OK, But…

OK, But…

As we noted, Jay and others seem to get caught up in the idea that miles can only be associated with the cost of air travel to be of any value. Ah contraire, we say. Let’s look at all the things that are not mentioned in this research.

In 1994, Continental Airlines served 160 destinations, of which 54 were international. Today, because of airline alliances introduced since 1994, members can earn and redeem their miles with over 658 destinations, including award redemption in 136 countries outside the United States. That’s a 411 percent increase.

The decrease in value of miles as reported was caused by new entrants into the air transportation business. Since 1994, the only airlines from which members lost their frequent flyer miles were these new entrant programs. Does National Airlines, Legend Airlines or Midway Airlines sound familiar? During that same period, not a single frequent flyer mile earned into any of the airlines measured here or others in the same classification – Pan Am or TWA – were lost. Staying power should account for something.

While it is worth noting that the decrease in monetary value was caused by the decreasing air fare structure among most airlines, it needs to be pointed out that this airfare comes with caveats, such as frequency of flight and destinations served. While measuring decreases in average airfare during this period, one would have a hard time defending the ability of any member to not give up a normal travel experience. New entrants start with very limited service (JetBlue’s first service to Denver was one city, one flight a day… at midnight). There should be value given to miles for frequency of flight as well as destinations served, as noted in the Continental Airlines example.

From 1994 to 2005, while the focus seems to be on a change of award levels from 20,000 to 25,000 miles, would it not be fair to factor in the value that members enjoyed from 1988 to 1994? During that period, members who earned miles prior to 1988 were elated to find that the basic domestic award in the U.S. declined from an industry average of 40,000 miles to 20,000 miles. In other words, the value to members during that period increased over 100 percent, in line with the analysis explained here.

While the air fare comparison caused a mile value change for this period, for members of American AAdvantage or United Mileage Plus, the value of their miles increased with a change to each program’s expiration policies. In 1994, members’ annual miles expired after three years, with no exemption for account activity. In 2005, members’ miles do not expire if they have account activity of any kind during any point of a rolling three-year period.

The new entrant airlines causing air fare decreases have all been around for an average of five years now. Statistically speaking, it takes an average member 20 months to earn a free airline award, which means that new entrant airlines should be fully realizing their award liability. The carriers highlighted in this analysis average nearly 7.4 percent of their RPMs to award redemption, while the new entrant carriers responsible for air fare decreases are averaging less than 3 percent of RPMs devoted to award redemption. The rationale is not that these new entrant carriers are restricting their award redemption too much, it’s that they are in a different market. Most new entrant carriers appeal to leisure and value-minded travelers. Comparing their average airfare to those of the mainline carriers for frequent flyer program sakes is like comparing Budget Travel magazine and Conde Naste Traveler, and wondering which gives the best value based on the cover price. It’s apples to oranges, with each segment having a defined value. A better approach might have been to compare just the airfares of those airlines mentioned here, not the industry overall. You also mention the value of Frontier’s 15,000-mile award. We also think it has great value, but they only fly to 42 destinations. That same award if you were to compare to Continental’s 658 destinations would cost EarlyReturns members 235,000 miles.

There are many other factors that should be considered, such as that with this decrease in airfares, so the cost of acquiring miles has decreased making them a better value for mileage runs. And the increased value of alliances, and the fact that few of them will get you a free ticket to London or Hawaii.

Jay is right… and so are we.

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