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| The Basics | Will I lose my frequent-flier miles?
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If you've hoarded a huge pile of frequent-flier miles, it's unnerving to see your favorite airline file for bankruptcy. Here's why you can relax -- a bit.
By Bankrate.com
As gas prices soar and reports on already-struggling airlines land in the media almost daily, consumers who find themselves in the air a lot may have mile-high worries.
Blackout dates, limited seating and higher transaction fees for cashing in on frequent-flier reward miles are the least of those fears. Delta Air Lines and Northwest Airlines are the latest names making bankruptcy headlines. What if your favorite airline spirals into bankruptcy or ceases operations? It's enough to give the most seasoned reward program members white-knuckle fever.
With more than 163 million members in 92 programs worldwide, with almost 10 trillion outstanding miles in their accounts as of early 2005, according to frequent-traveler program guru Randy Petersen, that's a lot of potentially lost time in the friendly skies.
Should members be concerned?
Program profits
First things first: Airlines aren't looking to dump their reward programs. They bring in money. Lots of it.
"So far the economics of these programs are so attractive to airlines and so attractive to third parties. And they aren't going anywhere except upward," says Robert Mann, a Port Washington, N.Y.,-based former airline executive who's now an industry analyst and consultant.
How can a giveaway turn a profit? The key is nonflight activity, which accounts for more than half of miles earned, excluding promotions and other bonuses, explains Petersen, who has been chairman and president of several frequent-traveler-program related businesses, including InsideFlyer magazine, since the mid-1980s.
From credit-card issuers to hotels and rental car companies, program partners are paying airlines for each mile earned. And with airlines giving away available seats only, "It's a really good business," he says.
A case in point: "United Airlines' Mileage Plus is still out there kicking," Mann says. When United Airlines, which filed for Chapter 11 bankruptcy in 2002, announced its reorganization plan in 2005, shareholders were told the frequent-flier program was strong and profitable; it would remain unchanged.
"They don't want to upset people who may fly somebody else," Petersen says.
After all, these programs -- and the airline industry at large -- depend on customer loyalty. Program membership is "kind of the go-to list that airlines use to try to work their way out of bankruptcy," Mann says.
Both Delta and Northwest, since having filed Chapter 11, have assured customers their rewards programs are secure. You can read Delta's FAQ about Skymiles at Delta.com and you can read Northwest's letter to customers at NWA.com.
Airlines try to keep regular fliers happy during the best and worst of times. During this year's Northwest Airlines mechanics strike, for instance, the chance to earn 100,000 bonus miles and other promotions popped up for WorldPerks program customers.
"Northwest strives to keep our most loyal customers by keeping the program's value proposition strong," says spokesperson Tracy Carlson. That can mean replicating other airlines' offers. Northwest, for example, announced soon after the strike began that it would match a United frequent-flier promotion.
If history repeats ...
While the past can never fully predict the future, experts note that history has been kind to loyal customers of major airlines. Program points "actually turn out to be pretty persistent currency," Mann says. Even through bankruptcies, miles haven't been extinguished.
He points to Eastern Airlines, Pan Am and Trans World Airlines -- all cases in which reward miles transferred over to programs at other airlines. Still, some insiders believe those days are over.
"It's a different environment. I don't think any airline is strong enough to buy another airline," Petersen says. "If any expert says, 'Don't worry, another airline will honor those miles,' I'm thinking, 'Do you think they've got money to open up their airlines to flying for free?'"
Historically speaking, outcomes haven't been so rosy for smaller airlines. Just ask loyal customers of Legend, MGM Grand Airlines and National Airlines; frequent-flier programs dissipated when each shut down.
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