Christopher Elliott On Airline Frequent Flier Programs

Christopher Elliott (formerly known as a consumer travel advocate) seems to like writing provocative articles once in a while to stir the pot, probably to drive readership.

huffington-post-elliott-airlines

This time he is whining about airline and hotel loyalty programs. You can access the entire piece on Huffington Post’s website here.

I have written about Mr. Elliott’s pieces twice before when he was claiming that people that buy cheap air fares are stealing from the airlines (access here) and when he wanted to have hotel minibars banned (access here).

This time I do agree with his opinions, however.

Mr. Elliott has come to the conclusion that one in every five dollars earned by United in 2013 came from selling frequent flier miles to partners. United has publicly disclosed that 20% of the miles sold are never redeemed.

I do agree with the notion that the business model of the airlines or hotels loyalty programs cannot be selling miles and points to third parties in hope of reaping “huge” profits.

When airlines or hotels sells miles/points, they book part of the sale as a future liability (the estimation of the cost when those miles/points are redeemed) and rest as a profit.

As the airlines and hotels control the number of miles and points required for awards, they can always lower the future liability by devaluing the program.

Conclusion

IMHO these loyalty programs went awry, when their main purpose changed from rewarding fliers and hotel guests to selling miles and points to third parties and when they became profit centers.

It is too easy for the airlines and hotels to make a quick accounting profit by devaluing the program and lowering the future value of the miles and points on their books. Case in point is LifeMiles who after a miles promotion last year, “tweaked” their cash and miles calculations rendering the freshly bought miles less valuable only a week later.

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