Airline Frequent Flyer Miles, 30 Years Later

May 25, 2011 — -- I first became aware, painfully, of airline mileage programs in the early 1980s. At the time, I was a junior member of the North American marketing department of a Southeast Asian airline. And despite my employer's poll-verified service superiority and comparable fares, Pan Am was somehow winning more than its fair share of the lucrative business-traveler market. They were eating our eggrolls.

The reason, I soon discovered, was WorldPass, Pan Am's loyalty program. It was doing exactly what it was designed to: give them a tie-breaker edge with repeat travelers.

It was several years before the airline I worked for finally established a relationship with one of the dominant U.S. programs, allowing us to add frequent flyer miles to our selling proposition and level the playing field. But I'd learned first-hand just how powerful loyalty programs could be.

Pan Am eventually succumbed, victim of a competitive marketplace and inept management, and WorldPass members' miles were folded into Delta's SkyMiles program. I spent another decade in the travel business, developing and managing loyalty programs, before launching a website and newsletter devoted to them almost 15 years ago. So I've been in the ring or at a ringside seat for most of the programs' 30-year history.

From that vantage point, following are 10 mileage-related events or trends that I think were, or likely will be, particularly transformative:

1. The Beginning

American Airlines launched AAdvantage, the first airline mileage program, in May 1981, during the scramble for competitive advantage following the industry's deregulation. But it was hardly the first loyalty program -- so-called frequency programs like S&H Green Stamps had already been part of the U.S. marketing scene for decades. (In the 1960s, S&H was issuing more stamps than the U.S. Postal Service. Three times as many.)

What distinguished the airline programs, and made them the most successful marketing programs ever, was a winning combination of the psychological and the financial -- the lure of travel (quintessentially aspirational) and the return-on-investment value of the awards (because they awarded unsold seats, the real cost to the airlines was miniscule).

Today, American claims to have more than 66 million members in its AAdvantage program. In 2010, they cashed in more than 165 million miles for almost 7.2 million awards.

2. Saver Awards

United introduced what have come to be known as saver awards -- restricted award tickets offered for half the number of miles required for unrestricted awards -- in 1988. The restrictions: capacity controls and blackout dates.

Today, saver awards account for the vast majority of all awards issued, and the 25,000-mile saver award for coach travel within the continental U.S. is the base expectation of most consumers who participate in traditional airline loyalty programs.

3. The Elephant in the Room

The disconnect between that expectation, encouraged by decades of airline marketing, and the reality of scarce award availability could be the programs' eventual undoing.

Listen in on the water-cooler conversation between frequent flyers and you're likely to be reminded of the scenario depicted in the snarky TV commercials for Capital One credit cards, featuring David Spade as a supercilious airline supervisor who delights in denying customers' requests for frequent flyer awards.