The Brancatelli File



September 30, 1996 -- So you say you've hoarded tens of thousands--maybe hundreds of thousands--of frequent-flyer miles and now you're wondering whether the airlines will make good on their pledges to exchange those hard-won miles for a free ticket or two.

Well, how confident are you that Social Security will be around when you retire? Just like the Social Security system, the frequent-flyer programs have an impressive track record--travelers successfully claimed about 13 million free seats last year--and an alarming short-term financial outlook.

Experts estimate that travelers have squirreled away at least 2 trillion frequent-flyer miles. Crudely calculated, that's the equivalent of 80 million free domestic tickets, a potentially daunting burden for the airlines when you consider they already fill seven out of every ten seats they fly.

Of course, the airlines have one great advantage when it comes to living up to their solemn pledge to give you a free ticket in exchange for your miles: They can weasel out on you.

Unlike Social Security, airline frequent-flyer programs are almost totally unregulated, you have virtually no rights or legal protection, and there are no nervous politicians facing re-election on whom you can lay an entitlement guilt trip. In fact, when it comes to frequent-flyer programs, the airlines are the moral equivalent of those lumbering, secretive, centralized communist economies of the erstwhile Evil Empire. They are sole arbiters of how many miles you can earn, how many miles you can spend, when you can spend the miles, what value the miles have, and even whether there are ever any free seats available at all.

But before you start imagining yourself as the frequent-flying counterpart of a former Soviet consumer--lots of worthless rubles to spend and nothing in the window of the GUM Department store--here's a worthwhile tip: Lighten up a little.

After all, frequent-flyer miles are neither your Social Security nest egg nor your meager earnings for a hard day's work on the collective farm. They are, in essence, a free lunch. You get them as a bonus for flying on an airplane, using a certain charge card, or even calling with the right long-distance company. They are, quite literally, something for nothing. And when the planets are in cosmic alignment and the aviation apparatchiks are in a generous mood, you can trade in those miles for a free ticket to Hawaii.

Or you can trade in those miles for something other than a free ticket. Like a watch. Or a CD. Or a couple of steaks. Or even a genuine imitation Chicago Bulls jersey that will make you feel like Mike.

Almost totally overshadowed by the angst-ridden debate over the availability of free seats, frequent-flyer miles have become a viable alternative currency for a wide range of other goods and services. As fewer and fewer of the miles travelers earn actually come from flying, there are more and more ways to cash in those miles for things unrelated to flying.

While miles you earn in the airline frequent-flyer programs are generally only valid for free airline seats, the miles and points you earn from hotel frequent-stay plans or the frequency programs operated by companies like American Express or AT&T are not. They can be exchanged for free hotel nights or a wide array of useful or frivolous merchandise. All too often, however, travelers ill-advisedly ignore the merchandise awards and convert the flexible Amex or AT&T credits into still more frequent-flyer miles.

"At least a third of all frequent-flyer miles come from things that have nothing to do with taking a flight or staying at a hotel," explains Randy Petersen, the Colorado-based mileage guru. "Travelers only think in terms of a free flight and concentrate all their energies on building up their frequent-flyer balances. I don't think anyone should dump [credit] they earn from a hotel program, or [Amex] Membership Rewards or [AT&T] True Rewards into their frequent-flyer accounts."

As you can see by the accompanying chart, 25,000 Amex miles can be translated into airline frequent-flyer miles and then used to claim a free plane ticket to California. Assuming the seats are available, of course, that makes each Amex mile worth 1.2 cents. But Amex offers better value-for-miles if you exchange them for a merchandise award. Those same 25,000 Amex miles will get you a $500 gift certificate at Saks Fifth Avenue or Tourneau, the tony watch emporium. Using the miles that way gives each mile 2 cents worth of purchasing power.

Want some food? Amex also allows you to trade those 25,000 miles for a $210 high-fat feast from Pfaelzer Brothers, the steak-and-cake mail-order house. Admittedly, that means each Amex mile you claim for this purpose is worth less (about .84 cents) than if you cashed it for an airplane ticket. But you can't eat a plane ticket--and, again, who's to say that ticket will be available when you want to fly?

And frequent-flyer fanatics consistently miss a high-value spending option: hotel frequent-stay plans. One example: Hilton HHonors, the frequency program of Hilton Hotels. If you accrue 20,000 Hilton points, the hotel chain allows you translate the points into 3,500 frequent-flyer miles. Or you can also use those 20,000 points to claim a free weekend night at many Hilton hotels. A Hilton in Orlando, for instance, charges $79 a night on weekend; that means you get 2.25 cents of value for each mile used for a free room--almost double the value of using the miles to claim an elusive free ticket on a flight between New York and Los Angeles. Most other hotel frequent-stay programs offer similarly good value--and better availability--compared to airline frequent-flyer schemes.

Savvy mileage manipulators can even turn miles into cash. Sort of. In the AT&T True Rewards program, 2,500 points can be converted into 12,500 frequent-flyer miles--or a $100 U.S. Savings Bond.

On the surface, the savings bond offer is a lousy deal: each mile is worth just .4 of a cent, compared to more than four times that much if they are used to claim that free ticket to Honolulu. But it may come down to who you trust. The feds may squirm, but you know they'll make good on that $100 savings bond someday. How much confidence do you have that your airline will have a free ticket to Hawaii available when you want to claim it?


(Frequency Program)



Value of
Cashed Mile

Orlando North Hilton
(Hilton HHonors)



2.25 cents

$500 Gift Certificate
Tourneau or Saks Fifth Avenue
(Amex Membership Rewards)



2 cents

Roundtrip Coach Ticket



1.76 cents

Roundtrip Coach Ticket
New York-Los Angeles**



1.22 cents

One-Year Subscription
Travel & Leisure
(AT&T True Rewards)



1.17 cents

One-year membership
Delta Crown Room***



1 cent

$5.00 GIFT certificate
for AT&T long distance
(AT&T True Rewards)



1 cent

(Amex Membership Rewards)



0.96 cents

Steaks & Cheesecake
from Pfaelzer Brothers
(Amex Membership Rewards)



0.84 cents

(Amex Membership Rewards)



0.66 cents

Music CD: So Far
Crosby, Stills, Nash & Young
(AT&T True Rewards)



0.57 cents

$100 U.S. Savings Bond
(AT&T True Rewards)



0.40 cents

*Reflects the price you could purchase the item for cash on August 28, 1996.
**Available through many airline frequent-flyer programs, AT&T True Rewards or Amex Membership Miles.
***Available through Delta Sky Miles, AT&T True Rewards or Amex Membership Miles. +Translated to miles from points at approved conversion rates.

This column originally appeared in Fortune magazine.

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