POINT WARS Airlines do battle with frequent flier promotions


Want to play golf with Michael Jordan? Spend a few hours on a simulator flying a 747 jumbo jet? Send a sick child to Disney World?

Just dip into your frequent flier account.

In recent months, airlines have stepped up their frequent flier promotions, offering more ways to accumulate points -- and increasingly creative ways to use them. They're battling with points and gimmicks to boost travel, win customers and avoid the kind of price competition that triggered devastating losses throughout the industry last year.

"Instead of outlandish fare wars, we now have point wars," said Randy Petersen, publisher of Inside Flyer, a Colorado-based magazine that updates travelers on the nuances of frequent flier programs.

Mr. Petersen and airline officials say the less costly point wars, along with systemwide cost-cutting, are responsible for industry revenues rising $459 million, or 4.5 percent, during the first quarter of 1993, compared to the same period last year.

"The airlines have learned how to make money off of empty seats," said Mr. Petersen, noting that the average plane is only two-thirds full. "Frequent flier programs give airlines a tool to stimulate travel without losing revenue."

Introduced by American Airlines in 1981, frequent flier programs were designed to create passenger loyalty by giving repeat customers free trips or upgrades to first class.

Today, nearly every airline has a program, with a half-dozen international airlines recently joining the fray. Membership industrywide has soared from 1.8 million to nearly 30 million in just 12 years. And corporate tie-ins have provided fliers many more ways to earn points: by using an affinity credit card, placing a long-distance call,renting a car or staying at a hotel.

But some travelers say that while points are easier to accumulate, they are tougher to use.

"It's difficult sometimes to get seats, depending on whether or not it's a peak period or holiday," said Bridget M. Peirson, president of Peirson Travel Service in Baltimore.

That's because airlines carefully manage unredeemed points, which have grown to an estimated ticket value of $2 billion. Not only do they black out periods such as the Thanksgiving weekend, but they also limit the number of free seats available on each flight. Less than 8 percent of passengers flew on free tickets last year.

The minimum level for receiving a free ticket -- typically 20,000 to 25,000 miles -- has remained steady for about five years. But when no-frills Southwest Airlines started its program two years ago, it required 10 round trips in 12 consecutive months to earn the first free ticket. And more recently, some carriers slapped expiration dates on their frequent flier points.

"Free tickets are capacity controlled, much the way discounted seats are," said Dan Brock, vice president of marketing for the Arlington, Va.-based USAir, the largest carrier at Baltimore-Washington International Airport.

USAir officials say they have not decreased the number of seats available to frequent fliers or imposed expiration dates. And in the past year, they have reduced the number of blackout days.

Still, most airlines believe that the programs, originally aimed at rewarding only their best customers, are too open-ended, says Harris Turner, a consultant and president of the Indianapolis-based Frequent Traveler Association. "They realize it's a valuable incentive program, but they just don't want it to be out of control."

And airline officials insist that uncontrolled use of the free tickets could push financially troubled airlines even closer to the edge. In 1988, for instance, now-defunct Pan Am attributed $60 million in second-quarter losses to passengers cashing in frequent flier points for tickets to Hawaii.

"The programs could be dangerous if they did not have capacity control," Mr. Petersen said.

Only about 38 percent of all frequent flier points are earned through flights. The rest are accumulated through flight bonuses or commercial tie-ins such as hotels, car rental companies and credit cards.

And that has made consumers much more aware of frequent flier programs.

"I will only use my Visa card because I receive free miles for every dollar charged," said Marion Lanham of Perry Hall, who last month alone picked up 1,600 USAir points through her Visa bill.

Ms. Lanham, a Harford Community College communications professor, travels for either business or pleasure roughly every six weeks. The 65,000 points in her USAir account would allow her to choose from several free trips.

Each 20,000 miles earns a free round trip in the United States, each 30,000 earns a round trip to Bermuda or the Bahamas, and 60,000 earns a round trip to Europe.

But the real target of frequent flier programs is business people such as Uwe Rockenfeller. The owner of a Boulder City, Nev., research firm travels three or four times a month -- often long distances and frequently on full-price tickets.

More than 90 percent of all frequent flier points are accumulated through business travel. Some companies retain the points, but most consider them an employee benefit -- one that the Internal Revenue Service views as a taxable benefit but rarely tries to enforce.

From several airlines, Mr. Rockenfeller has accumulated 4.1 million miles. And that's far more than he could ever use for personal travel, he says. He's banking them in case his business ever falls on hard times.

There are many passengers like Mr. Rockenfeller. At Delta Airlines, for example, about 18,000 frequent fliers have 1 million or more points.

For such high-level fliers, airlines offer gimmicks, such as the silent auction held by American Airlines for a golf outing with Michael Jordan or by United for a few hours on a flight simulator. Passengers can call toll-free numbers to find the latest bid on the deals.

Some airlines also offer fliers the chance to transform points into charitable donations. Airline foundations, for example, channel the points so families can visit children hospitalized away from home.

"There are some people who cash in their whole account when they find a good cause," said Mr. Petersen.

Because of the complexity and proliferation of gimmicks, frequent flier programs have spawned a cottage industry of software companies, newsletters and consultants who specialize in keeping passengers abreast of virtually every giveaway.

In one recent edition of Mr. Petersen's Inside Flyer, which has a circulation of 72,000, readers discovered that they could use points to order Mrs. Fields cookies or a silver butter knife from Murray's Steaks.

For $99 a year, Mr. Petersen also sells insurance that preserves points and awards for travelers who risk losing awards because points expire or a carrier goes out of business.

Although their budgets are closely guarded secrets, frequent flier programs also have generated sizable divisions within the airlines. USAir's service center, for example, employs 230 people.

"Their advertising budgets are phenomenal, and they're spending hundreds of millions on the data bases to track who their best customers are," said Mr. Turner. "They are really pouring money into these programs."

Despite the complexity of managing redemptions, industry officials say the programs have become an institution, about as likely to disappear as free peanuts.

"I can't ever imagine not having them," said USAir's Mr. Brock. "We win and the customer wins. We get his patronage. He gets the free ticket."

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