SEAT 2B

By Joe Brancatelli

updated 9:52 a.m. ET Nov. 14, 2007

More than 25 years after the airlines created frequent flier programs, there are three things we can confidently say about them: They are the most intriguing thing business travelers deal with on the road. They are the most frustrating thing business travelers deal with on the road.

And the third thing? Everything you think you know about frequent flier programs is wrong. Even the name “frequent flier program” is misleading. And every misperception you embrace helps the airlines beat you at the game.

Frequent flier programs are not loyalty programs
Regardless of how they began, frequent flier programs today are multichannel marketing vehicles designed to sell you things: credit cards, phones, groceries, mortgages, investment funds, flowers, hotel rooms, car rentals, and, of course, airline tickets. More important, frequent flier programs attempt to change your buying patterns and sell you products and services at prices higher than you otherwise would pay. The airlines are paid for every mile their marketing sponsors award when you buy something, and the cost of those miles is rolled into the price you pay.

One glaring example: “affinity” credit cards tied to the frequent flier programs. The basic American AAdvantage MasterCard issued by Citibank carries an annual fee of $50, the interest rate on purchases is more than 17 percent, and the cash advance rate is north of 22 percent. All of those charges are substantially higher than those of similar credit cards that don’t offer miles.

How do you beat the airlines at the game? Never buy something just to get miles. Don’t switch brands just to get miles. Don’t pay a higher price for an item and rationalize it by saying the miles you receive have value. The miles are never worth the extra dollars you pay.

Frequent flier programs are not banks
Too many business travelers “bank” miles, waiting for a day when they can take a dream vacation. But airlines do not pay interest on miles you hoard in your account. Worse, you could fall victim to frequent flier award inflation — there is no guarantee that the airlines won’t increase the price of awards while you’re saving up. For example: Continental Airlines last month announced a wide-ranging increase in the price of its best awards. The number of miles required to get a free first-class domestic ticket rose about 11 percent; the cost in miles for some international business-class seats rose by 25 percent.

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Frequent flier programs aren’t retirement accounts, either. If you’re storing up miles for that glorious day when you’ll ditch the 9-to-5 routine and fly into retirement and the sunset, you’ll be in for a rude awakening. Your miles will be worth dramatically less. One bitter example: When the programs started in 1981, the going rate for two first-class tickets to Hawaii was 75,000 miles. Today, it is about 380,000 miles.

How do you beat the airlines at the game? You can’t. But you can limit the devaluation of your miles by claiming awards as soon as possible after you earn them.

Frequent flier miles are not currency
For years, airline executives, third-party mileage strategists, and even chattering-class columnists like me claimed that frequent flier miles were the nation’s “second currency.” Well, guess what. Miles ain’t currency — at least not in any sense that businesspeople can recognize.

Airlines have complete power over the value of your miles, your ability to earn them, your power to use them, and your right to trade, sell, or give them to other people. No government agency regulates frequent flier plans, and the airlines have almost always prevailed in court cases concerning miles. If you must compare miles to something, consider them scrip issued by a company store. They can be used only within the narrow strictures established by the company, they are not liquid, and they cannot be exchanged for cash.

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