In Wednesday's Wall Street Journal:

Next time you're on a flight, look around at the other passengers. Guess how many are riding for free. Two percent? Four percent?Nope. On average, something like 8% are traveling for free. That's just one interesting finding from a look at data on airline traffic at hub airports compiled by Eclat Consulting, and airline Securities and Exchange Commission filings.

Taken together, several trends emerge. Even though travel is down, travelers continue to accumulate frequent-flier miles at an increasing rate because of the millions of miles accumulated through credit cards, telephone service, roofing repairs and the like. By selling miles at something approaching two cents each, a 25,000-mile award has already generated nearly $500 in revenue -- not a bad fare for a domestic trip. And as airlines have increasingly found ways to get paid for frequent-flier miles, they actually seem to be making more seats available for redemption.

That bit of good news may run counter to the many travelers frustrated when they can't get a seat to Europe or Hawaii, and like many things in the airline business, it may not last once business starts improving. But the reality of the past year is that award redemption has increased at a faster pace than award accumulation.

There's also been a redemption rush by frequent fliers worried that their accounts that might be in jeopardy should airlines operating under bankruptcy protection shut down. In the 12 months ended last March, which covers the bankruptcy filing by UA, frequent fliers were cashing in free tickets like crazy. According to the Eclat data, a hefty 11% of passengers who either started or ended their trips in San Francisco on United were "zero fare" passengers, up from 7% three years earlier. The same pattern was seen at other UA hubs.

Frequent-flier seats have always been a bit of a mystery and a source of great consternation for travelers. In financial reports, airlines disclose only the basics: how many awards were used, how many awards are outstanding and what the estimated cost of that liability is. The liability is actually quite small because airlines only count the cost of a bit of extra fuel for the award-ticket passenger, a bite of food and the associated reservation and ticketing expense.

It's that "ability to manage" that makes frequent fliers crazy -- one more way airline complexity angers customers. You earn an award, and the airline actually gets paid for the award in advance when it sells miles to credit-card companies and others. Yet you can't seem to find a seat available to be used. How many seats are available for booking? It's a mystery. One of the big disconnects in the business is that it's easier to use frequent-flier miles to go to Kansas City than Honolulu. There is limited supply to places people want to go, and far less restricted supply to places people don't really want to vacation.

Experienced frequent-flier accumulators know you often have to call at midnight 330 days before you want to travel -- the exact moment when the flight you want is opened to bookings in airline computer systems. Even that doesn't always work. It's encouraging to see airlines actually paying out awards faster than they are accumulated. Will it last? Undoubtedly, airlines will see temptation to increase limits on frequent-flier seats as business improves.

full story (subscription required):

http://online.wsj.com/article/0,,SB1...0.html?mod=DAI


[This message has been edited by Teeejay (edited 09-24-2003).]