Opening Remarks – April, 25 2006

Opening Remarks – April, 25 2006

The worries about the airline industry for some of our readers just never seems to end. When United first got in trouble, some of our readers tried to outguess my advice about Mileage Plus and jumped programs to Delta SkyMiles. Now they are back a few years later even more worried about their SkyMiles than they were when United and US Airways looked to end their frequent flyer dreams. And this time these readers promise me they won’t second guess what I do for a living.

But the times have changed. The festering labor ordeal of cost cuts may have reached its end, but “worthwhile” travel experts are still feeding the frenzy saying that your miles will be worthless and that the 12 percent cutback in Delta’s routes portends the end. If I sound like the deja vu that you have come to expect from me, well, it’s deja vu. I’ll go head and try to calm the nerves of the millions of members of the Delta SkyMiles program.

I do, however, remain wary of changing industry conditions and will attempt to update my advice daily if necessary on Remember, I do the worrying for you and am ready to go the final mile(s). I’m not going to spend any time trying to analyze where things went wrong for Delta, as there are better guys that do that kind of stuff and I’m just the miles guy! I fully expect your miles and awards will remain as robust as they have been with SkyMiles. I do not expect any action to cut back on existing patterns of award seat availability or other cuts designed to make the program any less attractive than it is right now. The airline does have its problems, but if you continue to follow my advice it will not be a problem for your miles.

P.S. This same advice goes for Northwest WorldPerks members. Earn miles, save miles, spend miles-the past is the present in terms of my advice for you.

As for the idea of the route cutbacks, etc? Gee, it seems like a good idea to cull routes where demand is not significant enough to make a profit and my guess is that most of these changes will be eased by alliance and other airline partnerships. While Delta may shrink their domestic capacity, it is still something like 214 percent bigger with Alaska, Continental and Northwest available for earning and burning of your SkyMiles. It’s the net advantage of these partnerships that the “experts” seem to miss time and time again.

And while I was really bold last year in predicting correctly the merger of two airlines, America West and US Airways, I’m not ready to predict the same for Delta or Northwest, though I keep reading the thoughts of others that it will happen. It’s just not in my crystal ball yet.

We celebrate the 25th anniversary of frequent flyer programs this month — and it’s been a real blast for me personally to talk it up with some of our readers about their memories and mileage activities over these past years. I hope you’ll enjoy reading back through the history of these programs as much as I have in researching our own archives to bring together as much as has ever been written about the topic.

As for the 25th anniversary of miles, here’s my personal collection of the milestones that have helped shaped this industry during that time:

25 Milestones in the 25 Years of Frequent Flyer Programs

Who owns the miles? Southmark/Envicon sued seven frequent flyer programs citing the “commercial bribery” of the programs. The lawsuit was tossed out with the court citing the ability of companies to manage miles on behalf of their business travelers without the interference of the court.

Diners Club introduces first credit card relationship to popular frequent flyer programs. The popularity of these partnerships prove to be most valuable to members and programs alike in years to come. Probably ranks as the most important partnerships ever to be introduced to the industry.

Charity: The American AAdvantage Liberty Club becomes the first to tie in a charity/non-profit cause with frequent flyer programs. Members could earn a bonus for donating to an organization raising funds to restore the Statue of Liberty. Over the years the call to donate miles to Operation Hero, the local Ronald McDonald House, the Asian tsunami, the collective 9/11 efforts and more have forever cemented frequent flyer awards as a popular method of giving and taking.

May 1986
Frequent flyer programs begin suing coupon brokers — the growing business of reselling frequent flyer awards for profit. At this time nearly 3 percent of awards issued were sold by third parties, mostly business and first-class international awards, which most members covet.

May 1986
First domestic program alliance of major programs as Pan Am WorldPass joins AAdvantage (discontinued May 1987). These type of reciprocal relationships would later enhance the membership value of both programs while diluting the “true loyalty” factor.

Programs end their policy of allowing travel agents to redeem awards for members of frequent flyer programs. Later on this move would allow the industry to monetize the process of award redemption.

Triple Miles: In what began as a credit card promotion involving American Express and the Delta Frequent Flyer program, this quickly matched program lasted all of 1988 and popularized the concept of “mileage runs.”

American introduces the SAAver and PlanAAhead awards structure giving a discount to a limited quantities of awards.

United Mileage Plus introduces concept of “expiring miles.” This becomes an industry standard.

Air Canada becomes first program to allow members to purchase miles directly from the frequent flyer program, buying up to 10 percent of the award mileage level required.

Westin Premier becomes the first hotel points program to allow the conversion of points directly into frequent flyer miles. In the early years up to 70 percent of hotel currency became frequent flyer miles.

First major bankruptcy by an airline resulting in a major loss of miles and awards by members. Midway Airlines folded its wings in 1991 and 700,000 members of its Flyers First program lost all their awards.

Aug 1992
United introduces the first fee for changing awards — $25. Most other programs follow as it is estimated that nearly 23 percent of awards booked are changed later on.

The FAA decides that PFCs (Passenger Facility Charge) should be charged on free awards. While some programs paid these fees on behalf of their members, later on the fees were passed through. Frequent flyer programs begin to lose their exemptions.

IRS Commissioner releases official statement that the IRS is not interested in taxing personal use of frequent flyer awards.

Hilton Reward Exchange: The first exchange that broke down the exclusivity of mileage currency. Allowed members to begin exchanges miles among their various programs.

Nov. 1994
American and United simultaneously introduce “incentive miles” programs unleashing the power and reach of miles as a loyalty currency to any number of non-program-related partners.

Dec 1994
US Airways shoots down a strong corporate America initiative (Business Travel Contractors Corp.) to offer cheaper fares by forgoing awarding frequent flyer miles to business travelers.

Wolens v. American. This eventual U.S. Supreme Court case involving changes to the AAdvantage program led the way for subsequent lawsuits against various programs.

Aug 1996
The Federal Aviation Agency issued Security Directive 96-05 to all airlines requiring them to match the ID of the airline traveler to the traveler. This ended a popular method of earning frequent flyer miles by enticing others to fly under your name and frequent flyer number.

The first collective global alliance of major airlines and their frequent flyer programs. International travelers gained significant leverage of benefits.

Aug 1997
The U.S. government introduces a federal excise tax of 7.5 percent on sale of miles by frequent flyer programs to partners.

Pudding Guy: David Phillips, a civil engineer at UC-Davis, becomes a cult hero in the obsessive subculture of people who collect frequent flyer miles.

SaveSkyMiles: This member-driven initiative showcased the collective efforts of members to push back on changes that the Delta SkyMiles program had put into place.

Air Canada Aeroplan sells part of its program, proving value to the public investment market.

There have been other single events that helped shape this industry, but these 25 had a long-term effect on the industry. If I’ve forgotten something, please let me know.

As a frequent flyer who has taken several trips, including mileage runs, to China, I’ve always enjoyed the wisdom of their ways and words. The Ming Daily special news report recently tried to capture the essence of in words which makes our labor to earn, collect and use frequent flyer miles all too poetic: “Members want the free travel. The most effective method positively earns various airline miles, received in exchange for the airplane ticket. But the body is a passenger, often clarifies own journey whether or not truthfully by the reward plan [you are] in. Any method can extremely fast help you to earn? These questions answered, probably all may in Flyertalk.Com find. [FlyerTalk] is known as ‘the flight patron society group which the world most receives welcome,’ … and has the flight patron which large quantities of [knowledge] has a common goal to discuss the careful shared flight experience. How can the website even teach you to write a most effective letter to sue the airline?”

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