How Frequent Flier Miles are Addictive -- For Airlines, Too

Posted by: Justin Bachman on June 11, 2009

Caffeine, food, sex, drugs, shopping – the list of addictions common in modern society is long. Do we harbor a similar propensity toward frequent flier miles? I began wondering this when a bank executive with whom I chatted Tuesday, for a story about two banks battling to woo Northwest cardholders, likened these miles to being hooked on heroin.

And I think he’s absolutely correct, both for travelers and the airlines themselves.

The premise of the game is that we will realize some form of payback for the money we’ve spent with an airline. The danger for the carriers (and banks) is in the miles on everyone’s ledger outstripping the availability of perks and award seats, and there’s been plenty of grumbling in the post-2001 world that this may be happening.

The bulk of mileage accrual, 43%, still comes from flying, but almost 20% is derived from credit or other bank-affiliated cards, according to Inside Flyer, a newsletter that tracks the mileage bazaar. People spend enormous sums on cards that grant miles – an average of $20,000 per year, according to research from IdeaWorks, a Wisconsin-based consulting firm. I’d even venture to say that in our miles-hungry minds many of us rationalize spending a few extra shillings here and there because it’s netting us additional miles – rendering personal budgets squishier than if we were plunking down cash or a debit card. Is this you?

It’s also common for some people to contort their schedules to accrue additional miles, both on those peculiar “mileage runs” chronicled habitually by the Wall Street Journal and in tossing extra airport stops into their trips. This Journal tale of what one teacher endured in April for elite status is particularly astonishing. (Disclosure: I’ll cop to occasionally routing myself to intermediate airports for additional miles and segments, since it often costs only a few bucks extra.)

Airlines also use miles to gain competitive advantage on certain routes, or to goose bookings. Just this week, United (UAUA) said it will give members of its Mileage Plus program double miles on flights from June 15 to Sept. 15, presumably to shore up summer bookings. These tricks are not new, they mutate into endless forms of enticement, and they seem to have a lifespan that is truly wondrous in the world of consumer marketing. Miles have become the lubricant of the airline industry, greasing transactions all around.

It’s not just travelers with the mileage monkey on their backs. Miles generate an estimated $4 billion a year for the seven largest U.S. mileage programs, according to an August 2008 report from IdeaWorks. Last year – a time when airlines were crunched by record high oil prices – was a particularly bounteous one for the miles market. In July, for example, United got $600 million from JP Morgan Chase (JPM) for an undisclosed number of miles the bank will give customers. Five months later, Delta netted $1 billion selling miles to American Express (AXP). (I’d love to know how much mileage supply these banks now hold. Decades?) American’s parent company, AMR (AMR), also said this spring it is mulling a forward sale of miles as a way to bolster its balance sheet.

This mileage glut would suggest the big banks and other miles acquirers may become more aggressive and creative in how they market around them. Forget simple grocery, florist and gas station transactions. Forget mortgages and miles from your gas utility. Let’s think bigger. Hey – why can’t I have miles instead of that $10 Starbucks card when I donate blood?