Frequent Flier Miles May Not Go So Far

Airfares are at 13-year highs.

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One item is sure to be in short supply this holiday season: airline tickets purchased using frequent flier miles.

With rising airfares, consumers are more likely to want to use the miles or points they've accumulated to purchase their ticket.

"This is going down as the best redemption award year ever," says Randy Peterson, editor of InsideFlyer magazine.

He says award redemption is up by about 15 percent this year compared to 2007, with Continental Airlines registering the highest redemption activity. On average, Continental's frequent flier redemptions have registered an almost 22 percent increase over last year.

"It's certainly a sign that the economy has had a big impact on the average traveler," Peterson says. Efforts to redeem frequent flier miles are up because everyone is saying they want to save "real U.S. dollars," he adds.

Fewer Seats For Redemption

But that doesn't mean they'll be able to redeem their miles in time for holiday travel. Airline consultant Robert Mann Jr., president of R.W. Mann & Co., says that because of reduced capacity this holiday season, fewer seats are likely to be available for redemption.

The rules for redeeming miles are also getting tougher to follow. Most airlines now have an 18-month window for using or losing your miles. That means consumers must have some activity in their mileage accounts — anything from buying an airline ticket to making a purchase with a credit card that offers mileage benefits — in order to maintain their balances. Not all airlines purge customers' miles just because of inactivity, but they have the right to do so.

Meanwhile, the fee landscape for redemptions is also quickly changing, especially as oil prices are falling. In the last few days, most of the frequent flier fees that were implemented in response to high fuel charges have come down or been eliminated, says Peterson.

On Oct. 1, American Airlines, which pioneered the frequent flier movement in 1981 with its AAdvantage program, took away the $5 online booking fee for using reward miles. But it also said it would increase the miles required for peak travel to Hawaii and some international destinations.

American has the largest base of members in the industry, with 58 million participants. In the first half of 2008, redemption award claims have been up between 10 percent and 15 percent above the 4.5 million awards claimed in 2007, according to a spokesman.

The airline, however, is also engaging in some cost-cutting initiatives for their frequent flier program: As of Jan.1, they plan to discontinue the minimum mileage guarantee for nonelite members. That means frequent fliers will be credited with the actual number of miles they travel on shorter trips, instead of with a minimum of 500 miles, as they had for many years previously.

Booking Fees

On average, most people look into using miles to fund a trip about five months in advance, says Peterson. Consumers are likely to encounter fees — not to mention fewer seats — for award redemptions, especially when they try to book 21 days or less before departure. United, for example, charges $100 for redemptions made within seven days of departure, and $75 for redemptions made within 14 or 21 days of departure.

"These are called loyalty programs. This is what's supposed to keep you coming back, and yet you can't use it without a huge fee sometimes," says Kate Hanni, the founder of the Coalition for an Airline Passengers' Bill of Rights.

The airlines' push to wipe out customers' unused miles is partly an effort to clean up their balance sheets: They're eliminating an obligation with financial implications, which is akin to clearing away debt, says Mann.

"It makes their balance sheet look better, because they've gotten rid of all these obligations," he says.

After all, every seat that isn't purchased with miles is a seat with the potential to generate new revenue.

While this is a wining proposition for airlines, Mann says they risk alienating customers whose miles are flushed out of the system.

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