnessed a 1.5 percent increase in annual award redemption.

It’s true that the past few years have been some of the most volatile the industry has ever seen, and this volatility has caused even the most savvy of frequent flyers to reach for the Pepto-Bismol. But volatility can also be a good thing — at least as it relates to your miles.

The truth of the matter is, when times are dire for the airlines, they will do almost anything to protect their frequent flyer programs.

As we have long reported, these programs are possibly one of the top two most valuable assets an airline can own. While many programs have upped mileage requirements for upgrades and selected premium-class awards over the past few years, it’s also important to note that these types of changes were also introduced when times were good for the airlines. The majority of these changes are simply a natural evolution in the growth of these programs, rather than a knee-jerk reaction to the volatility of the industry.

And in at least one very demonstrable way, the current volatility has resulted in direct value to members.

Say you only have 18,432 miles with the United Mileage Plus program. Well, in years past those miles would have been essentially worthless, as they weren’t enough to redeem for the most basic flight award. Because of the volatility of industry and strategic changes within the Mileage Plus program, those miles now have value thanks to Mileage Plus’ new 15,000-mile award for flights less than 750 miles in distance.

Devalued? Seems in this case at least value has been added.

Ah Yes, But What About US Airways Dividend Miles?
US Airways Dividend Miles is an example of a program that is clearly having a very difficult time tacking in a new direction, and to date is the most scarred program coming out of 9/11. The airline’s management is in the process of trying to morph US Airways into a low-cost carrier, and all the while the blowhards continue to cry — as they have for years now — that US Airways is history.

If US Airways is successful in its efforts to create a new airline, Dividend Miles members might end up with more than they could have ever hoped — all the benefits of a full-service frequent flyer program and a low-fare carrier.

“I feel it’s worth the risk to stick with US Airways Dividend Miles,” says Randy Petersen, editor of InsideFlyer. “If US Airways is able to recreate itself as a low-cost carrier, I’ll have equity in full-service frequent flyer benefits with the partnership of United and Star Alliance as well as fares that will allow me no other choice of carrier.”

That is a combination that is basically unheard of in the entire world. Go to almost any other country and you’ll find that members have long been penalized for flying on fares that resemble “peanuts.” In fact, the only airline that comes close to providing such a valuable combination is located in Dallas and goes by the name Southwest. The Southwest Rapid Rewards program, however, faces severe route limitations (just try redeeming an award to London or Honolulu) that a new and improved US Airways would not.

If, on the other hand, US Airways is unsuccessful, members could very well end up with nothing at all.

The Costs of Failure
For the record, there has only been a single case in history where members of an airline that went out of business (liquidated) had their miles honored by another program. Interestingly enough, it involved US Airways.

When Midway Airlines (#2) failed in July 2002, US Airways Dividend Miles stepped up and implemented a program that allowed Midway Airlines’ Frequent Traveler members to convert their un-expired and unused credits into Dividend Miles. In this instance, US Airways was actually entering into an agreement with Midway to operate as a part of US Airways Express, so the deal wasn’t without strings, but it also was not an actual takeover, as was the case of TWA and Pan Am.

Some point to Eastern as an example of an airline honoring another’s frequent flyer program. Actually that was not the case at all. At that time, Eastern and Continental actually shared a single frequent flyer program — OnePass. When Eastern failed, it wasn’t so much that Continental honored the miles of the Eastern OnePass members, as it was they could not distinguish between the two accounts.

Those frequent flyers who were with Braniff (any version of this airline), Midway (#1), MGM Grand, Legend Airlines, Vanguard Airlines and, most recently, National Airlines when they liquidated also lost all of their miles.

Unfortunately for members, the airlines have figured out there are better ways to benefit from the misfortune of others that don’t involve taking on vast sums of liability.

When Midway Airlines (#1) failed in 1991, no other airline honored those frequent flyer credits. In bankruptcy court, another frequent flyer program bid on and acquired the membership data of the Midway frequent flyer program, using it to mine names, addresses and account activity to find potential new elite members. Sadly, this is the best way to solicit new frequent flyers without incurring the expense of honoring billions of miles.

So, what would happen to unredeemed miles sitting in your Dividend Miles account should US Airways liquidate?

Some “travel experts” have claimed other airlines will step in to honor the miles if Dividend Miles should fail, even if you don’t have an award already booked with them. Take that advise with a grain — make that two grains — of salt.

We have no doubt that if any airline failed here in the U.S. and was not acquired, the members of that program would lose all of their unredeemed miles.

“I cannot see any scenario whereby any airline would step forward to honor miles still in account should US Airways fail,” says Petersen. “Whether it be Delta, United, Hawaiian or Air Canada — there is no return to any airline in honoring these many miles of liability. There is no airline that has the financial wherewithal to let people simply fly for free.”

Caveat emptor — or should that be, let the redeemer beware?

A factoid: never has a major airline failed during a peak travel period, and that includes the holidays.

How to Protect Your Miles, Especially Your Dividend Miles
First of all, we need to clarify that we are not predicting a liquidation for US Airways over the next few months. There is still time to enjoy your Dividend Miles without senselessly trying to cash all of them in.

Besides, who is able to tell their boss they need a few months off so they can prevent ending up with nothing?

But, if you aren’t sleeping well at night, here are a few tips to better secure future value for your miles:

Open a new line of credit — If you earn many or most of your miles by spending money on the Dividend Miles Signature credit card, you might consider joining the American Express Membership Rewards program, picking up the Starwood Preferred Guest American Express credit card or even the United Mileage Plus BankOne Visa card. Both American Express cards offer you the ability to move “miles” into US Airways Dividend Miles (as well as several other frequent flyer programs) at your own choosing, but also provide the flexibility to keep the miles in another currency (credit card points or hotel points). Unlike the current US Airways credit card, you only need to move miles into Dividend Miles when and if you are redeeming for an award. The United Visa card allows you to earn miles with United (considered safe) while retaining the option to redeem awards back into US Airways. If things get better, go back to the Dividend Miles Signature card — it’s very competitive, especially with additional benefits these other cards can’t match.

“Buy” cheap insurance — Consider redeeming your miles for a “possible” future trip on a US Airways partner. Look at Bahamasair in the Caribbean, United Airlines to many domestic and international destinations, Air Canada for Star Alliance destinations in North America and other Star Alliance carriers, such as SAS, Lufthansa, etc, for international destinations. While this method is not fail proof, it does allow you a bit of breathing room because, if US Airways were to liquidate, your award tickets on these other carriers would likely be honored. If after the start of the New Year you’re feeling good about US Airways, you can re-deposit your award into your Dividend Miles account. Sure, it creates an accounting nightmare for US Airways and its partners, but US Airways got itself into this position and certainly understands that members have a right to take advantage of this type of partnership offer. There are fees associated with this strategy, but that’s life.

Call an audible — Another strategy, which is best suited for not-quite-so-frequent flyers, is to continue to fly US Airways but offer up a United Mileage Plus account number (and yes, we’re confident that United will make it.) We say not-quite-so-frequent flyer because, while this will give you miles in a “safer” program, it fails to build miles toward elite status. So, if you think you will fly less than 25,000 miles with US Airways in 2004, this might be something to consider. If you’re planning on flying more than 25,000 miles, then you need to ask yourself: Do I think they will make it or not? If the answer is “no,” you need to switch airlines. The good news is, should you fall short of elite qualification this year and US Airways does make it, the Dividend Miles program would almost certainly be smart enough to grant a request to continue at an appropriate elite level. You might also consider the elite “spoof” — continue to fly US Airways, earn your miles in the United Mileage Plus program, and hold a Dividend Miles Signature credit card in your wallet, as the benefits of that card almost equal that of elite status (without the bonuses). With the Dividend Miles Signature card you’ll receive unlimited standby upgrades, preferred check-in and boarding, discounted awards, as well as a clubroom pass. In fact, you wouldn’t even have to spend much on this card to secure the benefits.

Understand, we offer this advice as a means to continue flying and supporting US Airways, which is very important to them right now, while still retaining a degree of safety for yourself.

Minding Your Mental Well-Being
In good times and bad, members switch programs. Sometimes it’s because of a job change, sometimes it’s due to a program change, and sometimes it just comes down to a change of heart.

Frankly, an airline’s troubling financial condition is as good a reason as any to redirect your frequent flyer loyalty. Most members have switched loyalty for far less stressful reasons than the future of their miles. If the roller coaster plight of your current airline of choice leaves you feeling nauseous, then it just might be time to make that decision.

Often, members leave a program to fly elsewhere and eventually come back. This could be that time for you — cut your losses (losses in this sense is the time lost worrying) and move on to another program. Heck, it won’t be the end of the world, and if it means a peaceful night’s rest for you, then you will know you have done the right thing.

Bottom Line: Is it Still OK to Book Flights on US Airways?
Many a question has been raised about whether or not it is wise to book a revenue ticket on US Airways in its current state. We see no problem with doing so.

After 9/11, the government put into place several polices specifically to address this type of situation. If US Airways were to liquidate, you’d see other airlines step up to honor any paid US Airways tickets.

Now, as for awards already booked on US Airways — that’s a different story.

We’ve tried for months to get the Office of Transportation to provide a clear indication whether or not award tickets are included in the policy of forcing other airlines to honor tickets from a failed airline. To date, Washington has done a good job of ignoring our requests, so we are unable to offer any factual information on this.

Still, we strongly suspect US Airways will honor any award currently redeemed for free travel through the end of the year.

Perceptions and Realities. They’re as individual as members of frequent flyer programs.

No one can deny that, in recent years, millions of free awards have been issued to frequent flyer program members. That’s reality, or at least a small sliver of it. Despite this fact, the industry has been increasingly hampered by the perception that “airlines are cutting back their programs,” “no one can get a free award” and “there are no free seats available.”

Sound familiar?

This negative perception regarding award availability, or the lack thereof, is not a new problem for the airlines. In truth, because the industry has consistently failed to address the issue, it has allowed itself to fall victim to these rumors. Perhaps the airlines’ best chance to put the topic to rest came in 1999, when customer uproar led to the development of the Customers First initiative.

Remember that? Rather than step up to the plate and release statistics showing exactly how many awards were offered on each flight, every single airline, along with the Air Transport Association (ATA), lobbied for and were granted the option to simply publish information about the number of awards redeemed — not the number requested — and that was that.

Well, here we are four years later, and many of the airlines aren’t even keeping to this reduced standard. American, Continental and United do publish the results of their award redemptions on an annual basis. But nowhere on the Web sites of America West, Delta, Northwest or US Airways were we able to find a “published annual report” on award redemptions even though, according to the ATA, these airlines promise to publish a Customer Service Plan that contains award redemption information.

Ok, enough of that. Let’s get back to reality.

Some award redemption numbers are available if you know where to look, and those numbers tend to show that some programs are more generous than others. For example, Delta SkyMiles has the highest percentage of award redemption travel, at just over nine percent. That’s nearly one in every 10 Delta travelers flying for free.

In the last 10 years, among all programs, award redemption has nearly doubled annually, from 8.4 million awards in 1993 to 15.8 million awards in 2003. And this doesn’t take into account the growing number of upgrade and partner awards being redeemed each year — not an insignificant number considering the rapid growth of global and domestic program alliances. In 2003, 16.7 percent of the total awards issued by the American AAdvantage program were issued on other airlines. When factoring in upgrade, partner and other special awards, the 15.8 million awards issued by airlines in 2003 represent only about 62 percent of the total awards redeemed.

In the ‘fact’ department, that’s fairly respectable.

With all this in mind, the question becomes; how do we, as frequent flyers, reconcile these differences in perception and reality? Assuming the truth falls somewhere in the middle, how do we determine where that ’somewhere’ is exactly?

We decided to put the perception to a test by actually calling the airlines and trying to book awards. What we found may surprise you. But to be honest, we weren’t looking to surprise; we were looking for real-world redemption tips you can actually use to get the award seats you want.

While members can easily compare differences in the programs by researching award charts, elite-level benefits and even program partners, the one thing they have absolutely no information on is award redemption research such as this. And after all, isn’t the end game to most members their ability to redeem an award.

A few years back, InsideFlyer commissioned a travel research company to pour over the data from airlines and put together a list of the top award destinations in the industry, as well as the top city pairs (you can find this information in the “Press” section on InsideFlyer.com). To conduct this test, we randomly picked several city pairs from that list, knowing in advance that, because they were among the most popular, they would also be the most difficult awards to get. Then we started making calls.

Well, to be perfectly honest, we didn’t actually make the calls — for this task, we employed the services of AwardPlanner.

Since 1987, AwardPlanner (which is also owned by the same parent company as this magazine) has made it their business to secure award seats for their members around the world. A frequent flyer award travel agency if you will. They were recently honored by Conde Nast Traveler magazine as one of the world’s “Top Travel Specialists” and given that they have redeemed tens of thousands of awards over the years, we trust their overall expertise.

We asked AwardPlanner to try to book two coach awards between each of the selected city pairs. To find out if the inventory differed based on the method of booking, we also asked them to attempt to book the awards online, as well as over the phone. On international itineraries, we attempted to book not only in coach, but also in business class.

All of these award redemption bookings were made the first week of July for awards one week out, one month out, three months out, six months out and finally 11 months out. This range of dates put us into holidays (Christmas) as well as early planning for next summer.

In reality, we didn’t know what we would find. The prospects seemed grim, given the fact we were calling in the middle of summer and the travel forecast predicted a return to elbow-to-elbow flights. What’s more, we were only requesting ’saver’ type awards, those that required the least amount of miles.

In short, we were faced with more obstacles than a 200-meter hurdler.

The results proved interesting indeed. We found that, despite picking solely ‘most popular’ award redemption city pairs, we could get ’saver’ award seats 73 percent of the time!

Delta SkyMiles faired the best with an 85.4 percent award redemption availability record, while Continental OnePass finished dead last, as we could only book the awards we requested 54 percent of the time.

With regard to the very popular, and very scarce, business-class awards, we logged a dismal success rate. Only 54 percent of the time were we able to get the business-class awards we wanted. But it wasn’t a total loss, as we uncovered two programs that fared very well in this category — American AAdvantage and Delta SkyMiles. The AwardPlanner representatives were able to redeem miles for business-class awards on AAdvantage 92 percent of the time. We find that almost unbelievable and applaud the program loudly for the record. Delta SkyMiles wasn’t far behind at 80 percent.

Unfortunately, there had to be a last place as well, and when it came to redeeming business-class awards this unenviable distinction fell to Northwest WorldPerks, which only made available the awards we requested 15 percent of the time. Northwest’s partner, Continental, logged a somewhat better, but still dismal record, with 32 percent successful bookings. And we were surprised to find the United Mileage Plus program was only able to fulfill 40 percent of our award requests.

AwardPlanner also found slight differences when comparing call center vs. online redemption. For WorldPerks, there was no difference at all, and among the others there was only a very slight advantage to using the call center over the online redemption option, with the exception of two programs. Our representatives were able to book 18.5 percent more awards when using the OnePass call center, and a full 20 percent more awards when calling US Airways Dividend Miles, in comparison to booking online.

Among the other findings we unearthed with the help of AwardPlanner — Continental OnePass has a ’sweet spot.’ Almost 100 percent of the awards we requested were at the three-month period. For example, LAX-HKG, LAX-HNL and ORD-LAX all were available at the three-month redemption request, while all other dates forward and backward were not available. Not a single one.

Also, Northwest offers the most options when it comes to booking online. At www.nwa.com, you can find partner availability, you have the ability to combine saver and standard awards, and WorldPerks is a rare program in that it allows international award booking online.

Finally, when booking with the Delta SkyMiles call center for domestic travel, they will not volunteer their partner award availability; you need to ask them to check. However when booking for international travel with SkyMiles, they volunteer all their partners.

To see even more of what we found, have a look at the following charts:

http://www.insideflyer.com/images/gallery/july04_cs1.gif
http://www.insideflyer.com/images/gallery/july04_cs2.gif

As for perception and reality, the differences (and similarities) remain elusive. As far as any frequent flyer program member is concerned though, perception is reality, and the only reality that matters is being able to book the awards you want, when you want them. To that end, we hope this information proves useful in bettering your reality.

At the end of the day, we remain committed to urging the industry to adopt minimal levels of expectations for award redemptions — and to publish those levels, for each seat, on each flight.

If the airlines give each member a sense that their perception is indeed a possible reality, we have no doubt the members won’t be the only ones who benefit.

Who gets the miles?

No one goes into a marriage intending to divorce, and certainly no one likes to think about dying, but we are, after all, heir a thousand natural heartaches, and a little planning and awareness can certainly ease that pain.

Death
Nearly all of the major North American programs offer some means of transferring or using the miles of the departed. But as you might expect, those means vary significantly. Fees, documentation, even requirements as to whether or not the miles were specifically referenced in a will — vary by airline.

Despite the variations in methods, though, there are almost always ways to get the transfer done, and in most cases, survivors have been pleased by the airlines’ efforts.

Take the case of Arlene Harris of New York City, who was widowed in February of last year.

She and her husband both had accounts with a number of airlines — America West, American, British Airways and Delta. Her husband had a considerable sum of miles built up — somewhere in the neighborhood of 200,000.

When the time came, she got to work, calling each of the airlines and requesting the transfer.

“American charged $50, but there was no problem — they were just great,” she said. “And Delta was fine, Delta was just great — they really were.”

Few programs in the U.S. allow mileage pooling — that is, the ability for two members to effectively share their accounts. British Airways does, which makes things much easier for survivors. “With British we had a family account, and I just notified them that he had passed away, and just converted the account to my name,” said Arlene.

Interestingly, the only snag she found was with America West. In that case, though the bulk of her husband’s miles were transferred without question, a small percentage — 2,500 miles, to be exact — were never transferred. The airline said those miles came from her husband’s successful application for an affinity credit card, and refused to hand them over.

What was frustrating, Arlene says, was that those miles had been earned years previously, and her husband had more than made up for them in award spending.

The airline wouldn’t budge, however.

“I’m a terrible spendthrift, but I hate feeling ripped off,” she said. “I know it’s just 2,500 miles, but I thought it was tacky.”

Other consumers, while generally pleased with the results of their transfer efforts, have started to run into another obstacle: processing fees.

Not all airlines require a fee, and many will waive it under the right circumstances, but the $50-plus fees charged by some programs are simply too high for some members.

Carolyn Voegtlin of Chicago is facing the fee quandary now. She’s in the process of transferring her deceased father’s United Mileage Plus miles into her mother’s account. With Mileage Plus, that transfer requires $75.

“I am paying the fee but protesting,” she says. “They should take into consideration that she is an 82-year-old widow on a fixed income and that $75 is too high in her circumstances.”

In Carolyn’s case, her father’s account has about 25,000 miles — not a mileage fortune, to be sure, but enough for a free domestic ticket. With larger accounts — accounts that hold hundreds of thousands, if not millions of miles — a double-digit fee might seem more reasonable.

Fees aside, there are a few steps individuals can take to smooth out the transfer process.

First and foremost, accurate and accessible record keeping is a must. Arlene Harris understands the importance of detail, particularly after her own experience. “I’m very cautious. I want my kids to have those miles, so I keep very clear records.”

When planning their estates, members should indeed list their miles in a will, and specify how they would like them to be dispersed.

Also, it is probably best to name just one beneficiary. When programs allow the transfer of miles or points, they may well be bending their own rules. It’s easier, and the chances for success are much higher, if there is only one party to whom the transfer can be made.

In some cases, in fact, the difference between a single beneficiary and multiple beneficiaries can mean the difference between keeping miles active and being forced to cash them out.

According to United, for example, “If there are multiple beneficiaries, the mileage will be transferred into the account of the executor or personal representative of the estate, and they will assume responsibility for ordering award certificates for the beneficiaries.”

Not surprisingly, because of all the complications and fees involved in the transfer of miles upon death, many simply assume the role of the deceased for the purpose of cashing in awards. Often a survivor will have access to the deceased’s frequent flyer number and pin and will just use the remaining miles to issue tickets in whatever name they see fit. This is a popular method used to bequeath awards to charitable organizations.

This is, of course, against the rules. All airlines make a specific point in their terms and conditions that accounts belong solely to an individual, and that any attempt to “infiltrate” that member’s account by another party is taboo.

The obvious response is “How are they going to catch me?”

They may not. We are not aware of any cases in which an “identity-assumer” has been nabbed.

But the fact remains that this approach runs contrary to the spirit of the programs, and since there are “lawful” means of transferring these miles, the risks involved may not be worth it.

It would be unfortunate to compound the loss of a loved one with the loss of his or her miles.

Divorce
As with death, divorce laws vary considerably by state. There is no single rule of thumb regarding the disposition of miles.

As a general rule, any interest that may be considered “property” is subject to division, and therein lies the rub: Are frequent flyer miles property?

As of yet, no court has been willing to make that declaration outright. Two cases on record, one in Colorado and one in Florida, have treated miles as a marital asset without specifically declaring them property. In two other cases, one in New Mexico and one in Tennessee, the courts have divided miles between parties, a division that was not questioned on appeal.

Yet in Washington, in 1999, an appellate court specifically declared miles to be separate property, thus avoiding the division question entirely.

One of the keys to determining whether something constitutes property is the concept of transferability. Rarely will a property interest be found if the owner cannot transfer an asset to another.

In some cases, the courts have left it at that: Since, under the rules of most programs, transfers are not allowed, no property interest exists. A few clever attorneys, however, have suggested that miles are indeed transferable, regardless of what the rules say. There is, after all, an active black market in mile brokerage, with a number of Web sites devoted to that purpose.

“A lively market for the sale, exchange and barter of (miles) has existed for a number of years,” explains attorney Barry Roberts. “(Members) consider their mileage credits to be an asset that can be sold, bartered or exchanged in a free market just like any other asset.”

The drawback to this argument is that a black market does not necessarily constitute an “open” market. A court would probably be reluctant to attach a value to a commodity — in this case, miles — when the only means of determining that value is illegitimate.

Nevertheless, a divorcing spouse can try to make the case. If a valid third-party estimate of the value of miles can be attained, it’s likely the court would consider a division.

The problem is that establishing a value is tricky at best. Three cases, one in Florida and two in Virginia, simply rejected a monetary award in lieu of miles because no evidence of value had been presented. Legal experts suggest that that evidence is unlikely to arise anytime soon. Brett R. Turner, the author of numerous articles on the subject, says, “It is probably not possible to value frequent flyer miles with sufficient accuracy to permit an offsetting award.”

Some courts have indeed placed a value on miles, using the familiar “two-cent” rule (the cost of a domestic ticket — $500, divided by the number of miles required to earn that ticket — 25,000).

Of course, that assumes that the “two-cent” valuation is valid. As most frequent flyers know, however, it’s not always the best way to estimate value. Two individuals, given the same number of miles in the same program, can come up with a variety of award options, some of which are clearly more valuable than others. Value is entirely subjective.

In the absence of any clear, fair way to value frequent flyer miles, some have suggested the only equitable means of division is to simply split the miles. But, the program itself may not be willing to play along. In the absence of a court order, not every program will simply set up a new account. Take these unambiguous words from the Hilton HHonors terms and conditions: “Accrued points do not constitute the property of the member, and are not transferable in the event of death, divorce or operation of law.”

In that case, the division needs to be done “indirectly” — that is, strictly between the parties. Under a written agreement, the mileage owner will, over time, dole out awards in the other party’s name.

In the case of a hostile divorce, such a division is unlikely. In a more amicable situation, however, and with the help of good record keeping, such splits have been and continue to be made.

Solutions are really only as limited as the willingness of the parties.

Consider the case of Bob Schutzenbach of East Northpoint, N.Y.

Prior to his divorce, Bob had participated in the now-famous Latin Pass million-mile mileage run. Not surprisingly, then, his abundant bank of miles and points came up during his divorce. Faced with valuation difficulties, both sides came up with a novel plan.

“What we finally settled on, and this is actually in the written agreement, is that I had to give her enough points for a week in the Caribbean with Hilton,” said Bob.

“Hilton required a copy of the divorce agreement, then split the points into two accounts, and transferred the miles over. They were very efficient; they just assigned a new account number. It was really a piece of cake.”

The amicability of Bob’s divorce may not have been the norm, but the creative use of his points has helped maintain a civil post-marital relationship. Since the split, he has voluntarily used his mileage bank to send his “ex” and their children on vacations.

“Let’s face it,” he says, “you can buy some good will. It’s basically free, and can benefit the kids anyway, and it’s certainly a good way to negotiate — ‘You know what? I’ll throw in a couple weeks wherever you want to go.’”

Other Considerations
All this talk of “assets,” “rights,” and “valuation” begs the question: “Whose miles are they, anyway?”

The fact is that, though members often feel like their miles are individual property, the programs’ terms and conditions are quite clear: the miles are an intangible currency that belongs solely to the program.

Of course, a good case can be made that a property right does exist — witness the case of a few Delta flyers whose miles were confiscated by the program for violations of program rules. Their attorney is quite specifically calling those miles a property right, and it doesn’t hurt his case that in cases of death and divorce, the airlines treat them as such.

But there’s danger here.

As it stands, the Internal Revenue Service has said it has no interest in pursuing the taxation of miles at this time. If, however, the courts begin to create clear rules about the valuation of miles, it is not unforeseeable that this newfound property would be taxed.

Furthermore, when an airline offers to transfer miles in the case of death or divorce, they are, in essence, doing their customer a favor. If push comes to shove, it’s plausible that they could alter their rules to keep their liability low.

Which in turn illustrates the most important point of all (and one veteran flyers know all to well): You can catch more flies with honey than with vinegar.

Your approach, and your value to the program, can make all the difference. Airlines and hotels have rules, and when cornered, will happily roll out all the fine print you could ever want. “Policies,” on the other hand, tend to be a little more flexible.

Witness Bob Schutzenbach and Hilton. Though Hilton’s rules make it abundantly clear that miles will not be transferred in the event of a divorce, Bob — a longtime, active member of HHonors — found a way.

Flexibility comes with a price. If you’re a valuable customer, and your approach is civil and friendly, you just might be surprised at how flexible these programs can be.

The Legal Fine Print
(Special thanks to longtime reader Morty Herman for the following contribution)

Some elect to include a codicil (an addendum) to an existing last will and testament, though this often requires the assistance of an attorney. An easier solution might be to include this sample paragraph along with your will or, if no will is intended, this paragraph could be used if it is signed, dated and witnessed and kept with your personal papers:

“Upon my death I leave all my airline and hotel frequent flyer miles and/or points in my accounts to my (relationship), (name).”

The use of this paragraph will leave no question as to your wishes for your miles and points. But as you’ll note below, many of the airlines don’t really require mention of miles and points in your will. While these same programs are constantly changing their rules with regard to leaving miles to heirs and beneficiaries, the following rules from select programs will give you an idea what to expect (though it’s always wise to check their current rules).

American AAdvantage: Mileage does not need to be specified in the will but American does require a copy of the pages, which identify the decedent’s name, the executor’s or personal representative’s name, and a page showing the date of execution and signature of the maker. If the AAdvantage account is specifically mentioned, a copy of that page must be included as well. If the AAdvantage account has less than 10,000 miles, only proof of death is required; if more than 10,000 miles — a transfer fee of $50 will be charged.

Continental OnePass: Transfer to a surviving spouse or a named beneficiary may be done provided the inheritor is also a OnePass program member at the time of the account member’s death. The account does not need to be mentioned in the will, but Continental does require a copy of the death certificate and a testimentary letter appointing the executor who authorizes the transfer of miles to the inheriting member. Continental charges no fee for the transfer.

Delta SkyMiles: Mileage does not need to be specified in the will but Delta does require a copy of the will if the beneficiary is not the spouse. If there is more than one heir, and the account is not specifically assigned to any one heir, a letter from all the heirs is needed to assign the account to any one of them. Delta charges no fee for the transfer.