Frequent flyer program

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Membership cards of FFP

A frequent flyer program (FFP) is a service offered by many airlines to reward customer loyalty. Typically, airline customers enrolled in the program accrue points corresponding to the distance flown on that airline. Accrued points (also known as frequent flyer miles) can be redeemed for free air travel; for other goods or services; or for increased benefits, such as airport lounge access or priority bookings.

The first, and still largest, frequent flyer program is AAdvantage, sponsored by American Airlines, launched May 1, 1981.

Contents

1 Points accrual
2 Customer status
3 Value of a point
4 Bankruptcy
5 Accounting issues
6 See also
7 External links

Points accrual

The primary method of obtaining points in a frequent flyer program is to fly with the associated airline. Most systems reward travellers with a specific number of points based on the distance travelled (such as 1 point per mile flown), although systems vary. In Europe, for example, a number of airlines offer a fixed number of points per flight regardless of the distance. The calculation method can become complicated, with additional points given for flying first or business class, and often fewer points given when flying on discounted tickets.

With the introduction of airline alliances and code-share flights, frequent flyer programs are often extended to allow benefits to be used across partner airlines.

Many programs also allow points to be obtained not just through flying, but by staying at participating hotels, or renting a vehicle from a participating company. Other methods include credit cards that offer points for charges made to the card, and systems which allow restaurant diners to earn miles by eating at participating restaurants.

Programs differ on the expiration of points. Some expire after a fixed time, and others expire if the account is inactive for an extended period (for example, three years).

Customer status

Many frequent flyer programs identify travellers who fly more than a few times per year by awarding them different status levels, which in turn give a number of benefits that cannot otherwise be purchased. Status levels vary from scheme to scheme, but benefits can include:

Access to business and first class lounges with an economy ticket
Access to other airlines' lounges
Increased mileage accumulation (such as doubling or tripling)
Reserving an unoccupied adjacent seat
The ability to reserve specific seats, such as exit row seats with more leg room
Free or discounted upgrades to a higher travel class
Priority in waitlisting or flying standby
Preference in not being bumped if a flight is oversold

Some programs even permit elite members to reserve space on sold-out flights, giving members the ability of bumping regular passengers. Customer status is based on the number of miles actually flown with the airline, and points accrued through other methods such as credit cards purchase are not considered. Some airlines will recognise a customer's status with a competing airline, and grant them the same benefits.

Some airlines offer accelerated admission to their elite programs through special promotions, such as flying 25,000 miles within one month gains a top-tier membership normally reserved for passengers flying 100,000 miles per year.

Value of a point

Travellers frequently debate how much accumulated points are worth, something which is highly variable based on how they are redeemed. A typical ballpark figure is approximately 2 cents per mile based on discount (rather than full fare) economy class travel costs. However, most airlines have stringent capacity constraints on the number of "reward" seats available, so some people argue that this ballpark figure is an overstatement. In contrast, calculating the value of a point based on full-fare business class travel costs can yield a figure several times higher, but only if the customer would personally be willing to pay the multiple thousands of dollars such tickets would cost otherwise.

Increasing limitations on the availability of seats for point redemption, increases in services fees that airlines charge for redemption, and limitations on the trasferrability of redeemed tickets together have caused the value of points to customers to decrease with time.

Many complain that most airlines call the points in their FFP "miles" when it really could take as many as 50,000 "miles" to fly within the United States.

Bankruptcy

In the wake of the September 11 attacks, some airlines have faced financial difficulties, raising concerns among frequent flyers that their points could be lost or devalued. All airlines include provisos in their program agreements reserving the right to modify or eliminate them at any time. But since miles are a strong customer incentive, troubled airlines avoid their elimination in bankruptcy proceedings, and indeed may expand them or make them more generous to elite members and high fare passengers in order to win sales.

Furthermore, since most airline miles are never claimed, the programs represent a relatively small liability, and indeed can represent a profit center. Since the 1990s, U.S. airlines have sold billions of miles to partners such as credit cards, hotel chains, and car rental agencies, who offer this "currency" as an incentive to purchase their own services. Any effort to curtail the awarding of miles would thus endanger partner relations and another revenue stream. Notably, the banks backing several airline-branded credit cards have been a key source of airline financing, including United Airlines (Bank One), US Airways (Juniper Bank), Delta Air Lines (American Express) and Northwest Airlines (US Bank).

Historically, the record is mixed. U.S. airlines have usually honored miles held in the accounts of acquired airlines. For instance American Airlines converted members of TWA's "Aviators" program to its own, as did Air Canada for Canadian Airlines' "Canadian Plus" program members. Sometimes, miles were honored by a close partner; Continental Airlines assumed Eastern Air Lines' program when it failed, as did Delta of Pan Am's. Bankrupt Swissair miles were transferred to Swiss International Air Lines travelclub who were transferred to Lufthansa's Miles and More after the acquisition of the Swiss carrier.

Members are at greatest risk of losing their miles when an airline liquidates. All miles and privileges were lost, without recognition from any other carrier, in the cases of Midway, Braniff, and Ansett Australia.

Accounting issues

Business travellers typically accrue the valuable points in their own names, rather than the names of the companies that paid for the travel. This has raised concerns that the company is providing a tax-free benefit (point-based rewards) to employees, or that employees have misappropriated value that belongs to the company, or even that is a kind of bribe. The U.S. Internal Revenue Service has not as yet made any move to tax mileage programs, though for instance the Canadian taxation authorities consider mileage redeemed for free travel to be a taxable benefit. Most companies consider the miles earned by their employees to be a valuable personal perk that in part compensates for the daily grind of frequent business travel, though some governmental organizations have attemped to prevent their employees from accumulating miles on official travel.

On the airline side, the points represent potential non-revenue travelers on its books. These must be carried forward on balance sheets as an outstanding contractual debt for an indeterminate time, although the actual value (or loss) may be difficult to determine for any particular period.

External links

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