Frequent flyer program
Categories: Travel | Customer loyalty programs | Airlines
A Frequent Flyer Program 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 and other products or services, as well as allowing passengers to have increased benefits - such as airport lounge access, or priority bookings.
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.
The first, and still largest, frequent flyer program is AAdvantage, sponsored by American Airlines, launched May 1, 1981.
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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.
Many programs 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 expiry 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 can not 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 airline's lounges
- Increased mileage accumulation (such as doubled or tripled)
- Reserving an unoccupied adjacent seat
- The ability to reserve specific seats, such as exit-row seats with more legroom
- Free or discounted upgrades a higher travel class
- Priority in waitlisting or flying standby
- Preference in not being bumped if a flight is oversold
Some programs even permit élite 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 élite programs through special promotions, such as flying 25,000 miles within one month and attains a top-tier membership normally reserved for passengers flying 100,000 miles per year.
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 woo 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) and Delta Air Lines (American Express).
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 Airlines' program when it failed, as did Delta of Pan Am's.
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.
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.