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Hyper-Inflation of Frequent Flyer Miles; It's Zimbabwe!
8/12/2008 12:01:15 PM Link |  | Add comment

Cashing in your frequent-flier miles? Get ready to spend some cash.

New booking fees on tickets bought with miles are among a barrage of surcharges and cutbacks hitting frequent-flier programs in the next few weeks. Pinched by high oil prices, airlines are also increasing the number of miles required for flights and cutting back on program benefits.

Today, US Airways Group Inc. will stop giving bonus miles to elite frequent fliers. It will also start charging between $25 and $50, depending on the destination, for booking award tickets.

On Aug. 15, Delta Air Lines Inc. will add a fuel surcharge to award tickets -- $25 for U.S. and Canada and $50 for other destinations -- and on Sept. 15, Northwest Airlines Corp. will add a fuel surcharge of $25 to $100 to WorldPerks tickets issued in North America.       

Several airlines have recently introduced or increased fees for booking or changing award tickets on the phone, booking a leg on a partner airline or redepositing unused miles from a canceled ticket. AMR Corp.'s American Airlines has added a $5 online booking fee and will increase the number of miles needed to buy certain award tickets as of Oct. 1.

On Friday, Continental Airlines announced the company will no longer allow frequent-flier members to buy the last seat available on certain flights "where demand is high" after Sept. 3, though the restriction won't apply to elite fliers. On Aug. 17, the airline will increase fees for booking award tickets close to the date of travel.

The moves have some fliers questioning the value of miles programs, says Joe Brancatelli, editor of travel Web site JoeSentMe.com. "Inflating the currency and then having less product to buy and charging you fees to do it -- it's hyper-inflation," he says. "It's Zimbabwe."

US Airways' decision to end bonus-miles privileges for elite members was the "final straw" for Michael Dukart, who had amassed over a million miles with the carrier earlier this year. When the airline announced it would stop awarding bonus miles to elite members of its Dividend Miles program, Mr. Dukart, who lives in Wilmington, Del., decided to start flying United Airlines instead, even though the airport closest to him is a US Airways hub.

A broad consumer protest has emerged on Savedividendmiles.com, a Web site put up two weeks ago by Randy Petersen, the frequent-flier specialist who runs the popular travel forum Flyertalk.com. A petition on the Web site asking US Airways to bring back bonus miles has been signed by 1,570 people.

Mr. Dukart says he signed the petition and is trying to "burn through" his miles so he can make a clean break from the airline. On Monday, he left for South Africa with his wife, using first-class seats bought with miles.

Scott Kirby, president of US Airways, says, "I wish it wasn't the kind of decision we felt we had to make," but the changes and fees "are necessary realities of $125-a-barrel oil." US Airways polled frequent fliers and found that "overwhelmingly" they value a free upgrade to first class more than bonus miles. Mr. Kirby says the airline has received complaints from consumers, but not more than it received after announcing other changes, like charging for food. "Changes are hard," says Mr. Kirby.

Surcharges Soar
Some of the carriers' latest moves:
• US Airways will charge for booking award tickets and will stop giving elite fliers bonus miles.
• Delta and Northwest will add fuel surcharges to many award tickets.
• American has added a $5 online booking fee and will increase the number of miles needed for certain award tickets.

The fees and benefit cuts come at a time when frequent fliers are already upset about a problematic imbalance -- a lot of miles and not many seats available for award tickets. Airlines make a large profit from selling miles to "partners" such as credit cards and hotels. Partner deals have gone up significantly over the years, but award seats haven't.

Delta issued 25% more miles in 2007 than in 2004, says Jeff Robertson, managing director of Delta's SkyMiles program, but the number of available seats on its planes didn't increase. Recent capacity cuts have made the imbalance worse, because airlines are maintaining the same percentage of awards seats on fewer flights.

Still, some airlines are taking measures to make their frequent-flier programs more attractive. Earlier this year, both Northwest and Delta introduced new options that allow fliers to buy tickets with a combination of cash and miles, so small increments of miles could be redeemed. In April, the two companies announced they intend to merge.

Delta recently announced it would replace its awards program in September with a three-tiered system that's similar to American Airlines' program. Instead of offering domestic tickets for either 25,000 or 50,000 miles -- with many more tickets available for 50,000 miles -- the airline will offer about 50% of its total seat inventory for 40,000 miles, while maintaining the same amount of seats in the 25,000-mile tier. The rest of the seats will be in the 60,000-mile tier.

In addition, the airline will again allow frequent fliers to book the last seat available on flights -- a benefit denied to frequent fliers last winter. Such seats will go to those willing to pay a hefty mileage price. "This new structure will attract more new customers, benefit current customers and help differentiate Delta from other carriers," says Mr. Robertson.

In November, Alaska Airlines will add more award levels, in an effort to make it easier to use miles. The airline already offers a cash-and-miles award ticket.

Discount carrier AirTran Holdings Inc. added a program in March that lets passengers pay for extra miles to reach the level needed to get an award ticket. Before, fliers could buy award tickets only with miles.

Airlines "are trying to stay competitive and be a little more innovative," says Rick Seaney, chief executive of the travel Web site FareCompare.com. "Fuel and luggage surcharges have been bad press. They are trying to tweak some things to mitigate that."

But some of the new award-travel systems have drawbacks. Under Delta's new three-tier structure, award travel is more expensive in some cases. A premium-class seat to Europe used to cost between 90,000 and 250,000 miles and will now cost between 100,000 miles and 350,000 miles. The top price now guarantees the last seat on a flight, unlike before.

Northwest's cash-and-miles offer, PerkChoice, includes a clause that has rubbed at least one customer the wrong way: If you need to cancel the ticket, you don't get the cash part of the purchase back. Jackie Engelhart bought three airline tickets to Calgary, Alberta, earlier this year, three days after the soft launch of PerkChoice. After her eight-year-old daughter spent several months fighting colds, flu and asthma, Ms. Engelhart decided to cancel the trip, assuming the cash part of her tickets would be treated like most canceled Northwest tickets -- as credit with the Eagan, Minn.-based airline.
Instead she had to pay a $50-per-ticket fee to put the miles back onto to her account and couldn't get any credit for the cash.
Northwest says that it hasn't had many complaints about the rule and that the terms of PerkChoice "are given when a customer books a ticket," and "must be agreed to before the customer is allowed to complete the purchase." But like other aspects of the relatively new program, the rule "could be changed," says a company spokesperson.

Regardless, Ms. Engelhart says she won't book a PerkChoice ticket again. "Not flying Northwest cost us more than $1,000," she says.

Write to Sarah Nassauer at
sarah.nassauer@wsj.com and Stephanie Chen at stephanie.chen@wsj.com
Copyrighted, Dow Jones & Company, Inc. All rights reserved.


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