whoops

[This message has been edited by hedoman (edited 03-09-2002).]

There is a difference between tax deductible and tex exempt.

Screw him

I would prefer to send a private e-mail, to you Mikey, my friend, but no address is available. I think honestly that your post above is over the line. Please edit it soon so I can delete this post before I go to bed. http://www.flyertalk.com/forum/wink.gif

I think Derf and ORD1kguy make the key points:
1. The tickets the airlines give to frequent fliers are almost always capacity controlled, they aren't bumping paying passengers, they are giving away seats that would otherwise go empty. The increased cost is minimal (a couple gallons of fuel, a couple extra bags to handle, a $2 meal). Anyone who has tried to get free tickets less than 2 months in advance knows how hard it can be to get desirable flight times and days.

2. If this guy wants to complain about subsidies lets talk about the people who fly once a year on $150 tickets. The fact is these tickets are capacity controlled too, and their price reflects the same economics that frequent flyer tickets do, they are seats that would otherwise go empty. And the people sitting in those seats are not paying a proportional share of the costs to get that aircraft from point A to point B, they are being subsidizied by everyone else. My guess is the guy who wrote the email hasn't bought a ticket for more than $400 in a long, long time. But he isn't going to write his congressional members begging to pay up for his fair share either.

My experience has been that whenever someone complains about "subsidies" they are often only concerned about subsidies they don't get to take advantage of but are completely ignorant of the subsidies they do get, those are somehow different. For example, people who drive everywhere hate transit "subsidies" but they don't see any problem with the enormous amount of state and federal dollars poured into highways every year.

FF programs are rebates given to customers in exchange for their loyalty. No different from "cents off" coupons at heart. They started to reward people for pushing their companies into traveling with a favorite airline. They work, they do help me and many others steer our business to our favorite airline instead of always the cheapest.

There is perhaps something a bit immoral about FF programs in that they often reward people personally for business travel. In that sense they are a little like a small bribe paid directly to the purchasing agent in exchange for the agent directing the purchase towards a particular vendor.

But they are so woven into the fabric of air travel that they are here to stay and I think we can disregard the morality issue. It is after all the traveler's butt in the seat, the traveler's risk getting diseases on an airplane, hassles with losing luggage, etc., so FF programs pay the traveler directly and help make business travel more palatable than it otherwise would be.

Yeah, so? Business travel is a legitimate expense. It's a cost of doing business. So of course it should get a tax deduction -- or more accurately, be used to offset income generated.

That ain't Enron style accounting, that's just common sense.

Let's not forget that business travelers get FF miles when they fly on business basically as compensation.

If FFers couldn't get the miles as compensation, their companies would have to pay them higher salaries. Then, of course, the company would reduce their profits by the amount of the increase in salaries and thus pay less taxes.

While I'm not interested in doing a whole research project on the amount of tax revenue that would be generated or lost by getting rid of FF programs because of the increased compensation due employees, it would be an interesting topic.

Also, let's not forget (especially the guy who wrote the e-mail) that government employees now get FF miles to compensate them for traveling. Get rid of FF miles and we'll have to pay gov't employees more money. That would definitely cost the taxpayers more money.

d

I guess that the $20 -$100 per ticket in taxes and facility charges paid by FF's each time they fly doesn't count?? Yes, everyone pays them, but FF's pay much much more.

I bet that original emailer never had a situation like I had earlier this year, either...

My uncle passed away and I had to fly out with my father from EWR-TPA. It was on a day's notice and the tickets would have cost $1300 for the 2 of us with no Saturday night and a 1 day advance. I immediately called OP and asked about using miles and because of the lack of a Saturday night, I had to use 50k for each ticket, for a totla of 100k miles which were earned by business travel, leisure travel, and a little from a mileage run. It saved my butt on short notice and helped me out by not incurring this expense out of pocket. Would I have flown without using the miles? Yes, of course, but this way my Dad didn't feel that bad about me paying for the trip and I did incur other expenses (hotel, car service, rental car, helped the rest of family out, etc.)

I love the programs and have been in the programs from the beginning. My Mom was a travel agent and always did what was right for her customers... she always alerted them of specials (losing commissions) and told them to go into these programs for the benefits.

My $.04 (2 cents + tax + inflation)

Joe.

If there were no FF programs I, and I suspect many VVF coach business travelers who make thier own travel arrangements would always fly either Midwest Express or Southwest. Why in the world would ANY VF coach flyer pick UA or AA for other then the FF program???? Routes and schedules matter, but not the difference that the majors charge.

Nobody is saying that the travel shouldn't be deductible, only that its price (and therefore the deduction) is slightly inflated due to the presence of the quasi-kickback that miles constitute. The IRS has said that it's administratively impossible to either adjust the deduction for the travel or tax the recipient of the miles. But if it were practical, or in almost any other context, they would normally do so.

I like my FF miles, but I can face the plain fact that they are, in most cases, a tax dodging kickback. When I pay for my Southwest tickets myself with after-tax non-deductible money, the Rapid Rewards tickets I earn constitute a discount (which incidentally can exceed 50%). When my employer pays for my ticket on, say, AA, those miles are a kickback to me, plain and simple. Fortunately for us and unfortunately for the IRS, it's too small and difficult to account for. But let's not kid ourselves that there's no difference between the two cases.

Playing devil's advocate... if XYZ Corporation buys a widget with a shelf price of $1.00 in the course of doing business, but uses a 25 cent off coupon, that business only gets a tax deduction of 75 cents, not $1.00. Similarly, if in the course of business, XYZ Corporation buys a $100 software package with a $25 rebate, XYZ should only be allowed to deduct $75. So, I could agree with an argument that if frequent flier miles are a form of rebate, then businesses should only be allowed to deduct the post-rebate cost of the travel. There's still a valuation and tracking issue, but if uniformly applied, it might not be that tough to tell businesses that on a $2000 transcontinental ticket with an airline which has a frequent flier program, they can only deduct $2000 minus twice 3000 miles times 2 cents/mile, or $1880. Unfortunately (from a FTer's point of view), this might be an incentive for airlines to discontinue programs... Airline A might look more attractive than Airline B if both offer $2,000 tickets but using Airline A would result in the full $2,000 deduction where Airline B would only result in a $1880 deduction.

Bruce,

In order to help you since you believe FF programs should be terminated, I will helpfully take all your FF miles in any and all programs you have. See how nice I am?

Now, let's be a bit more realistic for a moment. The FF programs are an income positive operation for the Airlines. They have every reason to hold onto them as they are actually worth money. When airlines merge or bankrupt other airlines either, try to buy the membership database, or lure the customers away. They don't do this for funsies. It's because they know that FF database is a consumer base of loyal purchasers, many of whom buy the high end tickets. When TWA merged it's database was folded into AA. AA knew it was valuable enough to spend the time and money to convert over. They didn't force people to start fresh, they WANTED those customers so they acted to bring them over intact. That's not a simple thing to implement.

Remember though, in addition to the database and contact info the airlines get to sell our vitals and all kinds of data about our habits to numerous commercial parties over and over and over. This is worth real cash to the Airlines. The reason why is related more to us. FF'ers are probably on average a very desireable upper middle class income target group with cash to spend. It's not like they're selling a Database of teenybopper burger flippers. FF'ers are frequently professional level types, many of whom are making 60 - 250K a year. People who can go buy a Mont Blanc pen for someone for XMAS and not worry about it. An ideal database of customers for marketers.

Now, consider those full fare tickets we buy to do business. The airlines use the FF program to increase brand loyalty among the people who get to decide what airline to fly those full fare tickets on. And all they have to trade is access to an otherwise empty seat that 95% of the time *they haven't sold anyways*. That, and perhaps a discount membership to a private club. BTW, all the upgrading we do NOT coincidentally free's up more very cheap economy seat inventory for grandma.

There's a reason the Airline's are putting in elite security lines for the FF members. It's because they are all fighting to hold onto an almost GUARANTEED customer base. I mean, we don't switch loyalty quickly, once we're established. And that's what it's all about.

Bruce, you may contact me at your convenience to transfer everything over. I won't hold my breath waiting on it though. http://www.flyertalk.com/forum/smile.gif

Regards,
-Bouncer-

The value of the "rebate" you are getting is truly minimal, and marginal. One of the airlines, for SEC accounting disclosure purposes, revealed that the average cost of providing its capacity-controlled free seats to FFers for their hard-earned FF awards was (as I recall) $21 per ticket (US Domestic, I think). OK, let's look at that. If the average RT is about 2000 miles (averaging in all of those short hauls and the longer cross-country trips), you will earn one RT about every 12 trips (but let's give the benefit of the doubt and say every 10 trips). So, the value of that $21 round trip, divided by 10, gives an effective rebate value (on a cost basis to the airline) of about $2 per round trip. Now, my last 3 business trips this month and last month cost about $750, 820 and $834. And each included about $70 or so, as I recall, of government taxes and fees. Gee, does it seem the taxpayer is getting screwed here? Not the way I look at it.

Djlawman