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 The Brancatelli File

joe FRANK TALK FROM FRANK OLSON
ON FREQUENT-FLYER PROGRAMS


BY JOE BRANCATELLI

September 30, 1997 -- A speech that was never recorded was written by a guy that you may not know and delivered to a group that you needn't worry about, but it nevertheless signals the beginning of massive changes in your frequent-flyer programs.

The speech in question was the handiwork of Frank Olson, the extremely low-profile chairman of Hertz, the car-rental giant. People listen when Olson talks and what he talked about a couple of weeks ago in front of a travel conference in London was the increasingly peculiar world of frequent-flyer plans.

Olson spoke without a prepared text, so we have to rely on trade-magazine accounts of his speech. But what he meant to convey got through loud and clear.

The car-rental industry was "foolish" to pay airlines $100 million a year to buy frequent-flyer miles to award to business travelers who already pay deeply discounted corporate rental rates. "We discount, then we add a bonus to the discount," Olson was quoted as saying. "This is dumb."

Then Olson raised a new problem--a 7.5 percent tax that the federal government now imposes on the miles that companies buy from the airlines. Buying miles to give to travelers who get discounts and then paying tax on the purchase is "dumb to dumber," Olson added.

And here's his coup de grace: "I am determined to get out of this silliness," said Olson, who once ran United Airlines.

Back in the states, Hertz had no copy of Olson's speech and none of the company's other executives wanted to comment. All that was available was a "standby" statement. It said Hertz was reassessing its participation in frequent-flyer programs because "the only ones who make money are the airlines."

Now before you start whining that Frank Olson has some nerve threatening our god-given right to earn miles, think about this for a minute.

What costs less than a rental car? For $35 a day or so, we almost always get the use of a good, clean vehicle. What does $35 get you from the airlines or the hotel industry or, for that matter, from your office-supply store? You can't even get a decent pair of business slacks for $35 anymore.

And think some more: When the hell was the last time you chose a car rental company based on frequent-flyer miles? Your choice of rental is probably dictated by your corporate travel department or your negotiated rate. Even if it's not, when was the last time you wanted to rent a car from a firm that was not already in your frequent-flyer program? These days, every car rental company on the planet plays in virtually every frequent-flyer plan in the world.

And that's all that Olson's saying. He already gives you a great price on a rental car and you probably aren't renting from him because miles have induced you to switch from another company, so why is he lining the airlines' pockets and paying a tax for the privilege?

So take it as a given that Hertz will pull out of one or more frequent-flyer plans in the months to come. Watch for Avis and several other rental firms to follow. And watch this exodus lead other companies to reassess their position in the airline programs.

But the changes coming to frequent-flyer programs only start with a reduction in the number of partners.

Consider, for example, what TWA introduced in August: mileage based not on the number of miles you fly, but the amount of money you paid for the ticket. At the moment, TWA's Fare Value Bonus is just that: a bonus mile for every dollar you spend buying a TWA ticket.

It seems inevitable that dollars spent will one day replace miles flown as the basis for issuing frequent flyer miles. And maybe that's not such a bad idea. After all, why does the once-in-a-blue moon leisure traveler get the same mileage for his $99 ticket to Podunk as you get for your $999 ticket?

And both of these changes pale in comparison to what the airlines have in store for us when they rework their frequent-flyer programs to harmonize with their super-alliances. The Star Alliance with Lufthansa, Air Canada and other airlines, for example, is leading United to work up drastic revisions to Mileage Plus. Expect a similar revamp of American AAdvantage if the British Airways marketing initiative is approved.

Will these changes be better or worse for business travelers? Honestly, I don't know. But given the airlines' predilection to make our lives worse instead of better, I'm burning a lot of frequent-flyer miles these days. Whenever I can use miles to upgrade or claim a free ticket, I'm doing it.

After all, Frank Olson, who once ran an airline, doesn't trust the airlines, so why should you or I?

This column originally appeared at TheTrip.com.

Copyright 1993-2005 by Joe Brancatelli. All rights reserved.