American discounts mileage purchases

Selling frequent flyer miles is big business for the airlines. American, United, and other major carriers earn hundreds of millions of dollars annually from the sale of miles to the many companies that participate in their frequent flyer programs. (See this recent blog entry for a brief look at how United's program shapes up as a freestanding business.)

And more recently, the airlines have turned their attention to consumers, offering to sell them miles as well -- either for their own accounts, or to give as gifts to others.

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Pricing for miles purchased at retail, typically on the airlines' websites, is generally around 2.5¢ each, plus what the airlines call a transaction fee (really a gouge dressed up with a fancy name), plus taxes.

Somewhat ironically, a current promotion serves as a reminder of just how overpriced these miles are.

Through August, American is waiving the $30 transaction fee on purchases of 25,000 or more AAdvantage miles. So the bottom line is: $625, plus tax, for 25,000 miles. Or put another way: $625 for enough miles for a capacity-controlled roundtrip coach ticket for travel within the continental U.S. A ticket which has a value in the neighborhood of $300.

This is American's idea of a deal, a discount, a promotion? It's hard to escape the conclusion that either American's marketing people are stupid, or they think consumers are stupid.

Next time someone offers you a special deal on frequent flyer miles, do the math, and then run. Better yet, just run.

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