Mileage Buying Power

Mileage Buying Power

The influence of the “Major Five Airlines” (American, Continental, Delta, Northwest and United) on frequent flier programs looms large in the travel industry due to the significant size and presence of these airlines. Their dominance has effectively established the 25,000 mile reward as the de-facto standard domestic reward level. The domestic travel reward is a valid measure of comparison, as it easily dwarfs all other reward choices in terms of member popularity.

The dramatic drop from 1994 to 1995 (in Mileage Buying Power) can be attributed to the increase of the standard domestic reward level from 20,000 miles to 25,000 miles. The gradual increase from 1996 to 2000 reflects the relative health of the airline industry and its ability to increase average air fares. The fortunes of the industry reversed dramatically in 2001 with steep pricing declines brought by falling passenger demand and rampant discounting. The value of reward travel, as reflected by average air fares for the market sample, continued its deep descent into 2004.

The (Mileage Buying Power) reflects the reality of the travel market. When compared to the 1994 mileage value of 2.1 cents, the 2004 mileage value of 1.4 cents represents a 33% drop. When compared to the “post 20,000 mile reward” environment of 1995 with its 1.7 cent mileage value, the 2004 mileage value represents a drop of 20%.

The Major Five Airlines have maintained the price of reward travel at 25,000 miles – – even while the value of air travel has dropped substantially. This has resulted in a decline in the value and buying power of the frequent flier miles earned by program members. The Major Five Airlines would be required to drop their standard reward level to 17,000 miles to recover the mileage value offered to members back in 1994.

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