<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by philco:
I'm far from new to collecting, however, and I have always assumed that each year many millions of miles are taken to the grave unspent by their owners who prefer to hoard and gloat (like me)! If I'm right, that ought to be good news for those who do redeem and for airlines too. Somewhere there must be an allowance made for "dead" miles - I feel certain that this is already factored in to loyalty program equations.</font>
It is - read through LemonThrower's post. AMR does the same thing:
"In making the estimate of free travel awards, American has excluded mileage in inactive accounts, mileage related to accounts that have not yet reached the lowest level of free travel award, and mileage in active accounts that have reached the lowest level of free travel award but which are not expected to ever be redeemed for free travel on American." (Sorry - I had to retype it. AMR's 10-K was in PDF format).
My issue is that whatever the allowance is (they don't tell you), is it possible that it's understated? Three things concern me:
1) Some time ago I posted a personal theory that people who earn FF miles from credit cards are more likely to redeem a greater percentage of miles than those that those that got them only from flying. Two reasons: (a) if these people weren't going to use the miles, then they wouldn't get a mileage earning card in the first place; they'd get a CC with a different perk; (b) there are a lot of people that take on or two trips a year that don't care about which airline they fly, they go with the cheapest ticket. I could see where, historically, there would be a lot of dormant/expiring miles in these accounts.
2) Miles don't expire like they used to, as OB one noted.
3) People are becoming more savvy about collecting FF miles. I read an article that said FF miles are now what S&H green stamps used to be 40-50 years ago. I think that as people get smarter about their miles, you'll see a fewer percentage of miles that really belong in the allowance category.
So if the airlines "allowance" is based on historical data, and you believe that the circumstances have changed with regard to the way people handle their FF accounts, then, possibly, the allowance is overstated, and AMR's estimate of 9.3 million free travel awards (and the $1.2B liability) is understated. By how much? Who knows?