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 The Brancatelli File

joe PARABLES OF THE
FREQUENT-FLYER PROGRAMS


BY JOE BRANCATELLI

March 23, 2006 -- Time to share two new frequent flyer program parables. The one about the heretic and the bottled water and the parable of the holy man and the restricted-mile awards.

Weary and thirsty, a member of the tribe of business travel stops at his local supermarket on the way home from the airport. He grabs a case of bottled mineral water and prepares to render payment. As he has been trained to do by a lifetime of devotion to the gods of frequency, he flashes his Greenpoints card to ensure that he receives 10 points of credit for each of the eight dollars he will spend.

Then a very young man, a member of the tribe of cashiers, rouses himself from the Land of Nod and mumbles: "Wanna trade 1,000 points for $4 off the water? You get four bucks off the case if I take 1,000 points from your account. "You've got lots of points, like 95,000."

The business traveler communes with the mileage gods: "89,000 Greenpoints can be traded for 5,000 miles in American AAdvantage or Delta SkyMiles. But at $4 off bottled water per 1,000 points, those 89,000 points are worth $356. So…"

Jostled from his meditations by a Pharisee who pokes him from behind with a shopping cart, the weary business traveler utters the fateful phrase: "Uh, yeah, okay, do it."

Four real dollars to the good but 1,000 points shy, the business traveler realizes that he has become a heretic by using points and miles for something other than airline seats.

Then there is the tale of the holy man, a priest from the mythical land of Florida. He sends an epistle to a scribe of the tribe of business travel.

"Continental stonewalled me on [restricted] BusinessFirst tickets to Barcelona in July when I asked for them back in September, 2005," wrote the holy man. Yet there was almost no one booked "either in BusinessFirst or coach as late as December." The holy man found purgatory in this rejection: "I could pay double the miles [for an unrestricted award] but that does not seem like reward travel, but punishment, if not harassment."

The scribe responded to the holy man thusly: "What part of restricted did you think the airlines were kidding about?" He respectfully urged the holy man to render to Continental the unrestricted miles that were Continental's.

But the holy man from the land of Florida was not assuaged. Such limited availability of restricted awards was "dishonest," the holy man said. And rather than pay unrestricted tribute for free travel to the promised land of Spain, he chose instead to wander in Ireland after a connecting pilgrimage to Birmingham, England.

What lessons do we learn from these parables? Restricted awards, especially for premium-class travel, are like manna from heaven. In other words, very rare and possibly miraculous. And, perhaps more important now, it's time to rethink our evangelical opposition to using miles and points for anything besides airline seats.

Let's take that second lesson first since both United Airlines and Delta Air Lines this month launched test programs that allow flyers to use miles for merchandise instead of airline seats. Delta's Medallion Marketplace is limited to platinum-level SkyMiles members. United's Merchandise Rewards is open to any elite Mileage Plus member, but carries a December 31 expiration date.

Both merchandise programs are sops, of course, meant to soften the reality that there are precious few free seats still available at either the restricted or unrestricted levels. Delta, after all, was 12.7 percent smaller in February than it was just one year ago. And it filled almost 76 percent of the seats that it still flew in February, which is almost 5 percent higher than a year ago. United's capacity has shrunk by about 20 percent since the spring of 2000. And its load factor in February jumped to almost 77 percent, which is 11 percent higher than it was six years ago.

The merchandise awards available in both programs are minimal in terms of per-mile value. At Delta, for example, gift cards worth $50--from Amazon.com, Home Depot, Target, L.L. Bean, among others--cost 10,000 miles. That's a half-cent of value per mile spent. An iPod Shuffle worth $99 costs 34,200 miles, driving the value of a mile below three-tenths of a cent. A Bose Wave CD/Radio that sells for $499 costs 122,200 miles, pegging the value of a SkyMile at about four-tenths of a cent.

Those are lousy payouts if you compare them to 90,000 SkyMiles miles for a restricted business-class award or 250,000 miles for an unrestricted business-class award. After all, score a restricted award for a $5,500 business-class seat to Europe and we're talking more than 6 cents a mile in value. But what is your chance of getting that award anymore? Even the 3.2 cents a mile of value you receive for using 250,000 miles for an $8,000 unrestricted ticket seems increasingly elusive.

So, to be honest, I didn't mind becoming a heretic and burning 1,000 Greenpoints for $4 in hard-dollar savings on bottled water. Do the math. If I cashed 89,000 Greenpoints for their SkyMiles equivalent of 5,000 miles and if I got a $5,500 business-class ticket for 90,000 miles, the 5,000 miles would be worth about $305. I save $356 if I spend 89,000 points on bottled-water discounts.

Which brings us back to that frustrated Jesuit from Florida, who'll soon be tromping around Ireland and England instead of Spain. I told him what I've been saying for years: Frequent-flyer programs are unregulated lotteries. There are no local, state or federal regulations that require airlines to make even one seat available at a restricted level. The fact that perhaps 80 percent of all frequent-flyer awards are still claimed at the restricted level is a testament to the fact that the airlines have done a decent job making good on their unregulated pledge. Or it is a testament to the fact that, like the priest from Florida, travelers will settle for their second or third choices rather than pay unrestricted miles. Or it's a combination of both.

Still, the frequent-flyer game is changing rapidly--and not to our benefit. If you want to keeping play, you have to be realistic.

You must first accept that frequent-flyer programs are now what they have always been: A permanent floating crap game controlled by the airlines for their benefit, not yours. You also must promise yourself never to buy a product or service just to earn miles. You must accept that there are fewer seats than ever before to claim and that "winning" the game may mean accepting a flat-screen television--or a discount on a case of bottled water--as the reward for your loyalty.

Which brings me to the parable of the airline executive who claimed he could turn bottled water into Chardonnay. But that's for another column…

Copyright © 1993-2006 by Joe Brancatelli. All rights reserved.