MilesBuzz! - Are you sure you want more FF miles?

The airlines collectively have a liability of more than 6 trillion FF miles. With the current airline financial situation, is there anyone who thinks they will really honor these miles?
In one way or another, they will steadily reduce their worth. The only reason I can see to accumulate them is for status and hence upgrades. Otherwise, they should be used as quickly as possible.

To take a single example, in my 18 years with NWA they have gone from Flywrite coupons, which allowed for one-way travel with little advance notice, to accumulated miles which required RT travel and reservations, to the requirement for a Saturday stay, to the most recent elimination of the offpeak 20,000 mile award.
This is inevitable and predictable.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by NWAOldtimer:
The airlines collectively have a liability of more than 6 trillion FF miles. With the current airline financial situation, is there anyone who thinks they will really honor these miles?
In one way or another, they will steadily reduce their worth. The only reason I can see to accumulate them is for status and hence upgrades. Otherwise, they should be used as quickly as possible.

To take a single example, in my 18 years with NWA they have gone from Flywrite coupons, which allowed for one-way travel with little advance notice, to accumulated miles which required RT travel and reservations, to the requirement for a Saturday stay, to the most recent elimination of the offpeak 20,000 mile award.
This is inevitable and predictable.</font>

Those are some very drastic changes. If it takes another 18 years to see similar changes implemented, I think I'll live. As far as whether I think they will honor the miles, I just used some so the system does appear to still be up and going. Perhaps if all 6 trillion were to be cashed in at once there could be a problem, but how likely is that. Now, as for the second gunman on the grassy knowles....

Did this guy just read the Economist article or one of the dozens of articles inspired by it?

Banks face the same problem. If everyone cashed in their account at the same time, the bank suufers a run and collapses. Airlines can reasonably plan that most people will keep a balance and that many of the miles are orphan miles. Plus, unlike the banks, they can ration the award seats to prevent a "run".

Gawd did I love those Flywrite coupons.

Yes, I want more. I don't sit on my miles, but rather I use them to fly in the summer and anytime I want to go somewhere and the price is too high. I have been pulling in about 500-600K miles a year and spending about 500 K miles/year.

Unlike all the complaints I frequently read about people not being able to get tickets I find it pretty ease to spend the miles as quick as I earn them.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Possibly the easiest question on FT ever asked
Are you sure you want more FF miles?</font>

Are you kidding??? Yes, please, as many as I can get and a side of Elite status to make 'em easier to spend.

South,

You wrote:

[quote]Banks face the same problem. If everyone cashed in their account at the same time, the bank suufers a run and collapses. Airlines can reasonably plan that most people will keep a balance and that many of the miles are orphan miles. Plus, unlike the banks, they can ration the award seats to prevent a "run".[/quote}

After Pan Am decided to cancel its program they had a run of free award requests to Hawaii, and their Hawaii trips were running almost completely with freebies. They lost tons of money on those flights.

So then they went to limited availability.

However, you can now cash in double miles for anytime awards. SO theoretically people can cash in their awards for any available seat on an airplane. If things get really out of hand, they could see a run on their planes again.

ff

Pan Am never decided to cancel its programme (I was a huge Pan Am flyer). There was a huge fear among Pan Am'ers that their miles would go "poof" but the smart money was that if you waited long enough it would NOT be a problem. This was further enforced by the ticket guarantee issued by UA which effectively guaranteed all Pan Am tickets when they bought the LHR hub, and then later on when DL enrolled all Pan Am fliers in its programme and credited users miles.

Yes there were people who decided to use their miles at this time, but mainly to Europe, even if they had to Hawaii, who cares, check out any airline flying to Hawaii at any point in history and you will see a huge amount of redemptions occurring.

I don't kick gift horses in the mouth. However, I do have a bunch of NW miles, more than I can use in the short term. One can't transfer miles except with fancy tricks like Hilton (with a lost of miles). If you could, I would.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by NWAOldtimer:
In one way or another, they will steadily reduce their worth.</font>

Don't they usually have to give some sort of notice if they make changes to the FF program, like 90 days or something? I don't think I've heard of an airline that just out of the blue increased their reward levels.

yorock

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by yorock:
Don't they usually have to give some sort of notice if they make changes to the FF program, like 90 days or something? I don't think I've heard of an airline that just out of the blue increased their reward levels.

yorock</font>

Recently (with the possibility of United bankrupcy being in the news) I looked at the terms of the United program and they state that:

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">
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.</font>

The wording leaves me to believe that in case the program is terminated, they would not even allow a conversion of United miles to Hilton honor points.

I believe that the title of this topic is very germane. Most of the participants here seem to be mileage bulls, but the fundamentals are pointing to a mileage bear market. When Inside Flyer is offering unlimited miles for sale, and folks are eagerly buying up the miles - prepare for a mileage devaluation.

Air Canada is well known to annouce sudden changes in the middle of a year without warning... They have the reputation of charging elite members for change fee, with almost no warning. Same thing for reducing award level to 35%... then finally switched back after all the complaints.

So I don't think advance warning will necessary be given.

Same thing HAPPENED in Radisson awards... a 50% reduction with no public announcement.

I sense some kind of "conspiracy" there,
firstusa visa gives away 5k miles, then 10k, then 15k, even 20k.. all happened within an year, very abnormal and skeptical.

I signed up for 10k, and my friend signed up for 10k+5k, the card came with wrong MP number, so she called and asked for correction. and when the new card finally came just this morning (after 3 weeks!!!), the expiration date on the card is 11/02!!!

I love the anology to bank runs.

Lets see - didn't the folks down in
Argentina just have a little problem with
their money in the bank?

If say United was to completly go out of
business, I doubt anyone would pick up the
pieces of Mileage Plus because no one is
going to swallow up the disaster that United
has become. They would just try to get the
pieces that fit and the rest would just die.
So there really is a chance the miles could
go bye bye. Maybe not now but.....

Spend the miles - have fun now - why wait?

The FF mileage liability is a real consideration going forward. The run on the bank analogy is perhaps valid, but suppose, just suppose, that a calculation was done that demonstrates that at the rate the airlines currently allow redemption (capacity control) that it would take some ridiculous amount of time to redeem the current outstanding mileage liabilty, like a hundred years or so. Then that would be a problem. The airlines had better start redeeming these miles at a rate which is equivalent to the rate that they are being earned... otherwise IT IS a true house of cards eventually!

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by RobertS975:
at the rate the airlines currently allow redemption (capacity control) that it would take some ridiculous amount of time to redeem the current outstanding mileage liabilty, like a hundred years or so. Then that would be a problem</font>

Sure it's a problem to the people with miles, but I don't see how that can be a problem to the airlines (apart maybe from some negative publicity). They use capacity control to make sure that mileage redemption will not have (too) negative an effect on their revenues - what do they care if the pile of (unspendable, since they control capacity) miles continues to pile up...

I've decided that I have enough airline miles for the forseeable future and have therefore started to focus on hotel points with my credit card activity. When push comes to shove, hotel chains are not as likely to go broke without a new owner picking up the chain (and the existing loyal customers). Of course it's also not as easy to park a fleet of hotels out in the desert.

Okay, others are right about the bank runs as we are missing something here- the FDIC can guarantee our funds whereas if an airline goes broke, does not honor miles, cancels program, etc.- our losses could be unprotected.

Our miles are more like stocks as when a company goes bankrupt, the loss is great and those holding miles or stock are last to be paid if at all. Sure, you can have class action lawsuits and the like if an airline program goes down but has anyone filed with NextCard? They went bankrupt and all points basically became worthless. And we have seen what happens when investors panic and everyone tries to sell at the same time. http://www.flyertalk.com/forum/eek.gif

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"Fly me to the moon and let me earn alot of miles."

A year ago, some of us were mocked on these forums by stating that several major airlines would go bankrupt in 2002.

"That could never happen!"

Wait until one of these airlines guts their FF program if no one wants to take on the liabilities after bankruptcy. We have seen rental car agencies do it, so why not the airlines? Anyone with a million or more points or miles in a single program should be nervous.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by Tino:
Wait until one of these airlines guts their FF program if no one wants to take on the liabilities after bankruptcy. We have seen rental car agencies do it, so why not the airlines?</font>

We have seen which rental car agencies do what? I'm unaware of any major car rental agencies that have gone bankrupt and left their customers with unusable frequent renter points or miles, but am willing to be educated.

I do not know about any major car rental agencies bankruptcies however I have experienced serious overhaul of their programs- ie. National Emerald Club dropped considerably and let us not forget how all at once every car rental company went from 500 miles per rental (remember multiple rentals in one day to get miles) to their pathetic 2 miles per $1 or 50 miles per day etc.

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"Fly me to the moon and let me earn alot of miles."

Budget and Alamo have each cancelled their programs in the past 2-3 years. Budget overhauled theirs as a new program, but Alamo's "True Blue" program was buried.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by PG:
I believe that the title of this topic is very germane. Most of the participants here seem to be mileage bulls, but the fundamentals are pointing to a mileage bear market. When Inside Flyer is offering unlimited miles for sale, and folks are eagerly buying up the miles - prepare for a mileage devaluation.</font>

I agree completely. As we've seen the herd mentality run rampant through the industry, when one airline pulls the trigger, the rest follow within a week:

- change fee increases
- reduction of meals
- charge for paper tickets
- additional flight restrictions

Slightly OT...This probably has already been brought up before, but is the 6 trillion figure really accurate in relation to a liability. How many of those miles are from infrequent flyers who just open a FF account and have account balances with less than 10K miles who most likely will never do anything with the miles. While I agree it's still on the books, the numbers folks in the airline's back offices probably have pretty good algorithms to discount those miles that will never be used.

Just a thought.

I agree this is more like a bet on a stock rather than a bank. There is no FDIC insurance and private programs such as AwardGuard do build-in a good premium for the insurance.

However, if there were a mileage redemption run, airlines could always eliminate the non-capacity controlled award and in essence they control the usage of the currency they printed. This is not all bad for the consumers because it offers us some stability within the programs (most airlines have been able to convince creditors and bankruptcy judges to keep the programs going even during bankruptcy reorg or asset transfer)

Stuck has a point.
As far as AA is concerend, I think only the top 2% are elite.
I'd like to see a print out of the dispersion of accounts
% &lt; 10,000
% 10K - 50K
% 50K - 100K
% 100K increments

By far most would be under 50K, I bet which is the miles needed for 2 econ rt stateside.

That's my $.02

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TANSTAAFL - but if you work it right, FF miles comes pretty close.

Hmmmm...someone's edited this thread.

I've probably got around 330K, mostly hard-flown and on my own dime. This year I've cut back the elite status to shoot for (gold rather than plat) and am earning only as many as I spend, roughly.

If flying were the only way to earn miles then airlines could devalue them easier, but with so many now being paid for in cold, hard cash (including some directly from consumers, like NW's 2.8 cents a miles plus $25 "processing fee"), there's bound to be greater sensitivity to devaluations.

Would be interesting to see if, in the name of greater corporate responsibility, airlines are forced to change how they account for the future liability.

The accounting for the liability is a good question. I can't recall all of the details of accounting for rebates and the like from way back when, but would be interested to see how it is represented on the books.

Back to the comment that the Hawaii planes are full of award travelers, I would beg that statement. I needed 10 seats in economy on the 35K award for my family with UA and got only 9 on a plane that carried 279 econ passengers. I was up at 3 AM to be the first and for several months my family held the only seats on the plane. One family member had to fly a different route home.

I thought that what Pan Am did was declare that all miles (including existing miles) would expire in a period of time, which caused a bunch of people that wouldn't have redeemed their miles to redeem them for award travel rather than lose them to expiration, due to the rule change.

The lesson was learned by the other programs, particularly AA (which was followed by UA, of course), as they instituted a phased approach to expiring miles, grandfathering the existing miles as non-expiring miles. In UA's case, they simply created a second expiration tier for the existing miles. I think that in 1999 or 2000, the last of the old non-expiring miles were finally converted to normal miles with expiration dates, with exemptions for account activity.

When TWA finally went under, I still had a bunch of non-expiring FFB miles, that finally were transferred into AA bonus miles. On Delta, up till last week, I had about 18k old FF miles without expiration, but I finally used most of them (I still have less than 700 non-expiring miles on DL) for a Sky Choice award for my mother-in-law.

You have to remember that the mileage programs are profit centers for the airlines. They make money by charging for their currency (miles), and they pay for the free tickets they issue. In general, they make money, because they issue more currency than they redeem, or put another better way, they pay less for the redemptions that occur than for what they take in for the miles they issue to the airlines, the credit card companies, FTD, Diners Club, Amex, etc.

Could that change? Sure, if they pay out more cash than they receive. On the other hand, since it's not real currency, the programs control and own the currency, and if that happens, they can simply raise the redemption levels, and/or change the rules, which devalues the currency.

So, I think the question is how will it happen, not if it will happen.

-David

I predict that when the next major airline files for bankruptcy (UA) and cancels their program, all the others will take the opportunity to devaluate their miles or severely restrict their programs.
Therefore, I am in a mileage redemption frenzy trying to liquidate my 2M+ miles that I have neglected to use.

I think the one thing we don't know is how loudly the INfrequent flyers would howl if one of the major U.S. programs (i.e. USAir or larger) folded without recompense. Everyone expects FTer types to scream loudly, but I think an uncompensated collapse would rile enough infrequent ones to start Congressional hearings and all that.

Reason: All the expansion of earning opportunities on the ground, especially credit cards, but also long-distance and things like that.

There's even a mentality that if you're not getting something back for your charges, you're not managing your credit cards right. Some people go for cash back or merchandisee awards but, IMO, those are valued much lower as a % of charges compared to miles (especially if you can get a points-based card with little or no annual fee).

I think all the ground miles unrelated to flying are really starting to throw the seats vs. miles ratio way out of whack (Full disclosure: I'm a CO plat and CO has had more than its share of redemption-difficulty complaints lately).

What's most troubling about this trend is the airlines have no incentive to show restraint and every reason to take as much money possible in exchange for miles. The federal government is also a partner in that game with the mileage tax.

Demographics also may hurt. The baby boom starts retiring in 2011 (earlier if they want to take less in Social Security). Lots of people with mileage balances big and small, and many will want to cash them in.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by Sick Of Flying:
I predict that when the next major airline files for bankruptcy (UA) and cancels their program, all the others will take the opportunity to devaluate their miles or severely restrict their programs.
Therefore, I am in a mileage redemption frenzy trying to liquidate my 2M+ miles that I have neglected to use.</font>

Sick Of Flying: I can help you with spending your miles if you'd like. I want to take my wife on a cruise out of London but don't have enough miles as yet and have award tickets on "hold" thru Delta FF. It is my wife's 50th in July.