25 Years of the Frequent Frustration Club

ByABC News
April 28, 2006, 11:52 AM

May 1, 2006 — -- Amassing miles as a frequent flier.

It sure seemed like a good idea at the time, especially from the point of view of American Airlines, which is widely credited with thinking up the whole idea. By creating what appeared to be an exclusive club (complete with nifty plastic membership cards), the airline could build customer loyalty and let its best, most loyal customers earn free flights and upgrades provided they flew enough miles on American.

The year was 1981, and big airlines like American were in the first frightening phases of airline deregulation, with new airline operations popping up everywhere (such as Air Florida and People's Express). The frequent flier idea (dubbed AAdvantage by American's ad agency at the time) was seen as a possible way to reward the best customers for not going over to the new competition, and in many ways the program has been a boon for fliers. Indeed, on this 25th anniversary, we're hearing much hoopla praising frequent flier programs as boons for the airlines as well.

The truth, however, is much darker.

For American Airlines, the cost of a frequent flier program seemed fairly minimal at first. Other than the added administrative, printing and mailing expenses for the monthly statements eventually sent to each member, little more seemed required than the expense of training reservationists to handle the anticipated redemption requests that would eventually start coming in (the early awards were mainly discounts on coach or free first class tickets). In addition, it was believed, frequent flier companion upgrades (get your first-class ticket free, buy a coach ticket for your wife or girlfriend and upgrade it to first) would result in significant additional ticket sales. There was also the assumption that since frequent fliers would, on average, be busy people, they might never get around to redeeming a certain percentage of their miles, and, in fact, this has proved true. A majority of program miles are never redeemed.

When American launched its AAdvantage program, United Airlines was less than a few steps behind with its Mileage Plus, and the race was on as all the carriers formed their own. By 1991, the airlines were trapped. Every carrier had thousands of customers who flew weekly and racked up huge mileage figures, spending huge sums of money on tickets in the process. Such fliers (those inducted into the airline's "elite" levels) accounted for a much greater percentage of profits than their physical numbers would indicate, so no airline could afford to irritate them by canceling a program they had all come to love. Yet even these upper-level frequent fliers also had accounts with everyone else, so the promise of great customer loyalty