The Fall of Mileage Value

The Fall of Mileage Value

The value of frequent flyer miles continues to trap those who insist that miles must have some sort of “value” for them to be worth anything to the millions of members worldwide (see Joe Brancatelli’s column in this issue). I’m not sure why this question intrigues so many, but it has and among those that recently have fallen under its mystical spell is Jay Sorenson.

Jay is a long-time acquaintance of this magazine from his days contributing to the Midwest Airlines frequent flyer program. As the President of the IdeaWorks, he spends his time consulting with a large number of companies and we like his work, though in a very collegial way, take some issue with his recent assessment that mileage values are falling. Following is his recent research titled “The Fall of Frequent Flier Mileage Values in the U.S. Market.” We’ll tag along as you read this, then add our own observations at the end.

The buying power of frequent flier miles, as measured by the number of miles required to buy a reward ticket for U.S. domestic travel, has dramatically decreased since 1994. Falling air travel prices and reward level increases are major contributing factors to the drop in the value of a frequent flier mile:

  • In 1994, when the prevailing U.S. reward level was 20,000 miles, the typical frequent flier mile would purchase 2.1 cents of reward travel.
  • During 1995 most airlines raised their domestic U.S. reward level to 25,000 miles and the value of a frequent flier mile dropped by nearly 18% to 1.7 cents.
  • Since 2001, falling domestic air fares have brought the value of a frequent flier mile down to 1.4 cents in 2004 – – its lowest level since 1994.

    The 20,000 mile reward ticket offered in 1994 for domestic travel in the United States, when adjusted for decreases in domestic air fares, should only require 17,000 miles today. Quite the opposite has occurred, as the standard reward level for five major U.S. airlines has actually increased to 25,000 miles.

    Members of the programs operated by American, Continental, Delta, Northwest and United have experienced the largest drop in mileage buying power due to the continuation of the 25,000 mile standard reward level – – even in today’s environment of deeply discounted fares.

    The Frontier Airlines EarlyReturns frequent flier program provides a notable exception to this trend by offering a standard reward level at 15,000 miles for domestic U.S. travel and providing its members the highest value at 2.4 cents per mile.

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