Frequent Flier Miles: Yes, They're Still Worth It

Oct. 29, 2008 — -- Because it's almost Halloween, let me share a childhood horror story: the monthly chore of licking pages and pages of S&H green stamps and sticking them in those redemption books. Ugh, I can still taste that ghastly glue …

I was reminded of the stamps when I recently read that United Airlines is prepping itself to spin off its frequent flier loyalty program into a separate company -- following in the footsteps of Air Canada, which spun off its award plan in 2005.

You're probably wondering what I'm talking about. Here's a quick history lesson: green stamps, wildly popular from the 1930s to the '80s, were given out by merchants, like grocers as a premium to customers, who could then redeem them for gifts and household goods.

Starting to remind you of frequent flier loyalty programs? It should. Ever since the first modern miles program was formed -- American Airlines' AAdvantage started it all back in 1981 -- frequent flier programs have operated like the old stamp giveaway. The difference: fliers redeem miles for air travel instead of lamps, with no unpleasant glue after-taste.

As the airlines expanded by leaps and bounds over the past few decades, loyalty award programs were a perfect fit. The airlines had quite a few empty seats, and what better way to fill up this "non-rev" space than with loyal customers? Even better, the airlines could sell millions of dollars in miles to hundreds of businesses, like credit card companies and grocery stores that rode on the coattails of passengers' loyalty to their favorite airline.

So, what could a spin-off mean for your miles? Or, considering the sad state of the economy, what could an airline bankruptcy mean for your miles? Chances are, you will be OK.

That's because you're not the only one who likes these programs. The airlines absolutely love them, because frequent flier programs make money. Lots of money.

So, for the airlines, a miles club is something of an untouchable, and it's often protected, even during bankruptcy proceedings, because it's so valuable. and when there are mergers or one airline acquires a failing competitor, the mileage program of the "lesser" merger partner, or, bankrupt airline is often quickly converted into the dominant airline's program.

So, if an airline decides to spin-off its program, that's just one more way for it to make a very nice chunk of change.

Certainly with current (and unprecedented) seat cutbacks, it would seem pretty clear that there too are many miles chasing too few seats, but not so fast! Frequent fliers have not been following the historical script. What's been happening in recent years is that more and more customers are actually redeeming more and more miles.

At Continental, for example -- the only major domestic airline that makes its monthly redemption figures public -- redemption rates this year through July are up more than 20 percent over the same period last year.

This is partly driven by fliers' fears that the programs are getting watered-down. And there's no question that they are.

We're seeing more programs upping the number of miles required for free flights, less seats to popular redemption locations (Hawaii, Las Vegas, Orlando) and the addition of expiration dates to miles that essentially mean "use 'em or lose 'em." And frequently, fliers are deciding to "use 'em."

Makes you wonder why more frequent fliers don't just walk away from these programs. But the airlines don't seem too worried about this, maybe because they know their frequent flier programs still have something passengers really want.

Actually, that would be a couple of things fliers want, including -- speed. More and more "elite" frequent fliers are given first priority boarding, and even the egalitarian Southwest has announced it is setting up separate check-in lanes at some airports to allow its best customers to breeze through security.

Then there's the matter of bypassing all those fees. Most of the checked-bag costs are waived for elite frequent fliers, which can save a two checked-bag United passenger $130 round-trip. Maybe that doesn't seem like much of a savings if your ticket costs $900, but what if your airfare was, say, $260? It's a deal.

So, if you ask me if frequent flier programs are still worth it, I'd have to say, sure -- if only for the perks I mention above. I do not expect to see these programs go the way of dinosaurs, or, for that matter, the way of green stamps.

Actually, even green stamps haven't gone away. They live on, as digital "green points" on a Web site. No glue or licking required.

This work is the opinion of the columnist and in no way reflects the opinion of ABC News.

Rick Seaney is one of the country's leading experts on airfare, giving interviews and analysis to news organizations, including ABC News, The New York Times, The Wall Street Journal, Reuters, The Associated Press and Bloomberg. His Web site FareCompare.com offers consumers free, new-generation software, combined with expert insider tips to find the best airline ticket deal.