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How Much Are Your Frequent-Flyer Miles Worth?

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Two interesting things happened this week in the world of frequent-flyer miles. First, Delta updated its policy to prevent miles from being transferred from after an account holder’s death. Second, the industry trade organization Airlines for America(A4A), announced that in 2012 airlines flew at 83 percent capacity.

Due to mergers, consolidations, cutbacks in capacity, the airlines are all making money these days. It’s good news for the airlines, bad news for the frequent-flyer programs.

There are at least 9.7 trillion unredeemed frequent-flyer miles and with the airlines flying at such high load factors there is no incentive for them to redeem miles for tickets that would essentially displace revenue passengers.  As of the end of December 2012, United Continental expected 25 percent of its miles earned are expected to expire or go unredeemed. In 2012, customers of Southwest and AirTran redeemed approximately 4.5 million flight awards, accounting for approximately 9.0 percent of revenue passenger miles flown.

Frequent-fliers programs are major profit centers. In fact, the programs actually enjoy a market valuation higher than the airlines themselves.

Translation: the frequent-flyer programs are the airlines’ dirty little secret — they are pure profit machines.

The airlines literally print the “currency”  the mileage — which they sell for about 1.4 cents a mile to hundreds of mileage partners–credit card companies, grocery stores, florists, mortgage companies. This transaction gets you one mile per dollar spent every time you buy something at the supermarket or fill up your car with gas. The reason why it’s so profitable for the airlines is that the airlines not only print the currency but they control (and limit) the levels of redemption — it averages just about 10 percent. So the airlines are getting about a 90 percent ROI…mafia loan sharks worship at their altar!

These programs have reached critical mass, and the airlines don’t want to end them — the programs make too much money. Instead, the airlines continue to up the ante for minimum number of miles required, or they simply change the rules–Delta’s rule change is just the most recent example. But the changes are even more drastic than the Delta rule.

The airlines are slowly but surely trying to quietly transition their frequent-flyer programs from redeeming miles for “free” airline tickets to “lifestyle” programs where the miles are redeemed for anything BUT airline tickets.

Want a box of chocolates? A magazine subscription? A toaster oven? An airline will gladly redeem your hard earned miles for those.

To redeem your miles for the purpose you originally joined the loyalty program for, you need to be creative, counterintuitive and plan in advance. Think up to 330 days out, use the airlines mileage partners in their strategic alliances (One World, Star, Sky Team), pick places you’ve never been and also pick alternate airports at those destinations and then alternate routings.

A recent study, from Ideaworks, noted that the airlines that are best at redeeming reward seats are Air Berlin, Southwest and Virgin Australia. British Airways , United Airlines and AirTran received special mention as most improved.

Last but not least, don’t just bank your miles and let them sit there. If you don’t trust the airlines as airlines, why would you trust them as…banks! Your miles will not increase in value, only DECREASE as each day passes.

Watch Peter’s CBS This Morning report for the latest changes in the frequent-flyer program.

For more information on mileage and rewards, check out our tips on:

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