Frequent Flyer Nightmare

In the early days the system usually became active once the Frequent Flyer had logged around 20,000km, this level would typically see him upgraded from economy to first on his next domestic flight. A total of 30,000km would allow an economy return ticket to anywhere in the US while 80,000km would get you as far as Hawaii, the Caribbean or possibly even Europe.

The whole idea, of course, was to capture the business traveller and get him or her to fly that particular carrier in direct preference to Brand X. As many businessmen routinely fly almost on a weekly basis, the kilometers logged would quickly build into something meaningful in terms of a bonus. One aerospace rep known personally by this writer had in the period of one year six US East Coast/Sydney journeys that turned him into a virtual bonus mileage millionaire. So many points had he earned by flying the one carrier, that he was able to bring his wife and family free of charge on one of his later trips in addition to being upgraded from Business to First Class almost as a routine event.

Nowadays though the situation has become one of embarrassment to the airlines as the total outstanding commitment to free tickets approaches $A1. 6bn with an estimated 2. 7m registered Frequent Fliers each possessing credits in excess of 30,000kml What the airlines are concerned about is that with most carriers now offering triple mileage bonuses, that if there is a rush to cash in their credits, the carriers will face a major dilution of yield as at present most Frequent Fliers enjoy the same confirmed space rights as full fare passengers. PanAm for one appreciates the consequences of trying to rein in the beast. In 1984 it placed a time limit on its outstanding credits only to be avalanched with Frequent Fliers rushing to redeem their accumulated credits – despite unusually high load factors the carrier consequently lost $US49m in that quarter largely as a result.

What is occurring now is a move by the airlines to begin to place selective restrictions on the use of credits. Some carriers have placed booking restrictions on selected primary routes at certain times of the year where full fare passengers take precedence. Continental and Eastern are offering additional bonuses to fly to popular destinations during the off season while others are accepting bookings on a standby basis only. Obviously, no airline wishes to be flying its peak yield winter Hawaii and Caribbean sectors with planeloads of non-payers!

Another less subtle dampener is in the offering courtesy the US Internal Revenue Service. The IRS has had Frequent Flyer schemes under its taxation microscope for some time now and has long been threatening to tax the value of free tickets. This in turn might well preempt a shift to airlines making credits available only in the name of the company paying for the ticket rather than that of the passenger, as is presently the case.

However, this too is creating problems as most schemes also provide bonuses for the number of individual sectors flown. Thus many passengers are travelling circuitous routes from city A to city B just to log additional mileage. This is obviously costing the employer more in fares while the executive is also probably taking longer to complete the average business trip.

Another point that looks likely to be introduced is that bonus points will from now on be directed more towards qualifying for upgrades rather than free tickets. This essentially costs the airline a lot less and at least makes a business trip more pleasant even if the accumulated points were originally intended for use during the employee’s holiday period. The other fear is that in the event of a recession, travellers would opt to cash in their bonuses rather than outlay ‘real’ money on tickets, thereby further reducing airline yield just at a time when the opposite effect was required to remain in the black.

While Delta may have pioneered the triple bonus scheme many other carriers are fighting fire with fire. Most have now waived their thirty to forty dollar sign on fee, while PanAm has gone as far as offering a value of 3300km for a round trip booking on its very competitive New York/Boston 300km Shuttle. This is the US fiscal equivalent to Sydney/Melbourne and obviously, PanAm is content to mortgage the remainder of its route structure to ensure that it attracts high yield on the Shuttle.

This attitude ironically is how the Frequent Flyer programme was born in 1981. As US domestic carriers generally battle to achieve load factors above 60% they considered that they could literally afford to give away a portion of their capacity in the hope that they would gain the loyalty of their full fare business travellers. Nowadays though the growth in passenger uplift combined with ever worsening traffic congestion at the nation’s major hubs has effectively reduced the charm that the programme held in the early years.

It seems unlikely, even with deregulation, that Frequent Flyer programmes will ever come to Australia, though if they do, let us sincerely hope that the participating airline’s have well researched the best and worst features of the US system.