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Airlines Get Serious About Non-Flight Awards

Got frequent flyer miles but can’t find an award seat? You’re not alone.

The airlines have never made public any performance data that would allow consumers to judge the generosity of their award programs. And barring an injunction from the federal government, they never will.

But anecdotal evidence and a least one survey-based report (IdeaWorks, May 2010) suggest that award availability remains the programs’ festering Achilles heel, both in reality and as perceived by many of the 100-million-plus members of U.S. airline mileage programs.

The airlines are keenly aware of the public’s eroding enchantment with their travel-rewards programs, and of the potential for government regulation if consumer sentiment continues to sour.

Alternative Awards

One approach increasingly adopted by the airlines to mitigate the problem of too few award seats has been to expand their rewards catalogs to include non-flight awards.

Over the years, various airlines have allowed members of their programs to use miles for hotel stays and car rentals, typically with their preferred marketing partners, as well as for miscellaneous consumer goods and magazine subscriptions.

What those non-flight rewards had in common was a negative—with the exception of magazine subscriptions, they all offered poor value, especially compared to the free flights that implicitly function as a value baseline for most program members.

The lackluster value of alternative awards was not lost on consumers, who stayed away in droves. (Here again, the airlines are mum on specifics. But feedback from my readers indicated that the popularity of flights was never seriously compromised by other award options.)

Now, however, non-flight awards are back. And unlike previous appearances, it could be for the long run.

What’s different this time?

While the airlines have always been ambivalent about giving away seats, they’re especially reticent to do so in today’s operating environment.

With flights running at historically high load factors—more than 80 percent full year-round—there are simply fewer unsold seats than ever. And the financial viability of airline loyalty programs is predicated on using “distressed inventory” (seats that were destined to go empty) for awards.

That explains why United and Delta, the two largest U.S. carriers, have featured hotel nights and car rentals in their awards catalogs for some time. But as with previous incarnations of alternative awards, the value was underwhelming.

Old Option, New Value

During the first week of November, American launched its own version of hotel and rental car awards.

At first glance, it looks a lot like Delta and United’s offerings. The online award booking application is almost certainly the same one used by Delta and United, just rebranded in American’s corporate color scheme.

And searches for hotels or cars tend to bring up the same results, in the same order, in all three apps.

What isn’t the same is what matters most: the prices. And American’s handily beat those of both Delta and United. By a lot, in some cases.

A double room on the same night at the Millenium Biltmore in Los Angeles, for example, would cost 24,530 Delta miles or 15,150 United miles, but only 9,600 American miles.

Put another way, a comparable room on the same night at the Biltmore would cost $119, according to SmarterTravel’s sister site, Expedia. That means the per-mile value using Delta, United, and American miles would be 0.49 cents, 0.79 cents, and 1.24 cents, respectively.

Similar discrepancies were apparent when test-booking stays at the Hilton Times Square and the Marriott Chicago Downtown hotels as well. In the case of the Hilton, a $399 room night would cost 94,454 Delta miles, 53,600 United miles, and 36,100 American miles. And in the case of the Marriott, a $269 room cost 52,450 Delta miles, 29,550 United miles, and 20,600 American miles.

American’s award prices aren’t just significantly lower than those of its competitors, they also compare favorably to another important benchmark, the value of miles redeemed for free flights. Although it’s possible to do better—and some savvy travelers insist you should—the average value of a frequent flyer mile used for an award flight is approximately 1.2 cents. And across a random sampling of hotel awards, American miles averaged slightly higher than that. Delta miles, by contrast, averaged just under a half penny in value, and United’s miles were worth around 0.8 cents apiece.

American was also the clear value leader in rental car awards, although per-mile values for all three airlines fell well short of those for hotels.

Looking at the prices in miles for a one-day intermediate-class car rental from Budget in the same three cities, Delta’s prices ranged from 13,238 at Los Angeles International Airport to 19,564 miles at New York’s JFK Airport, with a Chicago O’Hare rental in the middle at 18,066 miles. United’s prices ranged from 10,000 to 13,050 miles. And American’s ranged from 7,800 to 10,400 miles.

Comparing the mileage prices with the daily rates quoted on Budget’s website, including taxes and fees, American miles were worth the most at around half a cent each, followed by United’s at about 0.4 cents, followed by Delta’s at just over a quarter of a cent.

An Alternative Future for Awards Programs

A frequent flyer mile is worth whatever it can be redeemed for. For now at least, a mile redeemed for a hotel stay is worth more than a mile used for a car rental. And when redeemed for hotels or cars, a mile in American’s program is worth more than a United mile; and a United mile is worth more than a Delta mile.

More importantly, American miles redeemed for hotel stays are worth about as much as they are for the average flight.

Looking ahead, if American’s pricing becomes the industry standard, hotel awards could become a permanent part of the airline programs’ loyalty program rewards catalogs.

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