MilesBuzz! - Quo vadis mileage redemption - Just inflation and fees?

We face it every year - higher mileage redemption rates- new fees for issuing awards etc. UA just joined the club asking for "expedite" fees in the century of eTix - what a joke.

Higher mileage rates are no real surprise. The airlines make money by selling miles - they figure that they cannot ever possible take the responsibility for it - so they take another turn on inflation. It is easy, since they are the only bank I know of that can print their own money - and yes they now can sell more miles again and make more real $s. And isn't the same motivation the truth behind establishing "never expiring" miles a few years ago?

Since we pay less and less for regular fares, the money has to come from somewhere - so go after where the growth - awards - who said that they have to be free? What's really ironic about award issuance fees is that whoever is loyal with the base business of flying will be punished the most. For instance UA's second tier elite level (Prem Ex) members bring certainly significant revenue to the airline. Since they fly more often, they get more miles, which translates into more potential awards. Now everyone who travels for business frequently knows that scheduling vacation is a real challenge - much more that for those traveling less. So, we end up more often in the situation to take a last minute opportunity or change in plans, which will now be rewarded by another penalty for being loyal to a travel partner. Didn't marketing once taught "the more you buy the more you save"? If we watch this game another decade, there will be lower fares to buy a seat than it will cost to "handle and issue" an award tix. Just think of LH's famous transatlantic business class upgrade award, which is 10k miles more than taking the free business class seat - or their outrageous taxes they charge for within Europe "awards".

And who is to blame - is it really always the customer? Sure, we are enjoying miles for using credit cards, shopping at Saveway, refinance mortgages, sign up for several CC per year to cash in the bonus etc. ..... But, who started "selling" miles - who made the link between a virtual "mile" and real money?

Let's look at Iberia: They are running their mileage business as a complete separate company. This "mileage company" has to actually buy a tix from the Airline if they issue an award tix. Also, the Airline has to buy the miles form the "Mileage Company" for their customers flying. The only thing "the Airline" controls are elite perks (makes sense, since here the loyalty thing kicks in). Anyway, the "Mileage company" obviously has a working balance sheet for issuing and collecting miles, which seems more fair than selling more than you have.

An audited "balance sheet" is what is lacking in today's airline mileage programs - there are no audited data about how many seats they offer for awards. The day the airlines started to sell miles, they established the link between the virtual mile and a real currency. They sell miles based on future revenue - future revenue expectations to be more exact and finally expectations not meeting reality. I cannot resist, but this sounds all to familiar with the business practices of a certain "E"nergy company, for which we still have to deal with all the aftermath. Does virtual money allows companies doing the same thing again - are we so greedy in collecting miles that we simply ignore the facts? Is there a way to at least audit how much miles are being given away and redeemed per year and establish a limit for building up a deficit?

Sure, I'm a bit cynical, but this is my way for asking for response about what might be a real change moving ahead and managing the airlines mileage balance sheets - just inflation and fees? It is the US - the master of inventing new business models - can't we do better?

I just found this in a post from Rudi:

http://www.flyertalk.com/forum/showthread.php?t=543368&page=2&pp=15

some more 'general' miles/ff-programs informations I got from informal talks at the different Star-carrier boots:

* the airlines make worldwide an estimated 10 Billion US$ per year selling miles (a majority of those miles are sold to credit card companies). The best part of this for the airlines is: the get the money right away and have to deliver (if ever) much later under their own anyway always changing rules ...
* estimated miles not yet used in the world is estimated to be around 480 Billion US$ (that would be more than the value of all US$ banknotes in circulation ...)
* heard at the UA boot: US carriers alone did 'give out' in 2004 1'900 billion miles, but at the same time only 480 billion miles were 'cashed in'.
* an estimated 1/3 of all miles are (or will) never be cashed in, expire.

No audited numbers but if true - and I have no doubt it not being true - it is a significant deficit, which underlines what I was asking for.

Should there be measures in place to enforce the airlines to run a more "balanced" mileage sheet than the mentioned 4:1 ratio?

I just found this in a post from Rudi:

http://www.flyertalk.com/forum/showthread.php?t=543368&page=2&pp=15

some more 'general' miles/ff-programs informations I got from informal talks at the different Star-carrier boots:

* the airlines make worldwide an estimated 10 Billion US$ per year selling miles (a majority of those miles are sold to credit card companies). The best part of this for the airlines is: the get the money right away and have to deliver (if ever) much later under their own anyway always changing rules ...
* estimated miles not yet used in the world is estimated to be around 480 Billion US$ (that would be more than the value of all US$ banknotes in circulation ...)
* heard at the UA boot: US carriers alone did 'give out' in 2004 1'900 billion miles, but at the same time only 480 billion miles were 'cashed in'.
* an estimated 1/3 of all miles are (or will) never be cashed in, expire.

No audited numbers but if true - and I have no doubt it not being true - it is a significant deficit, which underlines what I was asking for.

Should there be measures in place to enforce the airlines to run a more "balanced" mileage sheet than the mentioned 4:1 ratio?

I am very interested in this, but don't understand it all:

- "the airlines make worldwide an estimated 10 Billion US$ per year selling miles" and "estimated miles not yet used in the world is estimated to be around 480 Billion US$." So 48x the number/value of miles sold last year are sitting in FF accounts, though FFPs have only been around for 25 years, the volume has increased many fold in more recent years, many miles go stale and disappear, etc.?
- "US carriers alone did 'give out' in 2004 1'900 billion miles, but at the same time only 480 billion miles were 'cashed in'." Is that "1,900 miles" as in 1.9 trillion (US)? And only a quarter as many were "consumed" in the same quarter? Does that comport with what fellow FTer blort excerpted from UA's 10K SEC filing about MP operations? (see thread about Friday's press release announcing changes to MP).
- "an estimated 1/3 of all miles are (or will) never be cashed in, expire." If true that the number of miles redeemed last year was only 1/4 of the number issued last year, then wouldn't one expect much >1/3 to never be cashed in? Wouldn't it follow that there will be ever greater overhangs of unredeemed miles, with so many out there that eventually the industry could not possibly pay off even with a devaluation of 75% to miles?

Again, all very interesting/provocative, but not sure about the data, nor the inferences to be drawn.

Again, all very interesting/provocative, but not sure about the data, nor the inferences to be drawn.

No reliable data - you hit the nail on the head. If it were real money, it would be subject to auditing and everyone would know. But, it is not. However, it is without doubt a growing "number" which is considered to be a liability for the airlines. Even, if they do not care about redemption, which they can control at their will - they do need to take care of the issue, since they make money by selling miles. If we - the customers - loose faith in miles being worth something, this significant source of income will disappear, maybe triggering the next chain of Chap. 11 filings. The more I think about it, the more I wonder how Sarbanes Oxley could miss this kind of generating a "virtual" value.

In my opinion, the question is not if this will ever cause serious trouble - the question is when it will cause serious trouble.

While FF miles are not a true currency, they have a value and much of that value is highly subjective. The perceived value is different based on your earning rate and redemption pattern. As long as miles are perceived to have value, folks like us will continue to acquire them. As soon as we feel that the value no longer lives up to the cost and effort to get them, they become nearly worthless. Airlines are walking a fine line in trying to keep the apparent value high while keeping their true liability as low as possible. Recent publicity regarding the difficulty in redeeming miles and the growing number of miles outstanding hurts the perception that miles are worth getting. Unless some effort is made to make it easier for miles to be redeemed, airlines risk them becoming perceived as a nearly worthless commodity.
Like so many other areas, perception is reality.

Unless some effort is made to make it easier for miles to be redeemed, airlines risk them becoming perceived as a nearly worthless commodity.

FTers already know how tough it is to redeem saver awards, which are often the only kind of awards there are on partner airlines. Non-FTers will catch on as soon as they try to redeem miles. To me, legacy airline miles are worth what I can use them for on the non-saver award chart.

I don't have a problem with miles being worthless as long as they are also costless, as when I get 20k for a new credit card. :D

Since we pay less and less for regular fares, the money has to come from somewhere - so go after where the growth - awards - who said that they have to be free? ?

Less and Less?
Airline fares have been going up recently.

Less and Less?
Airline fares have been going up recently.

Controlling for inflation, the real price per flown mile in coach paid for by the average passenger on a domestic US flight isn't less today than 15 or 25 years ago?

I seem to pay far less to fly domestically now than back then.