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Using Frequent-Flier Miles

If you're wondering what the future holds for your frequent-flier program, the answer includes Eggo Waffles.

A lot has changed since American Airlines launched the first airline loyalty program 20 years ago. The concept then was simple—accumulate points for each mile you fly, which you can then redeem for free tickets—and its immediate success prompted other carriers to follow suit. Today, of course, your miles can get you much more than free tickets, and you don't need to travel to earn them. "We still call it a 'frequent-flier program,' because that's a sexy name," says Randy Petersen, editor and publisher of InsideFlyer magazine and contributor to SkyGuide . "But that's not really what it is anymore." Points can be earned by shopping with a Delta Skymiles card, renting a car from Hertz, staying at Starwood hotels, even eating certain cereals: special boxes of Kellogg's cereals are worth 100 miles each. The promotion was so successful that the company plans to repeat it with Eggo Waffles and Nutri-Grain bars. (Two years ago, a California man took advantage of a similar scheme and spent $3,000 buying 12,000 Healthy Choice puddings that earned him 1.2 million frequent-flier miles. He gave the pudding to the Salvation Army.)

"Kellogg's partnership with American is eye-opening, and I think we'll see a lot more of that this year," says Petersen. Such deals are lucrative for the airlines, since they make money by selling the miles to other companies, and the cost of honoring them is negligible. What's more, promotions make a program more appealing to consumers in a highly competitive market.

For frequent fliers, however, there is a catch. With an increasing number of ways to earn miles, there's more competition for free tickets and upgrades than ever before. And closer ties between the airlines have only exacerbated this trend. Thanks to the Star Alliance, for example, passengers can combine miles earned on United, Varig, Air New Zealand, and 12 other carriers, making it significantly easier to reach the 25,000 miles needed for a free domestic ticket. At the same time, notes Petersen, "There are a lot more people chasing the same number of upgrades. And there's starting to be a devaluation of some elite-level benefits. The gold members are seeing fewer benefits, which are being scaled up for the platinum guys."

The most common complaint about frequent-flier programs is that once you earn enough miles for free tickets, you can't get a seat on the flight you want. Blame Eggo Waffles and the economy. "It's never been more difficult," says Tim Winship, publisher and editor of FrequentFlier.com (company motto: May your miles never expire). Airlines are giving away seats like never before, some 15 million last year, but they're also selling so many full-fare tickets that space for passengers redeeming miles is being squeezed. "Travelers have to be savvier—and they have to lower their expectations," says Winship. "Their odds of getting a seat are lower today than they were five years ago." How to do it?Reserve well ahead, or leave it to the last minute when the airlines try to fill empty seats. Or spend more miles—50,000, say, for an "anywhere, anytime" domestic ticket, rather than 25,000 for one with restrictions.

As in other industries, the Web is changing everything. Sites such as FrequentFlier.com and InsideFlyer.com allow you to compare and contrast programs, swap advice on maximizing miles, and learn about special offers. ClickMiles.com lets you earn extra miles by shopping online. And two new sites are even changing the way you can use your miles—AOL AAdvantage and MilePoint.com .

AOL AAdvantage, a joint venture between America Online and American Airlines, lets you redeem miles for products. A Harry Potter book, for example, costs 2,500 miles, while 122,000 will get you a Gucci watch. Similarly, MilePoint.com, a venture chaired by American's former chairman and CEO Bob Crandall, allows you to use miles from Delta, Northwest, Continental, US Airways, TWA, and America West, as well as Hilton HHonors points, for free magazine subscriptions and discounts on products and services. Although the connection between miles and products isn't unheard-of—American Express's Membership Rewards program has for years allowed customers to use points for mileage or product awards—airline miles as a kind of currency is groundbreaking.

"Carriers and retailers will all be experimenting because of this," says Bruce Chemel, president of marketing for AAdvantage. "You're going to see a lot of scurrying around online. We know that our Gold, Platinum, and Executive Platinum customers are high-tech savvy, so we plan to reach out to them however we can."

Although it's unlikely that many people will forgo that free ticket to Hawaii in favor of a George Foreman grill, these new sites do provide a way to use up any leftover miles in your account. Proponents such as Petersen, who is an advisor to MilePoint.com, predict a boom in online mile malls. "In the first and certainly the second quarter of 2001 you'll find many more merchants in these programs," he says. "They're up and running and they've got long-term contracts with the airlines involved, and that's all positive."

Others are more skeptical. "There's been a lot of talk about miles as an alternative currency, and these programs are reinforcing that," says Winship. "From a consumer standpoint there is value in being able to redeem your miles for merchandise, but people need to be very careful and aware of what the value of their miles is." The industry standard is that each mile is worth two cents to a consumer, so 25,000 miles makes your free domestic ticket worth roughly $500. But watch out for that Harry Potter book: you don't need to be a math wizard to figure out that at 2,500 miles, it's effectively costing you $50.

THE MILEAGE GAME
3.5 trillion: Number of frequent-flier miles currently in "circulation" among nearly 100 loyalty programs
500 billion: Number of frequent-flier miles earned each year
23 million: Record for the most frequent-flier miles held in one account
12,000: Number of miles earned per year by the average member of a frequent-flier program
60: Percentage of frequent-flier program members who are not frequent fliers
40: Percentage of miles earned through activities other than flying
Source: InsideFlyer

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