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Choosing a Mileage Program in Uncertain Times

Since frequent flyer programs burst on the scene in 1981 with the launch of American’s AAdvantage, the “How to Choose a Program” chapter in the traveler’s playbook has remained largely unchanged, unaffected by events in the travel industry or in the world beyond travel.

In a nutshell, the advice boiled down to directing consumers to pick the program whose airline host they would naturally use most frequently, even if no mileage program existed.

To be sure, that remains the key screening criterion for choosing a program that will allow participants to earn the most miles with the least disruption to their existing travel behavior.

But current events have forced savvy travelers to bring a new consideration to bear when choosing and using loyalty programs: the financial stability of an airline. And whether or not you foresee a future for a given airline may mean the difference between pledging your loyalty or turning your back.

The mayhem factor

As I write this, in late October 2004, two of the Big Six airlines, United and US Airways, are operating under Chapter 11 bankruptcy protection. Delta is expected to file for bankruptcy in the coming weeks. And while the discount carriers have fared much better as a group, ATA just filed for protection under Chapter 11, and Independence Air is also on the bankruptcy watch-list.

One or more of the aforementioned airlines will not survive. And billions of frequent flyer miles almost certainly will be forfeited, leaving millions of consumers empty-handed.

(There are possible scenarios in which members of a failed airline’s program might be rescued. But such an outcome is highly unlikely today, when other airlines have neither the financial resources nor the will to assume the costs associated with taking possession of another carrier’s mileage program.)

The great majority of those at risk of losing their miles never contemplated that possibility when they signed on to the programs in which they are now vested. That’s not to say they acted rashly when they enrolled. Rather, until recently, no one could have foreseen the painful shakeout currently destabilizing the travel industry.

But that shakeout, and its effects, are now a central fact of travel life, and will continue as such for the foreseeable future. What we have all learned is that mileage programs are only as viable as the airlines that host them, and some airlines are no longer very viable at all. Therefore, travelers signing up for a loyalty program today—or continuing their longstanding participation in a program—must winnow out those programs with poor long-term survival prospects.

Handicapping the carriers

As obvious as it now seems that travelers should not accumulate miles in the programs of airlines that are headed for liquidation, it’s much less obvious how to put that advice into practice.

Which airlines are at significant risk? At what point should you declare an airline a lost cause and switch programs? What should you do if you think your program is headed for a premature demise?

These are tough questions. Proof: I know some very knowledgeable industry analysts who, to their considerable embarrassment, find themselves facing the possible loss of large quantities of US Airways miles.

At the risk of being proved wrong myself, I have divided the universe of major airlines into three categories—the Good, the Bad and the Ugly—each of which has a recommended course of action associated with it.

The Good

Of the largest airlines, three look to have a good chance of surviving the current shakeout: American, Continental, and Northwest.

Consumers can continue participating in these programs with a reasonable degree of assurance that the companies will survive. And so will their miles.

The Bad

Two carriers are in trouble, but not in imminent danger of liquidation: Delta and United.

Because either of those airlines could slip from serious to critical condition, the safe approach is to shift from earning miles to redeeming them in Delta and United’s programs. Until the future prospects of these airlines become clearer, I’d also suggest choosing a loyalty program from one of the healthier airlines, and transfer mileage-earning activity to that program.

The Ugly

Lastly, there are airlines that will probably liquidate within the next six months. So far, among the majors, that list only includes US Airways. If we expanded the discussion to include discount carriers, I’d add ATA to the list.

If you agree with the prevailing prognosis for US Airways, you should stop earning miles in their program immediately. Those miles are simply too risky to have much value. Furthermore, miles already earned should be redeemed for award travel. And award trips should be booked for travel sooner rather than later. The farther in the future you make reservations, the less assurance there is that US Airways will still be flying or honoring its agreements with Dividend Miles partner airlines.

Low-cost carriers, anyone?

I’ve been a critic of the discounters’ programs from the very beginning, for two reasons. First, they offer extremely limited options for earning and redeeming miles. And second, most low-fare carrier programs expire miles after a mere 12 months.

That combination means that for many travelers, the chances of actually reaching an award threshold in the programs of Southwest, JetBlue, and their ilk are negligible.

While I’m still not a fan of the low-fare carriers’ programs—with the exception of America West’s, which is modeled after the major carriers’—their stability relative to the struggling larger airlines’ programs certainly makes them more attractive than ever.

I can even imagine a situation where, for example, Delta’s situation might deteriorate to the extent that Atlanta-based flyers might rationally choose AirTran’s program over SkyMiles.

Sign of the times!

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