As flier programs turn 25, some would like an upgrade

WHEN frequent-flier programs, the carrot dangling from the airlines’ stick, mark their 25th anniversary next month, they’ll have much to celebrate. The programs that promise free trips if you promise your loyalty are one of the most successful marketing campaigns in history and have become, surprisingly, a huge source of revenue for the airlines.

But those who play the frequent-flier game know the programs sometimes appear to be victims of their own success. Getting an award seat can seem almost impossible, requiring ever greater flexibility and planning. It’s unlikely, though, that the airlines will let the programs collapse, so they’re finding new ways to reward members for their loyalty.

As many as 180 million people worldwide -- 120 million in the United States alone -- belong to programs offered by U.S. and international carriers, says Randy Petersen, publisher of InsideFlyer, a monthly magazine and website (www.insideflyer.com) designed for frequent fliers. These fliers have received millions of free domestic and international trips and/or used their miles for upgrades to coveted business- and first-class cabins. Petersen says in 2005 alone nearly 40 million awards were given worldwide.

“My mileage programs have given my relatives and me free tickets to family reunions in the Midwest,” says Susanna Hecht, a professor of urban planning at UCLA who has accumulated her miles through flights and co-branded credit cards. “I’ve also gotten free tickets and those indispensable upgrades on many long flights to Europe and Latin America.”

Despite such benefits, some travelers are now disgruntled with frequent-flier programs. An estimated 14 trillion unredeemed miles are currently deposited in frequent-flier accounts worldwide, increasing competition for awards. Members complain -- with justification -- that they must jump an increasing number of hurdles to get free tickets or upgrades or that they cannot get desired tickets at all.

“I have 2.5 million miles, and the awards are all gone by the time you want a ticket,” says Mark Shoolery, president of Shoolery Design Inc., a Los Angeles-based entertainment advertising company. “I’ve got ‘em, but I cannot spend ‘em, so I buy coach tickets and I upgrade. It’s much easier to get upgrades.”

Some frustrated fliers have dropped out of the mileage race. “The programs have become so complicated and so riddled with rules and restrictions and new add-on fees that I usually don’t try to earn miles any longer,” says Isaac Malitz, a computer software executive in Sherman Oaks. “I just look for the best price on a good airline with the right schedule.”

But the airlines -- with some justification -- say that their programs have never been more generous and that they are offering additional rewards, such as merchandise, for miles.

“Mileage Plus has really made strides at offering our customers more ways to use their miles beyond air travel,” says Ken Feldman, vice president of loyalty and e-commerce programs at United Airlines. “We recently had a customer spend about 1.4 million miles on a Chrysler Crossfire.”

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Programs take off

AMERICAN Airlines launched its AAdvantage frequent-flier program in May, 1981. Within days, United had rolled out Mileage Plus. By year’s end, many U.S. carriers were offering similar promotions.

The programs, which were originally supposed to run only a year or so, were meant to identify a carrier’s most frequent and profitable passengers -- mostly business travelers -- and to strengthen their loyalty by awarding free tickets and upgrades.

Business travelers enrolled in droves. Just as the airlines had hoped, these passengers flew “their” airline whenever possible, even if it meant selecting less convenient times, taking a connecting flight instead of a nonstop, or paying more for a ticket.

Within a few years, the airlines had discovered that millions of leisure travelers, who took no more than a few flights a year, were enrolling in the programs too. The airlines had signed up “partners” -- initially hotels and rental car companies and then long-distance carriers and credit card issuers too -- that awarded mileage.

Suddenly, the occasional leisure traveler could earn enough miles to get free tickets. And Southern Californians have an advantage in playing the mileage game: They can choose among numerous carriers and airports.

The number of people in frequent-flier programs soared. All major U.S. carriers -- even Southwest and more recently JetBlue -- launched such programs. “We didn’t want a frequent-flier program,” said Herb Kelleher, chairman of Southwest Airlines, but other carriers’ programs “were siphoning business travel away from us. We did it defensively.” Foreign airlines copied U.S. carriers’ leads and started their own programs.

More than 70 airlines now have the programs. By 1991, members had accumulated 1 trillion miles on U.S. carriers alone.

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Everybody’s doing it

FREE tickets may have seemed like a financial disaster for airlines. Not so. Many flights had empty seats. In 1981, planes flew at about 59% capacity. (The cost of a free seat on a domestic flight is currently estimated at $25 for ticketing and check-in, jet fuel for the added weight of the passenger and luggage, and a snack or meal.) Typically, the free frequent-flier tickets and upgrades were merely filling seats that would have been empty anyway.

At the same time, airlines were generating revenue by charging their partner companies 1 to 2 cents a mile.

As the programs’ popularity grew in the 1990s and more members started accumulating significant mileage, the airlines changed the rules: Most free tickets and upgrades became subject to “capacity controls,” which meant carriers could limit the number of awards.

By 2004, about 76% of a plane’s passengers were paying customers, and the noose began to tighten for the consumer seeking something for nothing.

As more and more miles accumulated in member accounts, mileage inflation became inevitable. Many airlines are increasing the mileage requirements for various awards.

“Continental’s OnePass has recently boosted its ‘anytime’ business-class award between the U.S. and Europe from 200,000 to 250,000 miles, a 25% increase,” says Matt Bennett, publisher of www.firstclassflyer.com. “Delta jacked up their ‘anytime’ business-class award from 180,000 to 250,000.”

Other carriers are denying upgrades for the cheapest international coach tickets. Still others are imposing fees: Some charge $15 to book a ticket with a telephone reservations agent, and others will ding you $500 (plus the required miles) to upgrade a coach ticket to business class on long-haul international flights.

But the airlines say some improved products should translate into higher mileage “prices.” They say the increasing comfort of long-haul business- and first-class cabins, for example, justifies higher mileage requirements for free tickets.

Bennett says neither the airlines nor the customers deserve all the blame for the state of awards travel. “The programs give out millions of tickets, but they over-promise to customers, and they don’t explain the difficulty of redeeming the miles when flights are so busy,” he says. “And the public has unrealistic expectations about getting valuable tickets for making a few flights each year, and using the right credit card at the gas station and grocery store.”

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Maximizing benefits

SO, where does this leave frequent-flier program members? One fact is clear: Awards are more difficult to redeem nowadays, because too many miles are chasing too few seats. Exacerbating the problem is the airlines’ cutback in capacity and an increase in the number of paying customers.

Revenue-hungry carriers are tempted to allocate fewer free seats and upgrades on flights that are selling out.

Yet the airlines cannot reduce the number of award seats so drastically that members (particularly leisure travelers who earn most of their miles through partner purchases) lose interest in the programs. Partner companies would start dropping out of the programs, and the carriers would lose the miles-selling revenue that helps keep them aloft.

Now more than ever, program members must know how to maximize their mileage benefits. They should also recognize that the programs, despite their growing annoyances, still offer an amazing award: free travel.

“For domestic trips, I use miles for free tickets on super-expensive routes, or I give tickets to company employees to save money,” says Katie Williams, chairwoman of Williams Worldwide Television, a Santa Monica-based direct-response marketing company. “For international travel, I put my miles to their best use for upgrades.”