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Frequent Fliers: Will Plans Bump Airline Profits?

February 14, 1988|ROBERT E. DALLOS | Times Staff Writer

NEW YORK — Anthony M. Tedeschi, a Roslyn, N.Y., free-lance writer, travels quite a bit and has accumulated more than 100,000 miles on the OnePass frequent-flier program of Eastern Airlines and Continental Airlines. But he has used none of it yet, hoping to earn enough credits so that he and his wife can take a free first-class trip to Europe.

"It's like putting away a little nest egg," he said. "It's like cash. You put it in the bank and you watch it grow. You don't want to take any of it out. The more you pile up, the better the reward."

Like Tedeschi, many travelers have hoarded their mileage. Some have been doing it, in fact, since the frequent-flier programs began about seven years ago. And that makes airline executives shudder.

Frequent fliers join programs through which they earn free flights, upgrades in class or other premiums for specified numbers of paid miles flown. And every day, the airlines' liability for unredeemed mileage grows. If there is ever a run on the "bank," it could spell big trouble for the carriers, which might have to turn paying passengers away in order to accommodate their frequent fliers cashing in travel awards.

As if such mileage were not being doled out fast enough already, Delta Airlines, in a bid to lure traffic, recently began to offer three times the normal bonus mileage to members of its frequent-flier program. Overnight, all of its competitors had to follow suit.

Adding to the rush, the move came at time when the carriers had already reinstituted low discount fares--first offered last year--that encourage people to fly even more than they normally would.

So now it is even easier for Tedeschi and other frequent-flier "players," as the airlines call them, to increase their "savings." Under terms of most airlines' current offers, the players have until March 31 to make one paid round-trip flight (or two one-way trips) to earn the triple-mileage credit. And if they do so, they will earn such triple mileage for all flights they take during 1988.

On top of that, many of the carriers have expanded their programs to allow free mileage to be accrued by holders of certain credit cards. Members are allowed to charge anything from dinners to fur coats on the cards, with each dollar spent earning the frequent flier a bonus mile.

Some people who usually do not buy on credit nevertheless filter all of their purchases through their credit cards. They pay their bills immediately and still accrue the added frequent-flier mileage.

The triple-bonus programs pose the danger that thousands of passengers will suddenly become eligible for free travel awards and will begin to use them.

It is estimated that only about 3% of all passenger tickets are "bought" with redeemed mileage at present. But Helane Becker, airline analyst with the investment firm of Shearson Lehman Hutton Inc., predicts that the rate could soar to 9% or even 15% this summer, a peak travel period when it will hurt the airlines most.

"Frequent fliers don't really know what they want," said Michael A. Ribero, Eastern's vice president of marketing services, who runs the OnePass program. "When they reach a threshold, they target the next threshold. The ultimate threshold is a trip around the world for two."

When the airlines' unredeemed liability climbed in the past, they had simple solutions: increasing the amount of mileage needed to buy free trips or greatly limiting the number of seats available to frequent-flier program members. But some lawsuits and a set of guidelines issued last December by the National Assn. of Attorneys General greatly limited such actions.

The airlines consequently rolled back their boosts in requirements for some awards and also gave players a grace period after the announcement of an award level change so that they can have time to accumulate enough mileage for a particular trip they had been planning.

Nationwide, there are about 30 million members of the various frequent-flier programs. But since many belong to more than one program, the number of people involved is only about 8 million. Of these, about 2.7 million have accumulated enough mileage to be eligible for free travel, upgrades or some kind of discount fares.

And they have accumulated enough, according to Julius Maldutis, airline analyst with the New York brokerage of Salomon Bros., to represent total lost sales of about $300 million for all of the carriers. The new triple-mileage program, he calculated, will boost this potential for lost sales by about $940 million. Thus, the potential total for all U.S. airlines is $1.24 billion.

While there are concerns about what an avalanche of redemptions could do to the airlines, the carriers say the programs still generate more revenue than they cost. Indeed, they consider the programs the best marketing tool the airlines have ever had.

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