Buying Miles Is Thrifty - But Iffy

HARVEY D. SHAPIRO writes about travel for Bloomberg magazine. This article appears in the March issue and is printed with permission.

The irony of the frequent-flier game is that those who accumulate the most mileage may have the least use for their winnings.

"If you fly a lot, the last thing you may want to do is get back on a plane again," says Stan Dale, editor and publisher of Mileage & Points International, a newsletter for participants in frequent-flier programs. Thus a sizable semi-underground market has developed to transfer frequent-flier awards to those looking for cheap ways to travel.

The marketplace definitely seems to be growing, says Todd Clay, manager of corporate communications at Delta Air Lines in Atlanta. Whether you decide to join the players may depend not only on your travel habits and your bankbook, but also on your moral code. Trading in coupons is not quite illegal, but it's not exactly kosher, either.

Key to the trading are coupon brokers, who bring buyers and sellers together. They typically place small ads in the Sunday travel sections of big-city newspapers.

"It's a vibrant market. Some brokers will not buy the mileage until they've got a customer, and some will buy it outright without any customer involved."

Brokers ask sellers to exchange a certain number of miles from their frequent-flier accounts for a so called award, turning over the award certificate to the broker. When a passenger accumulates 25,000 miles, major airlines usually offer an award for a free ticket to any city they serve in the United States; international awards may require 60,000 miles or more. Prices vary, but sellers generally get $12 to $15 for each 1,000 miles accrued, or about $250 to $300 for a domestic ticket.

The broker then sells the certificate to a traveler at a price that may be as much as 50% off the regular fare. It might not save the traveler much over a deeply discounted, advance-purchase economy ticket on a highly competitive route, but it means re al bargains on business class and first-class tickets, as well as on overseas routes.

Here's the catch: Frequent-flier programs prohibit selling the awards. They do allow you to give awards away--in some cases to relatives and sometimes to anyone you choose. So the buyer's apologia is that the award is a gift.

"If you're going to do this, you have to keep your mouth shut," Dale says. If users let it slip that they bought the award, their tickets can be confiscated and they will be left home--or worse yet, left far from home.

The airlines are serious about this, he says: "Delta took it to state court in Georgia, and other airlines have done the same in other states. And it has been found illegal."

Well, yes and no.

In New York, Mikki Seligman, a spokeswoman for state Atty. Gen. Oliver Koppell, says of trading in awards "There is no law in New York state that says it's illegal. It's basically a contractual issue between the airline passenger and the airline." But This is a flourishing industry. We know it exists, but our office has no particular jurisdiction over it."

According to Dale, courts in other states have held that an airline can refuse to accept such tickets, but it can't sue the people tendering them because it hasn't suffered damages; it's just that Mr. X sat in Mr. Y's seat.

"Some of the carriers are more aggressive than others in trying to enforce this," Dale says. American Airlines is one. Delta is also considered a hawk.

"If we become aware of it, the ticket will definitely be confiscated, and the frequent-flier account can be closed," Clay says. "We've done it on numerous occasions."

Are the airlines playing fair? "I sympathize with the airlines for trying to control their programs," Dale says, "but on the other hand, if I earn a free ticket, shouldn't I have the right to decide how to use it?"

Despite tough talk from the airlines, he says, your chances of getting away with buying an award are pretty good. And you can save a lot of money. The real question is whether you think it's the right thing to do.

Mileage Guru Petersen who is "No Fan of Awards Brokering"

By CHRISTOPHER REYNOLDS TIMES STAFF WRITER

Randy Petersen, the Colorado Springs, Colo.-based editor and publisher of the Inside Flyer newsletter and perhaps the nation's leading authority on frequent-flier programs, says the brokering of mileage coupons isn't officially illegal in any state but Utah, where the practice was barred about two years ago.

However, Petersen also says that as the economy has sputtered and the airline industry has cut domestic prices, the mileage coupon-brokering industry has shriveled from more than $100 million a year in 1989 to about $25 million now. As the market has contracted, Petersen suggests, the reputation of brokers has suffered.

And since airlines typically earmark just 10% or fewer of their seats for travelers using mileage awards, those who buy or trade for coupons often gain their seats at the expense of travelers who have followed the airlines' restrictions to the letter. That, says Petersen, doesn't seem sporting.

Mileage brokers spend alot of time and money advertising the sell of frequent flier miles. The only way brokers make real money is off business and first class international airline tickets. Which by the way the ailines charge $4,000 to $12,000 for!! Could you emagine how hard it is for a broker to find a client willing to buy a ticket for half that price or even a quarter?? Does Mr. Peterson know how hard it is to find such clients? Sporting ? Does the mileage member have the energy or the time to go looking for such clients? Does the mileage member have the time to screen every call they recieve to make sure it is not the airlines trying to close their account? Look most brokers are X Travel Agents who have been squeezed out of the travel business by the airlines cutting the commisions. Most brokers could be an executive for the airlines (thats how good they are). If Mr. Peterson is an authority on frequent flier miles boy I must be a GOD!

CONSUMERS TO AIRLINES: SHOW US THE SEATS!

As the Internal Revenue Service clamors to profit from the largesse of frequent-flier programs, a separate band of federal and local politicians appears to be working in favor of consumers. In mid July, the Department of Transportation's Aviation Enforcement Office formally requested nine U.S. airlines to provide detailed information about their frequent-flier programs including seat availability for free trips. The move came in response to an earlier and ongoing DOT review of frequent-flier programs which indicated that airlines may not be providing consumers with adequate information about predetermined seat limitations.

Just two weeks later, Mark Green, Public Advocate for New York City, released a comprehensive study on the availability of frequent-flier seats on eight major carriers serving the New York metropolitan area, in response to complaints from consumers who tried to cash in miles for free flights and were told that no seats were available. On the domestic and international routes that Green's office tested, United had the best availability, Delta the worst. "We did this survey because a lot of people are accumulating a lot of miles, but when they want to use them, they can't," says Glenn von Nostik, research director for the Public Advocate's office.

Both studies reflect ongoing passenger antipathy for the airlines' refusal to make public their seat-limitation policies. The carriers are not required to inform consumers of the actual numbers of seats available for passengers traveling on frequent-flier awards, as they are compelled to disclose on-time performance and overall safety records. Although the airlines must announce blackout periods, according to Terry Trippler, editor of the newsletter "Airfare Report," they make an unreasonably small number of seats available to award winners and are ostensibly "enticing people to become members when it's almost impossible to redeem the tickets."

Although the DOT has not indicated when it will release a final study on seat-availability policies, Green's report did advise full disclosure. If it emerges that airlines have indeed unfairly restricted seat access, they could be prosecuted under stat e consumer-protection laws and forced to pay heavy penalties. "If the airlines have created misrepresentation, people will have the right to damages," explains Thomas A. Dickerson, a judge in Yonkers, New York, and author of Travel Law

Full disclosure would also give more power to consumers, who have been steadily losing ground with the airlines over the last decade. First, beginning in 1989, airlines introduced three-year expiration dates on unused miles. In 1995, they raised mileage requirements for free transcontinental flights by 5,000 miles. And as of January 1, both United and Continental are requiring Saturday-night stay-overs on most award tickets. Also, Delta will no longer allow most program members frequent-flier upgrades on selected discount airfares.

Meanwhile, many foreign airlines- including Air Canada, Ansett Australian, Canadian Air, and Qantas- have introduced two-tiered mileage-awards systems: Only passengers paying full fare will receive full mileage credit, which essentially penalizes discount-ticket holders. Although this trend has yet to penetrate stateside, TWA recently began awarding extra miles to coach passengers paying full fare.

Airlines are likely to continue introducing disincentives for redeeming frequent-flier miles -especially when revenues from the sale of affinity miles start to drop. As the chart to the left shows, their efforts thus far seem to be paying off. -D. K.

What you are about to read next is press release that was used as a scare tactic by Delta lawyers.
What actually happened was the brokers were sued for selling stolen tickets not frequent flier miles! Any one can get a copy of this case from the courts! Its so funny it's laughable! The lawyers keep making money by leaching off the airlines. So they keep the airlines thinking they can really do something about all this! Yeah keep them on retainer!! All the money they spend on lawyers chasing brokers. They could use making their service better. They sued the brokers for 9 million or so and never saw a red penny of it. So the only ones that get hurt out of the whole situation is the airlines and the customers. Most people pick a certain airline to build miles on because they can sell them and get back a little of the ton's of money they spent. So it is benificial to the airlines to have some brokers around. The only people who benefit are the lawyers who laugh all the way to the bank! What a joke!!!!

The scare tactic is next.....

TRAVEL NEWS 

Court Awards Delta $9 Million Judgment Against Ticket Brokers

The federal district court in Atlanta has handed down a $9 million judgment in favor of Delta Air Lines (NYSE:DAL), against unauthorized ticket operations in Texas and Alaska. Delta believes that the damages award is the largest ever granted in a case against frequent flyer ticket brokers.

International Award Travel, whose principal officers are Robert Seward and Keith Haddon of Houston, advertised in newspapers that it buys and sells frequent flyer tickets. International Award Travel purchased frequent flyer tickets and awards from members of Delta's frequent flyer program and transferred them to another ticket broker, World Plus, Inc., whose principal officer is Raejean Bonham of Fairbanks, Alaska. World Plus, in turn, sold Delta frequent flyer tickets to passengers as "discount" tickets.

Delta's frequent flyer program rules prohibit the buying and selling of frequent flyer miles, awards, and tickets. In an earlier order in this case, the court ruled that ticket brokers are not authorized to buy and sell awards or tickets from program m embers and that any ticket transferred or acquired in this for travel, the airline is entitled to the full, undiscounted one-way fare for the travel measured as if the passenger had bought the ticket at the gate at the time of departure.

Based on the thousands of tickets brokered by the defendants in this case, the court awarded Delta compensatory damages of $9,093,857, plus punitive damages.

Chris Jilek, Delta's director - relationship marketing, stated, "This is an important case from the standpoint of helping Delta's ongoing efforts to ensure our program is more rewarding for our customers who play by the rules. Delta is determined to identify and hold responsible anyone who engages in the fraudulent business of brokering Delta's frequent flyer tickets. The size of the damages award should make clear the risk these individuals are taking and Delta's determination to recover for its injuries." (c)1998 Reuters News Service.

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