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Airlines Battle to Control Frequent-Flier Coupons

December 21, 1986|PETER S. GREENBERG | Greenberg is a Los Angeles free-lance writer.

It was the summer of 1979. United Airlines, rebounding from a strike, hopped back into the travel market and issued special half-fare future flight bearer coupons in a competitive war to lure passengers to keep flying their planes. American Airlines then matched the promotion. Not long after, Eastern Airlines started handing out coupons on its shuttle flights between Washington, Boston and New York. And the coupon war commenced.

The coupon marketing program lasted barely more than a month, but the coupons issued during that period were valid for a year, and applied to all the flights of each airline. It was, at the time, quite a good deal for anyone who intended to fly again within the next 12 months. And, even if the passenger had no travel plans, the coupons were transferable.

Within days, savvy entrepreneurs who had done some basic arithmetic could be found at almost every major U.S. airport, greeting incoming passengers and offering to buy their coupons, hoping to resell them later to other passengers.

Didn't Last Long

The brokering of United strike coupons didn't last very long, but it gave a number of budding entrepreneurs the experience they needed when the airlines initiated their wide-ranging frequent-flier bonus programs five years ago.

As just about everyone who flies more than once a millennium knows, passengers who participate in these programs and accrue mileage can receive anything from a free upgrade to first-class certificates to round-the-world tickets, cruises and accommodations on the legendary Orient Express.

More than a dozen companies nationwide specialize in brokering the mileage-award certificates. It has become a multimillion-dollar business.

The new wave of coupon brokers have not been operating surreptitiously at airport gates or under the table through word-of-mouth. They work openly from offices, they advertise and they buy and sell the mileage-award certificates at savings from 25% to 60%.

Often, the frequent flier who accumulates the mileage awards may be the last one in the world who wants to take another airplane trip. By selling the mileage award, the frequent flier makes some extra money, and by buying the award at a price greatly reduced from normal fares, a vacationer can often manage a cheap trip.

Substantial Savings

To say the least, the savings can be substantial. Two years ago, a couple purchasing a TWA 50,000-mile award could travel first-class, to several major Western European cities (Paris, London, Rome or Athens) with unlimited stops and return to the United States for a total cost of $4,500. The same itinerary for two, if purchased directly from the airline or travel agent, would cost a whopping $10,508!

And, a frequent flier who had accumulated 90,000 miles on TWA could sell his award to a broker for a cool $3,000.

Officially, most of these travel awards have been non-transferable or transferable only to a member of the award participant's family.

"It was an unenforceable rule," says one travel agent who brokers the coupons. "Everyone suddenly became everyone else's distant cousin. The airlines knew we were doing this, but they didn't seem to care."

Now, all that may be changing. Short of becoming genealogy detectives, the major airlines have decided to substantially tighten their programs to try to discourage the brokers.

New restrictions are being imposed. As a result, lawsuits against brokers, and countersuits against airlines have been filed, and different court injunctions have been sought to stop the sale of the mileage awards as well as to restrain the airlines from imposing such restrictions.

When it comes to frequent-flier awards, it's a war out there.

TWA claims it has lost more than $5 million in revenue from tickets that would have been purchased by passengers who bought discounted mileage awards instead.

American and United claim similar losses.

As a result, TWA has announced that starting in two weeks (Jan. 1), it will not allow travel agents to issue the free tickets earned by participants in its Frequent Flight Bonus Program. Tickets will be issued directly by the airline.

Already, TWA has tightened the rules. As of Nov. 1, mileage awards must be issued in the name of the member of the program. (In the case of companion awards, at least one award has to be issued in the name of the program member. United has also started a "same surname" policy.)

TWA, American and United have sued the Coupon Bank, a La Jolla, Calif.-based broker, seeking to stop them from buying and selling the mileage awards.

Airlines Sued

And the Coupon Bank has sued the airlines, claiming the airlines have violated the Sherman Anti-Trust act by ganging up to try to put the broker out of business. The suit also accuses the airlines of libel, slander, defamation of character, interference with business and, last but not least, "intentional infliction of emotional distress."

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