Frequent Flyer Miles Have Value : Use Them Or Lose Them

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06/04/2009 – Frequent Flyer Miles Have Value : Use Them Or Lose Them

Are you using your frequent flyer miles? You earn them when you fly, chances are if you are a frequent traveler you also earn them through your credit card, your hotel stays, your car rentals and through other earning sources.

Airlines have been using frequent flyer programs to attract a loyal passenger base since their creation nearly 30 years ago. In May of 1981 the first frequent flyer program (as we know it today) was launched by American Airlines. British Airways, Delta Airlines and United Airlines quickly followed American Airline’s AAdvantage. Today, virtually every commercial airline, flying scheduled service, offers a frequent flyer program.

Airlines use frequent flyer programs as a very strong secondary source of income, with some airlines spinning off their programs into separate entities, or using their programs to cover other airlines. Lufthansa’s Miles & More program spans nine European airlines (as AirOne leaves the program Brussels Airlines joins the program) as well as six regional carriers.

With airlines around the world aggressively seeking ancillary revenue streams, their frequent flyer programs are being expanded, while many airlines reduce members’ ability to redeem miles for flights. Airlines have found many secondary sources to allow for passenger redemption without opening up available seat stock, or severely restricting access to the lowest ‘miles fare’ seats.

What does this mean for flyers as we continue to rack up miles? As of the latest full review I can find, which details the 2007 global frequent flyer spectrum, it shows most flyers are not maximizing their use of potential miles.

At the end of 2007 there were an estimated 17,000,000,000,000 (yes that is trillion) unused frequent flyer miles in circulation. Of these 17-trillion frequent flyer miles in circulation, an estimated 39,000,000,000 (yes that is billion) frequent flyer miles expire annually. These 17-trillion frequent flyer miles equate to an estimated US$480-billion and US$700-billion in potential redemption value.

Airlines know that most members of their frequent flyer programs will never achieve “elite” status or full maximize the benefit of their miles. Airlines recognize that most people will never accrue 1,000,000 miles or more in a year, as over 307,000 frequent flyers did in 2007, through a mix of flying, credit card accrual and other secondary earning sources

Frequent flyer miles are so valuable to airlines that they use the miles literally as cash leverage, as do banks and credit cards. In 2007 American Airlines was able to gain access to liquid assets by selling US$900,000,000 worth of frequent flyer miles to Citibank. American Express earns approximately US$300,000,000 alone through annual fees from its Delta Airlines SkyMiles cross-branded card. The Delta Airlines-Northwest Airlines merger, and Northwest’s conversion to the SkyMiles program, will cost its cross-branded credit card issuer US Bank an estimated loss of US$65,000,000 in annual fees from the loss of it’s Northwest WorldPerks Visa card program.

With trillions of unused frequent flyer miles in circulation and billions of frequent flyer miles expiring annually, how will you use your miles? Fly with them? Pay for a hotel stay? Magazine subscription? Maybe donate them (I recently donated more than 20,000 miles from a program I no longer use before they expired)?

Whatever you plan to do with your miles, use them before you lose them. Miles have value and if nothing else, the airlines expect you to forget about them and let them expire.

Happy Flying!