Brancatelli on Business Travel – Can We Beat the No-Seat Scenario?

Brancatelli on Business Travel – Can We Beat the No-Seat Scenario?

My cat Dusty thinks it’s nifty that Continental Airlines gave a lost kitty from Wisconsin a ride home from Paris in business class. I just wish Continental was as generous with members of its OnePass frequent flyer program.

At the very moment that Continental was announcing the feline freebie, I was on the Web site tracking frequent flyer award availability. Continental’s site said there were just nine days during the first three months of 2006 that a non-elite OnePass member could claim a restricted, 100,000-mile business-class award for a roundtrip to Paris. And abandon all hope if you want to fly to Rome to visit the famous cat sanctuary at the Largo di Torre Argentina. There isn’t even one day during the first three months of 2006 when a non-elite OnePass member can claim a restricted business-class award to Rome.

In fairness to Continental, elite OnePass members get a better choice of business-class seats at the restricted level. And OnePass members can always snare any as-yet unsold business-class seat by cashing 200,000 miles for an unrestricted award.

But the nearly complete blackout for regular members at the restricted level during the slowest period of the year for transatlantic travel is a stark example of what may be the most acute crisis ever faced by the 25-year-old frequent flyer programs: The Big Six airlines are running out of seats to pay off on their frequent-flyer award liability.

We frequent flyers have always been at odds with the carriers over free-seat availability, of course. Any frequent flyer who doesn’t get exactly the seats he or she wants on the days he or she wants to fly is unhappy. And there have always been the saps who didn’t understand that the airlines weren’t kidding when they called the cheapest award levels restricted.

But the current situation is unprecedented. Why? Because frequent flyer programs have always been something of a pyramid scheme. The award structures have largely been designed around the expectations that the sponsoring airlines would continue to expand. And even if the Big Six weren’t growing, there was always a new international partner to provide a quick boost of new seats to some exotic destinations.

No more, however. There are no foreign carriers of any size to bring into the programs and, if anything, the Big Six are contracting. Northwest and Delta, for example, have slashed as much as 15 percent of the seats from their systems since they declared bankruptcy. After two trips to the bankruptcy court, US Airways is a shadow of its pre-9/11 self even after the recent merger with America West. United Airlines has been slashing capacity for its entire three-year stay in bankruptcy and its recently filed plan of reorganization predicts no growth at all in the next five years. American is probably smaller today than it was on the day it absorbed TWA four years ago. And Continental flew exactly the same number of seat miles (8.1 billion) in November as it flew in August 2001.

Worse, the Big Six carriers are filling a record number of the seats they still fly. During the first nine months of 2005, the industry recorded a load factor of 78.1 percent. In other words, it’s hard enough to buy a seat on popular routes these days, let alone get one free.

Worst of all, rather than reduce the number of miles they give, the Big Six are selling and giving away miles as if they were, well, free. Some experts say there are now 14 trillion outstanding miles; that’s double the number of miles that were unclaimed just five years ago. And miles keep pouring into the system as the Big Six, desperate for cash, sell miles in bulk to credit-card companies, mortgage firms, the butcher, the baker, the software maker and anyone else looking for a quick way to draw attention to a product or service.

And for knee-jerk defenders of the current state of frequent flyer affairs, I give you the hard numbers as reported in the Big Six carriers’ 10-K filings with the Securities and Exchange Commission. As an industry, airlines redeemed 14,448,000 awards in 2004. That’s down from the 15,785,000 awards redeemed in 2003 and the 14,487,000 awards redeemed in 2002. Continental, for example, said it devoted 5.6 percent of its available seat miles to free tickets in 2004, less than the 7.6 percent it gave away in 2003 and the 8.1 percent awarded in 2002. In fact, only US Airways increased the percentage of free seats it awarded during the past three years.

So this alarming trend raises two vital questions: What are the Big Six going to do to make sure their programs remain viable? And what can we do to protect ourselves?

I can’t answer the first question because no one — and I mean no one– running a Big Six frequent flyer program would talk to me about this issue. I’d like to think this quietude is due to the marginally encouraging fact that they know they have a problem but don’t want to admit to it until they have a potential solution to throw at us. But I’m a cynic. I suspect they think that we’re too stupid to notice how the numbers point to gridlock.

As for the second question — How can we protect ourselves? — I do have a few suggestions. They aren’t magic bullets, but they’ll help.

*Start claiming merchandise

For years, I’ve suggested that using frequent-flier miles and American Express and Diners Club points for merchandise offered a bad payoff compared to airline seats. But as you can see by the chart, that may no longer be the case.

Merchandise vs. flights: The equation is changing

What You’ll Get Cash Cost Mile/Point Cost Value
Dining coupons via United: $100 of certificates from $40.00 (a) 2,500 miles 1.60 cents
Continental Airlines
Restricted Newark-London Business Class
$1,522.10 (c) 100,000 miles+ $103.09 fees 1.41 cents
Cookware via Diners ClubAll-Clad 10-piece Copper Core Cookware Set $1,079.95 (d) 83,500 points 1.29 cents
Car rental via American
2-day National full-size rental in Seattle
$151.90 (b) 10,000 miles+ $25 fees 1.27 cents
Electronics via Diners Club: Bose Wave Music System $499.00 (e) 46,000 points 1.08 cents
American Airlines
Walk-up Dallas-Chicago in coach
$356.65 (f) 25,000 miles+ $105 fees 1.01 cents
Clothing via AmEx: $250 Gift Card for Brooks Brothers $250.00 25,000 points 1.00 cents
Luggage via AmEx: $100 Gift Card for Lands’ End $100.00 10,000 points 1.00 cents
Music downloads via United: 10 albums at $99.90 (g) 10,000 miles 0.99 cents
Northwest Airlines
Restricted Portland, Ore.-Tokyo in coach
$547.35 (h) 60,000 miles+ $41.65 fees 0.84 cents
Continental Airlines
Restricted Newark-London in coach
$455.77 (i) 50,000 miles+ $66.57 fees 0.78 cents
American Airlines
Restricted Dallas-Chicago in coach
$178.00 (j) 25,000 miles+ $5 fees 0.69 cents
(a priced at; (b) priced at; (c) roundtrip (out 12/29, back 1/7) priced on; (d) priced at; (e) priced at; (f) roundtrip (12/2) priced at; (g) priced at; (h) roundtrip (out 12/6, back 12/13) priced at; (i) roundtrip (out 1/13, back 1/29) as priced at; (j) roundtrip (out 12/25, back 1/3) priced at

The trick, of course, is to know the street price of the merchandise you want. Doing a quick Google search will almost always show you the actual retail value of a product. And whenever you get a penny or more of payout, you may actually be doing better by claiming the merchandise or gift card than trying to find another restricted-class free seat.

*Stop feeding the beast

It’s time to get real here, fellow travelers. If the Big Six are going to close their eyes to this crisis, you’ve got to stop accumulating frequent flyer miles. Start at the top of the non-flying mileage food chain: the airline affinity cards.

Rather than continuing to accrue miles on an airline card, switch to a hotel affinity card. Hotel frequent guest programs are incredibly rich and the hotel chains are still expanding. So if you’re using a Delta SkyMiles American Express card, switch to an Amex card that gives you Hilton HHonors or Starwood Preferred Guest points. Dump that American AAdvantage Card issued by Citibank and get the Citibank card that gives Hilton HHonors points. Got a Continental or United card, both of which are issued by Chase. Call Chase and switch to one of their credit cards that give you Marriott Rewards or Priority Club Rewards points.

Or there’s an even easier strategy: Use a traditional American Express Card and a Diners Club card, which these days is a tricked-out MasterCard. You’ll get one point per dollar spent on each card and those points go into the Amex and Diners Club plans. When you really need miles to claim an airline award that you can get, transfer the points to the airline program. (Diners Club will get you miles on a one-for-one transfer basis on any of the Big Six plans; Amex offers points transfers to Delta, Continental, and, until Dec. 31, US Airways.) And when you can’t find an award from an airline, use the points to claim a Bose radio or a nice set of cookware.

*Consolidate airlines

Most of us already fly a limited number of airlines to maximize our elite status, but as the pool of award seats dries up, it’s more important to have the highest level elite status. Why? Top-level elite travelers really do have a better shot at claiming the available free seats. All programs now actively and aggressively discriminate in favor of their most elite customers when it comes to snaring seats.

Take that Paris scenario, for example. While an average Continental OnePass member gets only nine days of availability in 90 days for a restricted, business-class award to the City of Light, a OnePass Platinum Elite member does a lot better. He or she can get a restricted, 100,000-mile roundtrip award to Paris during 30 days in January, February or March. That’s roughly a 1-in-3 shot compared to the 1-in-10 odds faced by the non-elite member

That’s still not as good as that Wisconsin cat, who, as far as I know, isn’t even a OnePass member.

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