South Korea: Program Changes "Unfair"

South Korea: Program Changes "Unfair"

The Korean Air Skypass and Asiana Bonus Club programs have been ordered by the South Korean Fair Trade Commission not to apply changes to their programs retroactively, Dow Jones Business News reported.

The changes were announced late in 2002, and primarily involved increases in award levels. For example, the current 55,000-mile award for travel to the U.S. will jump to 70,000 miles, and a free ticket to Europe will increase from 65,000 to 70,000 miles on Skypass.

The increases originally were slated to take effect in 2004.

Earlier, a Korean Air spokesman had suggested that the changes were being implemented to “ease the chronic shortage of seats on U.S. flights mainly caused by the relatively generous mileage points program in the routes.”

Korean Air’s outstanding mileage liability hovered at about 109.6 billion points as of the end of 2002, at an estimated value of US $1.9 billion. Asiana had 35.4 billion mileage points outstanding, the FTC said.

Both airlines had said that once a six month grace period had passed, the new award levels would apply to all outstanding mileage.

In its announcement, the FTC said that so doing would, in effect, amount to retroactive application, and would thus be unfair.

“The FTC’s action will protect customers from airliners’ possibly one-sidedly deciding changes in the frequent flier program in the future. Moreover, this case will lead other companies to consider the damage to customers when they revise similar mileage point systems,” the FTC said in the statement.

The airlines may either obey the FTC’s order or seek court approval for going ahead with the changes.

Tae-Hwan Lee, a spokesman for Korean Air, defended the move.

“It is not just the Korean airliners’ move,” he told Dow Jones. “Many international airliners have applied the new mileage program rules to all outstanding mileage. The FTC’s ruling will eventually result in hurting local air carriers’ competitiveness in the global market.”

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