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For a few miles more

Madhavankutty Pillai explores the lure of frequent flier programmes to the business traveller mileage millionaire (noun) - A person who has collected at least one million miles with a single airline’s frequent flier program

Twelve years after American Airlines introduced the world’s first frequent flier program AAdvantage in 1981, the phrase ‘mileage millionaire’ quietly found its way into print. Nowadays, it is accepted coinage, featuring regularly in magazines and websites catering to business travelers. As per one survey, by November 2000, the number of mileage millionaires in the United States stood at 1,21,000. Moral of the story: frequent flier programmes have come of age - at Mach 2 velocity at least.

So bewitching is the lure of these points to business travelers that most schedule their programme with one eye on those flights which will add to their mileage.

Deep Singhania, Director, Business Development - Middle East and Far East Asia, Tata Infotech Limited, is a frequent flier who flies once every month. His travel region extends from Singapore on the east up to Kuwait on the western side. He flies with most of the airlines based on their frequency and the schedule of his meetings. Though this constrains him to distribute the points over various airlines, when asked whether frequent flier points come into consideration when he schedules a trip, Mr Singhania’s answer is an unambiguous yes. “It plays a role up to 60 per cent of my decision,” he says.

Mr Singhania is not alone. I M Shaikh, General Manager-Customer Support, MicroWorld Software Services Pvt Ltd, is somebody who does not fly very frequently nowadays. But he says, “During the peak of my career I was an avid tracker of my frequent flier points. It used to very much come into consideration when I had to schedule a flight.”

Likewise for Indage Group Director Mr Vikrant Chougule who says, “It features in my schedule when I fly in the domestic sector.”

With the world’s corporate community completely in its thrall, it was just a matter of time before Frequent Flying Miles (FFMs) started becoming another form of currency.

Presently, in the west, we have FFMs which are bought, sold, bartered, shared and even collected for the sake of collection (like stamps)! At least 100 million people in the world belong to a frequent flier programme. US Airways has launched a deal where, for 10 million miles, you can buy a seat on the first private spacecraft to take passengers into space, scheduled for 2004. In fact, you don’t even have to fly to earn frequent flier miles.

A report in The Economist, a UK-based magazine, says: “Almost 50 percent of miles are earned without even leaving the ground. The biggest earners are credit-card spending and telephone calls, but car rental, hotels, share-trading or refinancing a mortgage all offer extra opportunities to notch up your miles. In America you can even get miles on your income-tax payments, if you pay by credit card. The world’s top frequent flier, reputedly a publishing executive who charges his firm’s postage bill to his own credit card, has racked up 25 million miles-enough to fly London to Sydney return 250 times. Free tickets purchased with frequent-flier miles account for an average of 8 percent of airlines’ revenue passenger miles.”

The big impetus to mileage-gathering has been the Internet. Making stock trades, filling out surveys or buying products online is enough to add to your account. Webflyer.com, a site catering to frequent fliers, estimates that there are more than 15,000 mileage-making opportunities, most of which can be collected by remaining on firm ground.

What is the secret of such phenomenal growth? Man’s fascination with anything which comes free, says Mr Shaikh of Microworld.

“Just better customer service was never enough. It will not develop a strong loyalty base in comparison with frequent flier points. The airline with the maximum freebies will have a strong customer base. It is like bribing someone with a different name - say frequent flier points,” he says.

Pocketful of miles, nowhere to go
The conclusion to this story should have been that as long as there is competition, the miles will keep on piling up. Unfortunately, that’s only partly true. A crisis is in the offing for frequent fliers - all the miles that they accrue might just go waste.

Over the past five years, the number of miles awarded by airlines to its frequent fliers has doubled but miles redeemed have increased by only one-third. In 2001, only one-fourth of the miles earned were redeemed. By the end of 2001, the liability of airlines was almost an astounding 8 trillion miles. At the current rate of redemption, it will take 23 years to clear this liability even if no new ones were issued.

Ordinarily this should have been a source of worry to airlines. But they are not worried since the fine print says that the membership of the frequent flier programme may be yours but the airline owns it. Some of them even explicitly state that the miles and points do not represent the owner’s property. Airlines can therefore limit their free seats. But for the fliers themselves, the number of seats available are being chased by too many miles. Post-September 11, there was a huge rise in the number of empty seats making it easy to get a free flight. But with travel returning to normal, it will be increasingly difficult to secure free seats or upgrades on flights using frequent flier miles.

Mr Vikrant Chougule of Indage Group is bang on target when he says “people have logged on so many miles that airlines cannot have so many seats to encash all of it.”

The wise thing to do is to start using the miles you have accumulated.

Beginner’s guide to frequent flier programmes
A frequent flier programme is the accrual of mileage points which can then be redeemed for free tickets. Once members have enrolled in a particular airline’s programme, they tend to select their flights so that they can travel on carriers that will enable them to accrue mileage points in the particular programme which they can redeem for free tickets, even if more direct routings are available on other carriers.

In addition, most frequent flier programmes also have partnership alliances with other companies such as car rental firms, hotel chains, credit card companies, mobile phone companies, etc. Members not only get special rates and certain value added benefits by using the services of these companies, but also earn additional mileage points which they can utilise towards redemption of tickets.

In The Beginning
American Airlines, when they hit on AAdvantage, the world’s first frequent flying programme, had a very ordinary objective - reward customers for flying with them and ensure that they continue to do so in future.

The airline used its database to track the miles flown by its customers and a reward system was set up called ‘a mile earned for a mile traveled’. American then went to include other services within the ambit of rewards. Hence the inclusion of Hertz, as providers of rental cars, and Hyatt, as providers of hotel stays.

AAdvantage’s astonishing success led to United Airlines starting Mileage Plus. The features were the same, except United offered a bonus of 5000 miles just for enrolment. Other major airlines followed suit.

Later, the hotel industry, who initially came in as partners, started their frequent stay programs. The first sign that frequent flier miles (FFMs) had come to stay was when Hertz withdrew from frequent flier relationships with airlines and saw a drastic decline in market share. Today, they are partners in 20 frequent flier programs.

The more the merrier
Ironically, while the whole idea of FFMs was to beat your competitor, today frequent flier alliances are the norm.

Asked what he would like improved in his frequent flier programme, the response of Mr Deep Singhania of Tata Infotech, was, “If they can allow ‘barter’ deal on FF points between airlines. Like 100 point of 1 airline converted to 60 points on other airline.”

That is already taking place, though not across the spectrum.

Air France, with its loyalty programme, Frequence Plus, is a classic example. It is the only European Airline to have a frequent flier alliance with Flying Returns, which is the loyalty programme of Air India and Indian Airlines. An Air France client accumulates miles from the very first point of departure in India (on the domestic flight) apart from his international flight.

Therefore, both Frequence Plus and Flying Returns members can redeem the miles on each other’s flights. Which means Air France customers can accumulate miles on domestic flights of Indian Airlines and Air India. They then have the choice of redeeming them on partner airlines and/or other services like car rentals, hotels, etc.

Jean-Louis Calmettes, official spokesperson of Air France, said, “The number of airlines we are tied up to is in double figures. An individual passenger accumulates miles as he travels on board Air France and our partner airlines.”

Likewise, In Air India’s case, the 1,66,641 members of its Flying Returns programme, can accrue and redeem mileage points on flights of Air India, Indian Airlines, Alliance Air and Air France.

They can accrue but not redeem mileage points on code share flights of Air India and Indian Airlines like Aeroflot, Asiana, Austrian Airlines, Kuwait Airways, Lufthansa, Malaysian, Silk Air, Singapore Airlines, Swiss Air Lines, Thai Airways, Virgin Atlantic, Air Lanka, Air Kazakhastan, Kyrghystan Airlines and Uzbekistan Airways.

Mileage Accounting: Employer v/s Employee?

Question: Since companies pay for the tickets of its employees, why do they not claim the frequent flier miles?
Answer: They lose far more than they gain.

At least three surveys in the US show that the private sector allows its employees to retain frequent flier miles (FFMs) received on business travel for personal use. Runzheimer International, an organisation which keeps track of the travel policies of corporations, says that it found employers reported savings from 6 per cent to 10 per cent on air travel if FFMs were recaptured, yet, as of 2000, only 6 per cent per cent of organisations thought it to be their property. That is down from 29 per cent in 1986.

Runzheimer conducted a survey (see box) of 192 companies in the US representing most industry classifications with travel expenses that range from $250,000 to more than $30 million. Respondent organisations had median annual sales of $300,000,000, also a median 1,500 employees.

Phyllis Schumann, senior editor, corporate travel, Runzheimer International, said, “An organisation deciding to exploit this opportunity must weigh the costs of the program, such as losing valuable employees to competition, travelers refusing to travel on their own time, and various other ways employees may express their disappointment or dissatisfaction. In our experience, most successful programs for recapture started when frequent-flier programs were first introduced or when the organisation was small.”

Schumann adds, “The per cent of organisations that considered frequent-flier bonuses the property of employees was 89 per cent in the 2000 survey. Those considering frequent-flier bonuses to be organisation property decreased to a level not seen for eight years, 6 per cent.” Their next survey comes out later this year.

How Organisations Consider Frequent-Flier Bonuses
Percent of Respondents Property of: 1986 1988 1990 1992 1994 1996 1998 2000
Employee 71% 81% 88% 88% 84% 82% 87% 89%
Organisation 29% 19% 12% 6% 12% 10% 9% 6%
Shared N/A N/A N/A 6% 4% 8% 4% 5%
[N/A = Not Asked]