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A frequent flyer program (FFP) is a loyalty program offered by many airlines. Typically, airline customers enrolled in the program accumulate frequent flyer miles (kilometers, points, segments) corresponding to the distance flown on that airline or its partners. There are other ways to accumulate miles. In recent years, more miles were awarded for using co-branded credit and debit cards than for air travel. Acquired miles can be redeemed for free air travel; for other goods or services; or for increased benefits, such as travel class upgrades, airport lounge access or priority bookings.

Contents

History

The first modern frequent flyer program was created at Texas International Airlines in 1979.[citation needed] But lacking the computer horsepower of its larger competitors, TI was overtaken by American's introduction of AAdvantage in May, 1981. During the early days, several other carriers experimented with reward programs, including Braniff International and Continental (OnePass).[citation needed] American's program was a modification of a never-realized concept from 1979 that would have given special fares to frequent customers. It was quickly followed later that year by programs from United (Mileage Plus) and Delta (SkyMiles), and in 1982 from British Airways (Executive Club).[1]

Since then, frequent-flyer programs have grown enormously. As of January 2005, a total of 14 trillion frequent-flyer miles had been accumulated by people worldwide, which corresponds to a total value of 700 billion US dollars.[2]

Miles accrual

The primary method of obtaining points in a frequent flyer program until recent years was to fly with the associated airline. Most systems reward travelers with a specific number of points based on the distance traveled (such as 1 point per mile flown), although systems vary. Many discount airlines, rather than awarding points per mile, award points for flight segments in lieu of distance. In Europe, for example, a number of airlines offer a fixed number of points for domestic or intra-European flights regardless of the distance (but varying according to class of travel)[3]. The calculation method can become complicated, with additional points given for flying first or business class, and often fewer points given when flying on discounted tickets.

With the introduction of airline alliances and code-share flights, frequent flyer programs are often extended to allow benefits to be used across partner airlines.

Many programs also allow points to be obtained not just through flying, but by staying at participating hotels, or renting a vehicle from a participating company. Other methods include credit and debit cards that offer points for charges made to the card, and systems which allow earn miles by eating at participating restaurants and charging the meals to registered cards.

Programs differ on the expiration of points. Some expire after a fixed time, and others expire if the account is inactive for an extended period (for example, three years). [1]

Customer status

Many frequent flyer programs identify travelers who fly more than a few times per year by awarding them different status levels, which in turn give a number of benefits. Status levels vary from scheme to scheme, but benefits can include:

  • Access to business and first class lounges with an economy ticket
  • Access to other airlines' lounges
  • Increased mileage accumulation (such as doubling or tripling)
  • Reserving an unoccupied adjacent seat
  • The ability to reserve specific seats, such as exit row seats with more leg room
  • Free or discounted upgrades to a higher travel class
  • Priority in waitlisting or flying standby
  • Preference in not being bumped if a flight is oversold
  • Priority of luggage (to be prioritized on transfer and to be displayed on the belt first)
  • Ability to grant status to another person
  • Eliminating of program's miles expiration rules

Some programs even permit elite members to reserve space on sold-out flights, giving members the ability of bumping regular passengers. In the US, member status is based on elite qualifying miles (EQM) or number of flight segments, not redeemable miles. Typically one elite qualifying mile is earned for each mile flown on a paid ticket, although there may be a percentage bonus for flying full-fare economy, business, or first class. In addition, the airline may offer opportunities to earn elite qualifying miles in non-flying ways, often in connection with their branded credit card. There are usually many more ways to earn redeemable miles (which can be used for free tickets and other benefits) without flying than ways to earn elite qualifying miles. Some airlines will recognise a customer's status with a competing airline, and grant them the same benefits.

Some airlines offer accelerated admission to their elite programs through special promotions, such as flying 10,000 miles (16,000 km) of non-discounted coach fares or 20,000 miles (32,000 km) of discounted fares within three months gains a higher tier membership normally reserved for passengers flying 50,000 miles per year.[4]

Value of a mile

Travellers frequently debate how much accumulated miles are worth, something which is highly variable based on how they are redeemed. A typical ballpark figure is approximately 2 cents per mile based on discount (rather than full fare) economy class travel costs.[5] However, most airlines have stringent capacity constraints on the number of "award" seats available, so some people argue that this ballpark figure is an overstatement. In this case, the value of a mile drops below a cent per mile. The airlines themselves value miles in their financial statements at less than one one-thousandth of a cent per mile. [6]

In contrast, calculating the value of a mile based on full-fare business class travel costs can yield a figure several times higher, but only if the customer would personally be willing to pay the multiple thousands of dollars such tickets would cost otherwise. However, a person paying a full business fare will be able to change flights on short notice without extra cost; a person flying business class on a free award ticket may find that last minute minutes changes result in no award seat availability with the result that a ticket must be bought.

Increasing limitations on the availability of seats for point redemption, increases in services fees that airlines charge for redemption, and limitations on the transferability of redeemed tickets together have caused the value of miles to customers to decrease with time[citation needed].

Air New Zealand found a unique solution to this problem, by pegging their Airpoints scheme so one point (an "Airpoints Dollar") has the same value as one New Zealand dollar when purchasing.

Bankruptcy

In the wake of the September 11 attacks, some airlines have faced financial difficulties, raising concerns among frequent flyers that their points could be lost or devalued.[citation needed] All airlines include provisos in their program agreements reserving the right to modify or eliminate them on relatively short notice. But since miles are a strong customer incentive, troubled airlines avoid their elimination in bankruptcy proceedings, and indeed may expand them or make them more generous to elite members and high fare passengers in order to win sales.

Furthermore, since most airline miles are never claimed, the programs represent a relatively small liability, and indeed can represent a profit center[citation needed]. Since the 1990s, U.S. airlines have sold billions of miles to partners such as credit cards, hotel chains, and car rental agencies, who offer this "currency" as an incentive to purchase their own services. Any effort to curtail the awarding of miles would thus endanger partner relations and another revenue stream. Notably, the banks backing several airline-branded credit cards have been a key source of airline financing[citation needed], including United Airlines (Chase), US Airways (Barclays), Delta Air Lines (American Express), Northwest Airlines (US Bank), American Airlines (Citibank), Continental Airlines (Chase) and Copa Airlines (Visa).

Historically, the record is mixed. U.S. airlines have usually honored miles held in the accounts of acquired airlines. For instance American Airlines converted members of TWA's "Aviators" program to its own, as did Air Canada for Canadian Airlines' "Canadian Plus" program members. Sometimes, miles were honored by a close partner; Continental Airlines assumed Eastern Air Lines' program when it failed, as did Delta of Pan Am's. Bankrupt Swissair miles were transferred to Swiss International Air Lines TravelClub who were transferred to Lufthansa's Miles & More after the acquisition of the Swiss carrier.

Members are at greatest risk of losing their miles when an airline liquidates. All miles and privileges were lost, without recognition from any other carrier, as in the cases of Midway, Braniff, and Ansett Australia.

Accounting issues

Business travellers typically accrue the valuable points in their own names, rather than the names of the companies that paid for the travel. This has raised concerns that the company is providing a tax-free benefit (point-based awards) to employees, or that employees have misappropriated value that belongs to the company, or even that the program acts as a kind of bribe. The U.S. Internal Revenue Service has not as yet made any move to tax mileage programs, though for instance the Canadian taxation authorities consider mileage redeemed for free travel to be a taxable benefit.[citation needed] Most companies consider the miles earned by their employees to be a valuable personal perk that in part compensates for the daily grind of frequent business travel, though some governmental organizations have attempted to prevent their employees from accumulating miles on official travel. For example, Australian Public Servants are not permitted to redeem points accrued from official travel[7].

Some programs allow donating frequent flyer miles to certain charities[8]. While the Canadian government will honour these donations as a charitable gift, the difficulty here is getting a tax receipt for those points from the company itself. This policy also appears to conflict with the position that reward points are taxable in the first place.

On the airline side, the points represent potential non-revenue travelers on its books. These must be carried forward on balance sheets as an outstanding contractual debt for an indeterminate time, although the actual value (or loss) may be difficult to determine for any particular period.

Airline Programs and Expiration Policies

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Africa

  • Air Algérie Plus - Miles expire after 24 months of inactivity
  • South African Airways Voyager - Miles expire after 36 months of inactivity

Asia

  • Air China Phoenix - Miles expire 2 complete calendar years after they are earned.[9]
  • All Nippon Airways ANA Mileage Club - Miles expire 36 months after they are earned[10], except for ANA Mileage Club Diamond elite members.
  • Asiana Club - Expiry dates vary upon level of membership. Silver and Magic level members' miles expire after five years, Gold and higher level members' miles expire after seven. Corporate members have only one year to claim mileage. [11] Miles earned before 30 September 2008 will never expire.
  • Bangkok Airways Flyer Bonus - Miles expire 36 months after they are earned. [12]
  • Cathay Pacific / DragonAir Asia Miles expire 36 months after they are earned. [13]
  • EVA Air Evergreen Club - Miles expire five years after being earned. [14]
  • Japan Airlines Mileage Bank - Miles expire 36 months after being earned. [15]
  • Jet Airways - Miles expire after 13 quarters. [16]
  • Korean Airlines SKYPASS - Miles expire 5 years after being earned. [17] Miles earned before 30 June 2008 will never expire.
  • Malaysia Airlines Enrich - Miles expire one year after being earned, but members can extend the validity of their miles for an extra year after paying a fee to do so or by becoming Enrich Platinum elite members. [18]
  • Philippine Airlines Mabuhay - Miles expire 36 months after being earned. [19]
  • Shanghai Airlines - Miles expire 2 complete calendar years after they are earned.
  • Singapore Airlines KrisFlyer - Miles expire 36 months after being earned (can be extended up to 12 months for a fee). [20]
  • Thai Airways International Royal Orchid Plus - Miles earned in one calendar year will expire at the end of the third calendar year after accrual. [21]
  • Vietnam Airlines Golden Lotus Program - Miles earned will expire two years after two years on the member's sign up anniversary month. [22]

Europe

  • Aeroflot Bonus - Miles expire after 24 months since last flight activity
  • Air France / KLM / Air Europa Flying Blue - Miles expire after 20 months of inactivity (for non-elite members)
  • BMI Diamond Club - Miles expire after 24 months of inactivity
  • British Airways Executive Club - Miles expire after 36 months of inactivity
  • Iberia Plus - Miles expire after 24 months of inactivity
  • Miles & More (Lufthansa, Air Dolomiti, Augsburg Airways, Contact Air, Eurowings, Austrian Airlines, LOT Polish Airlines, Swiss International Air Lines, Adria Airways, Croatia Airlines, Luxair and Brussels Airlines) - Miles expire 36 months after date of earning for non-elite members with no Lufthansa-branded credit card, or 36 months after loss of elite status for currently elite members.[23]
  • Czech Airlines OK Plus - Miles expire 3 years after last activity (redemptions do not count as activity).
  • SAS EuroBonus (SAS, Blue1, Widerøe and Estonian Air) - Points expires 60 months after earning and/or purchasing the points.
  • Spanair Plus - Miles expire 3 years after last activity.
  • Virgin Atlantic Flying Club - Miles expire 3 years after last activity.

Middle East

  • Egyptair Plus - Miles do not expire, but members with elite status are downgraded if the minimal required miles are not maintained within a time span of 24 months. (Except for Egyptair Plus Platinum members)
  • El Al Matmid - Points expire 3 years after earning

North America

  • Air Canada Aeroplan - Miles expire after 12 months of account inactivity or 7 years after they are earned, whichever occurs first.
  • AirTran A+ Rewards - Credits expire 1 year after they are earned (2 years after earning with elite status or co-branded credit card).
  • Alaska Airlines and Horizon Air Mileage Plan - Miles expire after 24 months of account inactivity.
  • American AAdvantage - Miles expire after 18 months of account inactivity. [24]
  • Continental OnePass - Miles don't expire, however, accounts may be closed or miles forfeited after 18 months of account inactivity. [25] Policy has not been enforced since 1992.
  • Delta SkyMiles - Miles expire after 24 months of account inactivity. [26]
  • Frontier EarlyReturns - Miles expire after 24 months of account inactivity.
  • Hawaiian HawaiianMiles - Miles expire after 18 months of account inactivity.
  • JetBlue TrueBlue - Credits expire 12 months after last flight or co-branded credit card activity.
  • Mexicana Frecuenta - Miles expire 18 months after last activity.
  • Midwest Airlines Midwest Miles - Miles expire after 36 months of account inactivity.
  • Southwest Rapid Rewards - Credits expire 2 complete calendar years after they are earned.
  • Spirit Airlines FREE SPIRIT - 2,000 miles must be earned in a six-month rolling period to prevent expiration.
  • United Mileage Plus - Miles expire after 18 months of account inactivity.
  • US Airways Dividend Miles - Miles expire after 18 months of account inactivity. Paying a fee will extend miles for another 18 months.
  • Virgin America eleVAte - Miles expire after 18 months of account inactivity.

Oceania

  • Air New Zealand Airpoints - Gold and Gold Elite members' miles do not expire.
  • Qantas Frequent Flyer - Miles earned from 1 July 2010 will expire after 18 months of inactivity. Miles earned prior to that expire 3 years after last activity.

See also

References

  1. ^ Ben Beiske (2007). Loyalty Management in the Airline Industry. GRIN Verlag. p. 93. ISBN 3638777170. 
  2. ^ "Frequent-flyer miles". The Economist. 2005-01-06. http://www.economist.com/opinion/displaystory.cfm?story_id=E1_PVPGTSR. 
  3. ^ http://www.miles-and-more.com/cdautils/mediapool/media_479895.pdf
  4. ^ http://www.members.shaw.ca/fewmiles/AA/recht/challenge.html
  5. ^ Adrianus D. Groenewege. Compendium of International Civil Aviation. 
  6. ^ >
  7. ^ APS Values and Code of Conduct in practice
  8. ^ Frequent-flyer points donation a tricky tax issue
  9. ^ http://www.air-china.us/en/phoenixmiles/accrual/notes.html
  10. ^ http://www.ana.co.jp/eng/amc/reference/faq/tameru/index.html#D01
  11. ^ http://us.flyasiana.com/Global/US/en/homepage?fid=CLUB19000&sCtg=FAQ1_2&searchWrd=expire
  12. ^ http://flyerbonus.bangkokair.com/ffp/home.aspx?param=5|1
  13. ^ http://www.asiamiles.com/am/en/about/faq
  14. ^ http://www.evaair.com/html/b2c/english/club/Mileage_Rules/Mileage_Validity.htm
  15. ^ http://www.jal.co.jp/en/jalmile/rules.html
  16. ^ http://www.jetairways.com/EN/US/TermsAndConditions/JetPrivilege.aspx
  17. ^ http://www.koreanair.com/
  18. ^ http://www.malaysiaairlines.com/my/en/loyal/enrich/services/faqs/faqs.aspx#B
  19. ^ https://www.mabuhaymiles.com/faq.jsp#6
  20. ^ http://www.singaporeair.com/saa/en_UK/content/krisflyer/customerservice/terms.jsp?v=-1815763081&
  21. ^ http://www.thaiair.com/frequent-flyer/download/Handbook-EN.pdf
  22. ^ http://www.vietnamair.com.vn/wps/portal/en/site/frequent_flyer/program/terms/!ut/p/c5/04_SB8K8xLLM9MSSzPy8xBz9CP0os3hnd0cPE3MfAwMDZ2cLAyNzDx8T49BQQ4NQU6B8JJK8u6-vG1A-1MI8yNXP0MDAlIBuL_2o9Jz8JKA94SCbcav1NUCTR7PJ2wy_PMglIHkDHMDRQN_PIz83Vb8gN6Iy2DPLBAB7NBQi/dl3/d3/L3dDb0EvUU5RTGtBISEvWUZSdndBISEvNl9DR0FINDdMMDAwQ0M4MDI3SEw0M1VVMTAxMg!!/
  23. ^ http://www.miles-and-more.com/online/portal/mam/uk/program/information?nodeid=2522607&l=en&cid=1000243
  24. ^ http://www.aa.com/aa/i18nForward.do?p=/utility/mileageExpiration.jsp
  25. ^ http://www.continental.com/web/en-US/content/onepass/rules/advisory.aspx
  26. ^ http://www.delta.com/skymiles/about_skymiles/skymiles_program_updates/index.jsp#policy

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