On Frequent Flyer Miles
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Editor's Note: This story was originally published on May 10, 2001. To see the most recent SmarterTravel articles on related topics, please click on any of the following links: airfare, frequent flyer, On Frequent Flyer Miles, Payless, Tim Winship.

CONVERSION COST COMPARISON

BEGIN WITH CONVERT VIA END WITH CONVERSION LOSS
10,000 American miles Diners Club Rewards 5,000 Midwest Express miles 50.0%
HHonors Reward Exchange 1,500 Midwest Express miles 85.0%
Points.com 1,046 Midwest Express miles 89.5%
10,000 Midwest Express miles Diners Club Rewards not possible N/A
HHonors Reward Exchange 4,000 American Miles 60.0%
Points.com 1,465 American Miles 83.4%

The conversion loss gives many would-be users sticker shock. And it turns out that the barriers to lowering prices are not easily overcome. The obstacles to better conversion rates are twofold:

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1) Marketing Considerations

Miles are, by definition, a loyalty currency. Travelers earn AAdvantage miles, for example, as a reward for NOT flying on United or other American Airlines competitors. But if miles are interchangeable, the incentive power of any particular currency, or any particular program, is diluted. This prospect makes marketers cringe.

So for program operators who see their programs as, first and foremost, vehicles for promoting loyalty to the host company, mileage exchange is inherently counterproductive.

2) Costs

While they are still called "loyalty programs," many programs today are also profit centers unto themselves. That means that the revenues generated by the sale of miles to program partners have come to rival the loyalty effect in importance.

For conversion rates to improve, program operators will have to view mileage exchange as a marketing plus, rather than a minus. And, they must be willing to pay more when purchasing miles from Points.com and accept less for miles sold to Points.com. Neither is likely to happen anytime soon.

Exchange Options

Another key difference among the alternative exchanges is in the programs participating in conversion. The following table shows the options associated with each exchange.

CURRENCY EXCHANGE COMPARISON

PROGRAM SUMMARY DETAIL
Diners Club Rewards Miles-to-Points: 3 airlines (American, Delta, United) Points-to-Miles: 24 airlines Aer Lingus, Air Canada, Air France, Alaska, American, America West, Asiana, British Air, Continental, Delta, El Al, Hawaiian, LanChile, LatinPass, Mexicana, Midwest Express, Northwest, SAS, South African, Thai, TWA, United, US Airways, Virgin
Hilton HHonors Reward Exchange 13 airline programs Aero California, American, Continental, Delta, Hawaiian, LanChile, LatinPass, Mexicana, Midwest Express, South African, TWA, United, Virgin
Points.com 5 airlines, 4 non-airline programs Air Canada, Alaska, American, America West, Beenz, ClickRewards, Esso, Midwest Express, PhoneHog.com

The Bottom Line

For mileage exchange to develop into a mainstream feature of the frequent traveler/miles-and-points landscape, consumers will demand both more exchange options and better conversion rates. Until that happens—and there are significant obstacles to both—exchange will remain on the fringes of the mileage universe, more dream than reality.

In the meantime, consumers should use the exchanges opportunistically, depending on the fit between their needs and the features and benefits of the contending exchanges.

Summary
Exchange Program Strengths & Weaknesses

Diners Club Rewards (http://www.citibank.com/dinersus/)

Strengths: Includes three largest airline programs, lowest conversion cost
Weaknesses: Slow conversion (two to 10 weeks, depending on the airline); limited participants

Hilton HHonors (http://www.hiltonhhonors.com)

Strengths: Extensive partner list
Weaknesses: Slow conversion (comparable to Diners)

Points.com (http://points.com)

Strengths: Fastest conversion; includes non-airline points
Weaknesses: Highest conversion loss; limited participants

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