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Grounded Frequent Flyers Have a New Mantra: Buy Now, Fly Later

Judging by the conspicuous lack of bonus-mile offers over the past 12 months, it’s clear the airlines have determined that frequent flyer promotions weren’t the right tool to prop up the slumping demand for air travel.

But that doesn’t mean airlines have given up on their loyalty programs as revenue-generators during these profit-scarce times. Rather, the program operators have shifted their focus away from spurring more flights in favor of increasing non-travel transactions.

And consumers who follow the airlines’ lead can rack up scores of frequent flyer miles, without spending a nickel on a single flight.

Mileage Malls

The larger airline programs all feature mileage malls, extensive networks of online retailers that award miles for purchases. Delta currently boasts the largest such mall, with more than 500 participating merchants, most offering between one and ten miles for every dollar spent. Since miles can be earned for everything from clothing to home furnishings, it’s an opportunity to bolster one’s frequent flyer account with everyday purchases. And when bonus miles are on offer, the miles multiply quickly.

Among the best of the current mileage mall promotions is US Airways’: double miles on all shopping transactions completed at the Dividend Miles online shopping mall through August 31.

Also through August 31, members of Midwest’s program can earn 500 bonus miles for every $50 spent shopping at any Midwest Miles Mall retailer. That’s a hefty 10 miles per dollar spent over and above the merchant’s normal mileage payout.

Through September 6, American AAdvantage members can earn up to triple the number of miles normally awarded for purchases made at the American AAdvantage eShopping mall. Unfortunately, only nine retailers are offering bonuses.

Delta’s latest promotion is similarly limited. While several of the participating retailers are offering quadruple miles, most of the 500-plus SkyMiles Mall merchants aren’t offering any bonus miles at all.

And finally, proving that not all promotions are worthy of being so-called, United is offering Mileage Plus members 1,000 bonus miles after spending at least $1,000 at participating Mileage Plus Mall retailers through September 15. That’s a paltry one extra mile per dollar spent, and only after spending $1,000.

Miles for Sale

The argument against buying miles from the airlines is a compelling one: They’re just too expensive. But it can still make economic sense to purchase a small quantity of miles to reach an elusive award level. And because such sales are so profitable for the airlines, they often sweeten the deal to encourage more transactions.

One of the sweetest ever miles-for-sale deals was [% 3417880 | | US Airways’ double-mile offer %], which ended on August 15. During that promotion, miles that were normally priced at 2.5 cents each, plus a $30 processing fee, were effectively discounted to 1.25 cents per mile. So purchasing the maximum allowable 50,000 miles netted 100,000 miles, for $1,280. That’s a good deal if the miles are redeemed for an expensive ticket in first class or to Europe.

In effect through August 31, American is offering AAdvantage members who purchase 6,000 or more American miles a bonus of either 35 percent more miles or a 10 percent discount on a future American trip.

And through September 25, members of Delta’s SkyMiles program will receive a 40 percent bonus when transferring miles to another program member’s account. Naturally, there’s a fee to transfer miles: 1 cent per mile, plus a $30 processing fee.

Miles for Dining

Like buying through a mileage mall, earning miles through the airlines’ miles-for-dining programs can be lucrative. During the month of July, I earned 7,186 frequent flyer miles by taking advantage of two separate promotions. That’s equivalent to the miles awarded for one and a half cross-country flights, and I didn’t have to travel more than five miles from home to earn them.

Generally, program members earn five miles per dollar spent at participating restaurants. But through September 30, members of the programs of Alaska, American, Delta, Northwest, United, and US Airways can earn [% 3332736 | | 10 miles per dollar spent %] for qualifying dines on Mondays, Tuesdays, and Wednesdays. Same meal, different day, twice as many miles.

Mileage Economics 101

The motive behind these bonuses for non-flight activities? Money.

Whenever a frequent flyer mile is issued for anything other than a flight on the airline hosting the program, it adds to that airline’s top-line revenue and, more importantly, its bottom-line profit.

So, how does American Airlines, for example, make money when I earn miles for charges on my Citibank AAdvantage MasterCard? Simple: Every mile Citibank awards me is a mile that they must purchase from American. And while Citibank is probably American’s biggest mileage customer, it’s only one of more than 1,000 companies buying American’s miles to pass along to their customers as rewards for their loyalty.

American and other airlines are in the business of selling miles. And it’s a very big business indeed.

The airlines are highly secretive about the earnings derived from the sale of miles, but my educated guess is that the three largest programs—those of American, Delta, and United—each generate around $1 billion annually.

Depending on the economic climate and the competitive situation, the airlines and their program partners emphasize different aspects of the multifaceted programs, with the goal of selling more tickets or more frequent flyer miles, or both.

The cycle of promotional activity—which in the current recession is calibrated to promote buying more than flying—creates opportunities for consumers to continue earning frequent flyer miles, even though they’ve cut back on travel or even stopped flying altogether.

For the time being, grounded mileage-earners have a new mantra: Buy now, fly later.

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