Why exactly are airlines so strict about sale of miles/vouchers/upgrades?
 

After today's earlier thread on the subject, and numerous threads on the UA forum, I have become curious about exactly why this is true. This is not a: "why do they do stupid things like this?" thread, but simply curiosity. It doesn't matter to me, I have nothing of real value to sell :D. I guess I always assumed that it had to do with tax law, and that airline miles, etc. were said to have no cash value so that earning them did not count as income. Same with upgrades and vouchers. But is there more to it than that? I first came to the above conclusion when I'd hear about Southwest, and how they'd include certs with something of miniman cash value so that you could sell that thing with certs included and not be selling the cert. Anyone with the full story on such policies?

I've never heard about the Southwest policy you describe. In fact, Southwest has been very aggressive about going after people who sell Rapid Rewards tickets on eBay.

I think the answer to your question is that the profit model of ALL loyalty programs assumes a huge amount of "spoilage" of awards. In other words, the company is able to offer more generous awards if they know only a fraction of them will be redeemed. If you allow people to transfer awards that would otherwise "spoil" because the original recipient couldn't use them, then you reduce the spoilage rate and therefore the profitability of the loyalty program. Of course, loyalty programs also employ other techniques to minimize their costs, most notably capacity controls, but disallowing transfer is definitely a big part of the picture.

This thread has nothing to do with AA and should probably be moved, BTW...

for transactions not in person, there is also the likely hood of fraud. if AA "allowed" such transactions, they risk integrity of the instruments?

Because airlines are in business to make money. Selling certificates to an otherwise paying customer costs them money. T&C make this rule quite clear.

The programs were not put in place for the airlines to have competition of someone selling flights at a lower cost then the airlines.
Plus any revenue received by the seller is taxable. The airlines do not want to get into the IRS/W2 liability issue.

I think it is simply that airlines would rather sell the seat than give it away. I also think that airlines are a business at the end of the day; everyone here knows that a business must, by defintion, make a profit in order to survive in the long-term.

I think the voucher idea is that the airlines do not want to give a voucher to one person and it end up sold, for a profit, to another. At the end of the day, think of it like this: would you sell a $5 for $30? No. Would you buy that, I bet you wouldn't! But then again, a voucher is a bit different to cash because the person buying the voucher, i.e. an upgrade voucher for $100, couldn't buy the upgrade from the airline for the same.

I think the airlines need to realize this though: if the person who bought the voucher that they gave free to their member, had not purchased the voucher would not have redeemed the voucher (as they wouldn't have had it), but at the same time, they most likely wouldn't have chosen to fly with that airline at all. I.E. you need to have a ticket in the first place in order to be upgraded with the voucher, so the person would spend money they wouldn't have spent with the airline if they hadn't received the voucher. So the airline sells a ticket to the customer and therfore makes money on that. Some would then say "AHA" but the airline doesn't make a profit by giving them the free upgrade; no, but they made less of a loss than if the person who they gave the voucher to in the first place had used it, as they would probably have bought a ticket with that airline anyway, irrespective of the voucher, so now they have won an extra customer from someone selling on the voucher. The airline may even have impressed that person so much that they were able to gain a new customer for the future, thus enhancing their business.

I don't have the answers, but I think airlines over-react to re-selling vouchers; at the end of the day, the only negative to the airline is that they rely on a certain quota/number of vouchers not being redeemed, so re-selling the voucher reduces waste and thus costs the airline more.

Sorry for making this post so long, but it is an interesting concept.

You now see my completely illogical thought process!

Such a simple question; so many incorrect/incomplete answers. :rolleyes:

Allowing such sales would break the airlines' "breakage model." This model depends on a very large percentage of such benefits (miles, vouchers, upgrade certificates) expiring unused, so the airlines only record as expense the cost of the benefits that are expected to be redeemed. They count on this "breakage" and have no interest in allowing you to profit at their expense by letting you sell benefits that would otherwise go unused.

[Edited to add:] The previous post touches on this towards the end as a possible rationale, but in fact this is the sole reason.

Vasantn, I am sure you are right with respect to the main reason.

But I think Legal would have a problem with the unmonitored transfer of this sort of benefit also, for fraud reasons. However, there is probably a work out for that problem, if the airlines wanted to allow this to happen.

It lowers revenue for people to sell them because the only time people buy awards is when it is to the buyer's advantage. It essentially shifts high fare revenue into a low fare bucket.

This is especially true when the buyer has enhanced availibility to award booking, like EXP on AA.