For Some, Frequent-Flier Miles a Passion

The Budget Rent A Car clerk at Washington’s National Airport was confused. Five minutes after renting a car, Jeff Pollak, a 25-year-old computer consultant, had dropped the keys on the counter.

“Was there a problem with the car?” the clerk asked.

“No, the car was fine. I just wanted the frequent-flier miles,” said Pollak, who rented simply to qualify for a free trip and extra mileage points.

He exercised a loophole in a November promotion by renting a car several times to earn a $408 ticket to Los Angeles for $150. With a little more creative frequent-flier accounting, the unused rentals also added 2,500 miles to his Alaska Airlines program and 2,311 miles to his American Airlines program.

“This is a passion,” Pollak said. “I don’t collect stamps or baseball cards. I collect frequent-flier miles.”

While not all 31 million members of U.S. frequent-flier programs are this passionate, a windfall of new giveaways is now available even to those who seldom board a flight. And though each mile is worth 2 cents or less, they are often managed more meticulously than investments bearing cash returns.

“When you invest in a certificate of deposit, do you just buy a CD, or do you look around town and compare which bank offers the best return?” asked Randy Petersen, publisher of InsideFlyer magazine. “You have to look at it like an investment in a CD or a stock.”

One difference: Frequent-flier awards are tax-free unless exchanged for cash, said Ernst & Young partner Martin Nissenbaum, and a cash exchange involves selling tickets in a $30-million-a-year market driven underground by airline restrictions against selling mileage.

The world of frequent-flier miles is becoming ever more complicated. Here’s an overview for anyone who hasn’t been paying attention.

Earning Miles

In addition to offering miles for ordering flowers, mattresses and shirts, American Airlines has taken the investment metaphor to its extreme conclusion. It awards one mile for every $10 invested in the Advantage Funds, a mutual fund sponsored by American and managed by such firms as Morgan Stanley Asset Management. The miles are a bonus on the return of the fund, which requires a $10,000 minimum investment.

The most common bonuses come from so-called affinity credit cards, such as First Chicago Corp.’s Visa Card, which earns a mile on United Air Lines for every dollar spent, and from long-distance telephone companies that pay a mile for each dollar spent on calls.

Newer, more offbeat crossovers include 300 miles on United for spending $30 or more with 800-Flowers; one American mile for each mile moved with Allied Van Lines, and one for each dollar donated to the Jewish National Fund. Perhaps the best deal is from Diners Club, which awards 10,000 miles at any of 18 airlines--when members pay the card’s $80 sign-up fee.

American’s frequent-flier program, with 24 million members, is generally regarded as having the most creative links to other products for those who don’t want to wait too long to earn a ticket, followed by United and Delta.

“I call it Green Stamps without licking,” said Bruce Chemel, American’s managing director of marketing programs.

Strategy

For infrequent fliers, the first step in figuring out which program to join is to pick a few favorite vacation spots and find out which airlines fly there. Find out how many miles each requires and go for the most convenient, generous program, which may not necessarily offer the most program tie-ins. Most carriers award domestic tickets for 25,000 miles, though Trans World Airlines Inc. asks for only 20,000.

What’s the return on time and effort invested in frequent-flier programs? If it takes 25,000 miles to earn a domestic round-trip ticket that normally retails for $325, each mile is worth about 1.3 cents.

Mileage awards are only something for nothing if earned with purchases that would have been made anyway, such as by putting all grocery purchases on an affinity credit card. There’s always the temptation to spend a little more to get a few more miles.

And remember: In a sense, the awards are only really worth the face value of what you get if you would have taken a similar trip anyway.

New Dynamic

American Express customers who link expenditures to their flier programs increase card spending by 20% in the first year, said Peggy Maher, who heads the card’s Membership Miles program. “It’s actually a combination of new spending and old cash spending,” she said.

Business travelers face a double temptation. Expensive hotels and rental cars offer them mileage awards at the expense of their employers’ travel budgets. “Business-wise, I think people spend a lot more,” said Dallas salesman Bobby Finken.

Another drawback: Only about a tenth of the seats on most flights are available for frequent fliers, not including numerous blackout dates that restrict the use of free tickets during popular travel seasons such as Christmas and Thanksgiving. Mileage awards for discount car rentals and hotels can also be hard to collect and require advance notice of days or weeks.

Airlines have about 1.9 trillion unused frequent-flier miles outstanding, Petersen said. That doesn’t mean they’ll have to give away 9 million free flights, though, because many accounts won’t amass enough miles for a free ticket, and almost a third of the miles will go unused due to restrictions.

The airlines benefit from the proliferation of frequent-flier opportunities, charging 2 cents a mile to each company offering them. Though they won’t comment on how much that earns, Petersen estimates that American brought in $200 million last year from its frequent-flier program.

As more people take advantage of the different ways to build up miles, airlines and companies that offer them will be forced to make it steadily harder to collect them. This year, for example, some airlines increased the number of miles required for a free round-trip domestic ticket to 25,000 miles from 20,000.

And companies eventually crack down on abused promotions, including the one that gave Pollak his Los Angeles ticket. Budget Rent A Car now requires that each rental last three consecutive days, making it more expensive to rent needlessly than to simply buy a ticket.

While airlines say they can slap new restrictions on their programs at will, some frequent fliers have become frequent filers, launching class-action suits against American, United and Delta for changing the programs’ original rules. The suits are likely to drag on for several years.

Meanwhile, frequent-flier miles are “just like money,” said David Sams, a California communications consultant with 2 million unused miles.

“It’s inflation, and the value goes down,” he said. “You use them or you lose their value.”

By the way, to avoid the fuss of following changes in magazines such as InsideFlyer or of calling all the airlines for changes in popular promotions, Frequent Travel Miles in Philadelphia offers the “frequent-flier maximization system.” It uses a personal computer spreadsheet to track earned miles and a computer modem to keep frequent fliers up to date on new promotions. The software costs $79.95.

Don’t forget to pay with your frequent-flier credit card.