Orphan miles - from airline point of view
 

Hi there,
I'm writing a paper on loyalty programs for a college marketing class. I'd like some opinions on the issue of orphan miles from an airline's perspective. As I understand it, the airlines are happy to "buy back" the miles they issued coz it reduces their future liability.

But in buying back the miles, aren't they affecting loyalty to their programs? For example, I have about 7,500 miles in my Northwest account, which is too far from a free ticket. If the airline utilized a service like MilePoint.com to buy back those miles in exchange for merchandise or magazines and stuff, sure it reduces their liability by 7,500 miles. But that also means that the next time I fly, I'm going to be more willing to check out fares on American, United, Continental etc. However, if I still had those 7,500 miles, I'd probably check Northwest first..right? So whats worth more to an airline...customer loyalty or reduced liability? I know there's no right or wrong answer to this question, but I'd appreciate any opinions or comments.

Thnx.

That is a great question. I never thought about it in that way. I had a few miles with Delta but was not planning to fly with them in the future so I took the magazine option. Since the majority of my travel is personal I can choose the carrier and always select UA. Others would be different and I wonder as well what effect this would have?

If UA has 38 million MP members (which it does) and only about 40,000 top tier flyers (which it does) lets guess that there are MILLIONS of semi-dormant accounts with a nominal amount of miles in them.

Say 5000 miles average in a million accounts. (Remeber a r/t SYD-LAX is 15,000 miles and many first time flyers rack up that and never fly again. LAX-LHR is 11,000 r/t etc.) That is 5 BILLION miles. Do you really think UA is worried about that???!!! No way. Firstly, there is no earthly use for 5000 points. Secondly, if that person ever took another long trip it is likely they wil think UA first, not last, to "add to my account".

It is called "Golden Handcuffs" in marketing language.

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~ Glen ~

ozstamps touches on the key point: members cannot pool points with each other. So maybe UA has 5 billion miles outstanding. No big deal to them, because those miles are chopped into tiny pieces spread across 5 million accounts. Within each account, those 5000 miles are really no good unless the member accrues enough for a free flight, say at least another 10k. Those 5000 miles have a perceived value to them and will indeed influence future choices (toward UA in our example). Of course you can dump the 5000 miles via milepoint etc., but the conversion rate is so poor, it's just not worth it.

FewMiles..

Most of these mileage redemption offers do not offer a good value. For example Milepoint has been getting some pretty negative feedback in this forum.

I am curious why the miles are called "orphan" miles, since the owner and airline are both alive. I prefer to use the term stranded miles. selfdestrc do you have any insight on this terminology.

I've found hilton Honors to be a great place to use misc. miles.

I expect the most important thing to the airlines is to use the FF programs to atract new customers(perhaps to keep some old ones). The second most important is the data. It's a huge list of customers where they know where you go, hotels you use, rental cars, credit cards you use, and with merchandise offers they'll know what things you are likely to buy. I doubt they care much about "orphan miles".

Lets not forget that many miles in the past were lost thru expiration. No one needs the loyality of someone who flies every 7 years!! That person picks who is available and who has the best price to where they are going. Reputation also plays a role as many of these people fear flying.

You really need to speak to an accountant or pour over the 10k's to see if the liability of these tickets is accounted for. Remember they are mostly used for seats that would be empty anyway, so the cost to the airline is minimal. Certainly reasonable accounting standards would allow little attention to most peoples dormant accounts.

As for buybacks, nothing short of a flight or an upgrade has any material value, or is so diluted as to make the value much less that first thought

Is this really a topic for a paper??

orphan miles are gravy to airlines. They mean nothing because they will never be redeemed.

Loyal frequent travellers, the profit mainstay of airlines, don't have orphan miles. Only lousy airline customers have them. By definition, orphan mileage customers are not loyal and don't fly frequently so they are not responsive to loyalty programs and hence to be basically written off by the airlines' marketing programs.

A bigger question is, How do airline loyalty programs affect frequent flyer's decisions to use one airline over another?

I believe the greatest influence on loyalty is frequency of service in a given flyer's market. I am a UA loyal person because I can go to IAD and get many direct flights. How much do loyalty programs influence me?

Would I go to AA if they offered me a superb loyalty program by virtue of the fact that they want to win my business and know they have to offer me a "better deal" than UA? For instance, if they offered me triple miles out of IAD (but I always have to connect in ORD or DFW) would they win my business, would this be enough to counter the inconvenience? What about quadruple miles? What about unlimited free upgrades on cheap fares? Would that sway me? Would it be profitable for airlines (and other businesses) to entice hard-to-win-over but potentially profitable accounts through offering selectively higher loyalty bonuses? Huh? (Sorry, I had to add that)

I'd love to see some thinking on that!

I think choice of airlines and loyalty to airlines are intertwined. For example, I fly mostly on AA (and its OW partners). I first chose AA because it has the best schedules to my most frequent destinations. (A fit of pique over DL's infamous L-fare bit didn't hurt.)

Having chosen them, the lock-ins of double miles, elite perks, needing miles for next year's status, and the rest keep me with them if they're at all reasonable to my destination - even if they're not optimal on a given occasion. It has to get pretty bad, in terms of schedule, routing and/or fare, before I'll fly with anyone else. (My three RTs on non-OW airlines this year were BOS-SIN on NW, $1250 vs. $3000+; BOS-IAD, no AA service; BOS-LGA, ditto, but I got AA miles from US.)

In other words, the loyalty program keeps me on AA now, but I'm with AA for reasons that had nothing to do with it. AAdvantage is not enough better than the others to have made me choose AA just to get it, or enough worse for me to avoid AA just to avoid it.

interesting question...

i question just how concerned they are about the liability of outstanding miles since the ability to redeem is so tightly controlled- specifically to address the liability.

i suppose it is possible that the airlines don't mind that people have an alternative outlet for their miles as infrequent flyers won't consider the program useless in the future. this is a week argument, but the only thing that comes to mind.

i am a mess w/ my programs. based in LAX, i used to fly nothing but LAX-MEM so NW was the logical option. i've been silver w/ them 3 yrs running, but will lapse this yr about 7k short.

i've started consolidating w/ UA due to LAX nonstops and BUR-SFO route which is convenient for work. w/ an upcoming trip to EZE, i will hit their mid-level elite- 50k flight miles.

the problem is my primary motivation for loyalty is upgrades w/o having to use miles. UAs top tier program, 1K, doesn't give any type of confirmed upgrade w/o certs or miles. AA will upgrade their full Y fare, top tier Exec Platinum customers upon request- no certs or miles. because of this, i will be moving my business to AA next year- even though i don't currently have status.

the competitiveness of the programs allows me to qualify for the middle tier of AA within 10K flight miles. also, other airlines will supposedly comp me status based on my flight patterns. (i will have made 50k miles w/ UA in 3 mos of travel).

because of the competiton, the loyalty programs will reward for your loyalty to another program as an incentive to move that loyalty.

sorry if i got a little off-topic. i just have thought a lot about which program i want to be with and why.

kevin

I just received a mailing from United regarding this very subject. Use your orphan miles for magazines. I have only 3837 miles, awaiting a 1000 mile survey bonus, and will make a short flight to reach 5 or 6,000 miles and will turn those into 10,000 Hilton Honors points. Also looking forward to UA/US merger and to see if my 40,000+ US miles will turn into UA miles.

[This message has been edited by newself (edited 11-05-2000).]

Orphan miles don't exist today, or at least they don't have to exist. Here's a micro and macro example to show why.

Micro: In your above example, 7,500 miles is not too far from a free ticket. In fact, I would consider it very close to a free ticket. All you need is some Sprint bonus miles (10,000 miles and up), LookSmart miles (via ClickRewards, or Starwood points and you have a free ticket.

Macro: One issue to address in your project is that today you don't have to be a frequent flyer to have a lot of frequent flyer miles. And since you don't have to fly to get miles, you never have to leave miles stranded.

Today you can get almost a quarter million miles every year and hardly leave the ground. Here's a sample annual mileage summary, in thousands:

40 - Phone (two lines, 10k for switching every six months, per line)

60 - Credit card

60 - LookSmart Live

40 - Greenpoints/ClickRewards


So there's 200,000 miles a year before even counting flying miles/bonuses.

There are so many ways to top off miles today that it's silly to get rid of the miles through places like Milepoint.com.

Even for infrequent flyers, true orphan miles are a thing of the past.

Lax .. UA 1Ks DO get unlimited upgrades to F on all Shuttle flights. No certs needed.

And the 1K Sys certs you DO get are THE most valuable and useful in the ENTIRE airline world I think there is no doubt about that!

Thanks for all the interesting comments. I agree with what most of you said, and have a lot of stuff to work with for this paper. Happy flying!

-selfdestrc