40 years of miles: The history of frequent flyer programs
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But the May milestone we’ve been most excited about at TPG this year, in particular, is the 40th anniversary of the founding of the first major U.S. airline frequent flyer programs.
Back then, frequent flyer programs were fairly straightforward: You’d take a few flights and earn a free flight. These days, frequent flyer programs are among the most complicated loyalty schemes in the world.
Travelers have to contend with earning and redemption rates that change all the time, a preponderance of credit cards with shifting bonuses and benefits, not to mention travel and non-travel partners that can make or break your entire mileage strategy. Good thing we cover all those changes and give you daily updated advice and tips at TPG.
Today we’re going to take a look back at the checkered history of airline mileage programs as we chart a course from their humble beginnings to the current, complex state of affairs.
Don’t worry; there won’t be a quiz on names or dates. Instead of a simple chronology, we’re going to pinpoint the trends and patterns that have shaped the airline industry over the past four decades as we discuss how frequent flyer programs ended up the way they are today and how they might evolve in the future.
The early years: 1979-1986
The origins of frequent flyer programs remain murky since several airlines tracked customers and their flight activity starting in the 1950s and 1960s. However, Texas International Airlines is largely credited with creating the first mileage-based frequent flyer program back in 1979. The carrier is little known now since it merged with Continental in 1982. However, it lives on in frequent flyer lore thanks to pioneering the modern mileage program. Another carrier, Western Airlines, created a program called Travel Bank in 1980, but Delta took over that airline in 1987.
The next major frequent flyer program established is one that travelers today should still recognize (and which has become one of the largest in the world): American Airlines AAdvantage. The official launch date was May 1, 1981.
Later in 1981, Delta unveiled its own mileage program. Called Frequent Flyer at the time, it was eventually renamed SkyMiles in 1995 and continues under that name to this day.
Alaska Airlines’ program started under the fanciful moniker of Gold Coast Travel when it debuted in 1983 and was renamed the more mundane Mileage Plan in 1989. Air Canada launched a miles program in 1984, and Continental established OnePass when the airline combined its frequent flyer roster with that of Eastern Airlines in 1987.
Related: The best airline credit cards
Southwest created a mileage program called The Company Club in June 1987 and then renamed it Rapid Rewards in 1996, which was more on-the-nose. Rather than basing earning and redeeming on miles, flyers could simply earn a free round-trip award after collecting 16 stamps within 24 months. You got one stamp per one-way trip between an origin and a destination. If you collected 100 in a year, you could earn the Companion Pass.
In 1982, American became the first U.S. airline to cooperate mileage-wise with an international carrier: British Airways. AAdvantage allowed members to earn and redeem miles on BA flights to Europe — unheard of at the time. That same year, British Airways launched its own frequent flyer program, which is now known as Executive Club. Right around then, United formed similar partnerships with Lufthansa and SAS.
Besides British Airways, it took international carriers a few more years to create their own mileage programs. Early notable examples include Korean Air, which formed a VIP program in 1984 that eventually turned into SkyPass. Qantas launched its Frequent Flyer mileage program in 1987.
KLM’s Flying Dutchman (how perfect was that name?) debuted in December 1991. This was followed shortly by Air France’s Fréquence Plus club, which premiered in 1992. After the two airlines merged in 2004, they created a new combined frequent flyer program called Flying Blue in June 2005.
Lufthansa and JAL started their respective mileage programs in 1993, and Singapore Airlines began KrisFlyer in 1999.
Most of these frequent flyer programs operated according to a distance-based structure, whereby flyers would earn award miles based on the actual flown distance of a trip. They could then redeem those miles for award seats at set levels depending on the regions of origin and destination and the class of service.
That changed in 2009, however, when JetBlue revamped its TrueBlue program — originally launched in June 2002 — so that flyers began to earn a set number of points per dollar spent on airfare. Points could then be redeemed at another fixed rate, also based on airfare, for award tickets. Southwest adopted the same model in 2011 with its restructured Rapid Rewards program.
On the plus side, you can redeem your points for any open seat on the plane since the point requirement depends on the cash price of a ticket, just like purchasing airfare. The downside is, the more expensive the ticket, the more points you’ll need for it (remember this for later!).
Related: The golden age of travel is now
Growing pains: 1987-1993
Following the advent of modern frequent flyer programs in the early ’80s, airlines began tweaking their mileage formulas later in the decade, ending up with many of the characteristics and quirks consumers must contend with today.
American Airlines was the first to recruit non-airline partners through which you could earn miles, including Hertz and Hyatt, in 1981, and United hitched up with Avis. These became the precursors to mileage-earning partnerships that have grown exponentially to this day, including online shopping portals and dining rewards programs. Overall, this was a positive development, as it opened up all kinds of new purchases and transactions to the accrual of miles that travelers could redeem toward tickets.
Another milestone: United introduced the idea of elite status in 1983. Back then, there was just a single threshold called “Premier.” American created its AAdvantage Gold program, which was awarded to its top 2% of flyers, in 1987. We’ll get into some of the more recent developments in elite status below.
Award charts and redemption rates really began to take shape in 1988 when several airlines offered triple miles on flights. It began as a promotion from American Express and Delta, though other airlines soon matched the terms. All those miles just waiting to be earned ignited the idea of “mileage runs” for both award miles and elite status.
As more flyers started to accumulate more miles, airlines began to raise the number of them needed for many awards, requiring tens of thousands in each direction of travel. As the saying goes: “One hand giveth, the other hand taketh away.”
That same year, United also introduced the concept of saver-level awards. These awards were a fraction (usually half) of the cost of normal, or standard, awards. However, they had restricted availability — there’s always a catch!
The other legacy programs soon implemented this model, including American, which created “PlanAAhead” and “AAnytime Away” awards in 1988. Since then, airlines have made saver-level seats more and more scarce over time.
United once again upped the ante in 1989 with the new concept of miles that “expired,” a characteristic that has become the industry standard, with notable exceptions like Delta SkyMiles (since 2011), JetBlue TrueBlue points (since 2013) and, ironically enough, United MileagePlus miles in 2019. This created a sense of urgency about miles; you either use them or lose them.
While many airlines with mileage expiration policies at least let you keep all your miles if you earn or redeem even a few every year or two, some currencies — like Cathay Pacific Asia Miles or Singapore KrisFlyer miles — expire within a specific time frame no matter how much you travel.
Sighting a possible revenue source, Air Canada became the first airline to allow the direct purchase of miles in 1990. At the time, flyers could purchase up to 10% of the miles necessary for an award. Other airlines soon jumped into the fray and now offer promotions and discounts on up to hundreds of thousands of miles … most of which are terrible deals without a promotion.
The following year, United once again led the pack by introducing award change fees. Given the high percentage of awards that passengers end up changing, other airlines also began including a fee structure into their mileage programs for everything from booking over the phone to canceling an award altogether. Welcome to the new landscape of nickel-and-diming for awards you’ve already earned.
At this point, it was clear that frequent flyer miles had a monetary value. So, in 1993, the IRS released a statement that it would not pursue taxes on the personal use of frequent flyer miles. This move essentially left mileage programs in the Wild West of regulation and oversight. Since they were not considered financial instruments, airlines were allowed to institute draconian terms and conditions that largely left consumers at the mercy of airlines.
Credit card partners: 1987-present
One of the most significant developments in frequent flyer programs was the introduction of airline credit cards that earned miles on everyday spending. This single evolution shifted the entire landscape of mileage programs and expanded their scope to the public at large, whether they were already frequent flyers or not.
The first U.S. cobranded credit cards were introduced in 1986-87. Continental (and Eastern Airlines) teamed up with Marine Midland Bank on the Continental TravelBank Gold MasterCard.
American first partnered on a card with Citi in 1987, while United issued the Mileage Plus First Card through First Chicago Corp. that same year.
Around this time, Chase and TWA also partnered on a mileage card. American Express and Delta began issuing cobranded cards in 1996 — the beginning of a fruitful, decades-long collaboration.
While these first airline cards were modest compared to current products in terms of bonuses and perks, they set the mold for today’s travel rewards credit card marketplace. Since then, major airlines and their issuers have developed multiple tiers of credit cards ranging from no-annual-fee basic ones to premium products that include plenty of value-added benefits such as airport lounge access or the ability to earn companion tickets. That’s not to mention perks that offset once-included services, such as free checked bags and discounts on inflight food … which you now often have to purchase instead of expecting a free meal.
The frenzy for new consumers reached a fever pitch at times, including the then-unprecedented offer of 100,000 miles as a sign-up bonus on the British Airways Visa Signature® Card in 2009 (offer no longer available). Although 100,000-mile bonuses are still rare, that number gets thrown around a lot more these days with hotel credit cards like Hilton’s American Express stable, as well as with targeted offers on premium, transferable-points cards like The Platinum Card® from American Express.
Besides airline cobranded cards, several issuers created proprietary points programs of their own where members could transfer the points to a number of airline (and hotel) partners.
Diners Club introduced the first credit card with points you could transfer to airline mileage programs in 1985.
American Express launched Membership Rewards in 1991 with seven domestic airline partners, including Continental, Delta, Northwest, MGM Grand Air, Midway, Pan Am and Southwest.
Today, the four major transferable points programs — American Express Membership Rewards, Chase Ultimate Rewards (launched in 2009), Capital One miles, and Citi ThankYou Rewards (launched in 2004, though revamped several times). Each program partners with over a dozen airline and hotel programs.
All four programs issue multiple credit cards ranging from basic to premium. While this has largely been to the benefit of consumers — who have seen their options for earning and redeeming points multiply many times over thanks to exciting new credit cards — it also makes deciding which cards to get and how to use them that much more complicated. Overall, though, the more choices we have, the better off we are.
Airline alliances: 1997-present
With the formation and expansion of airline alliances in the 1990s and 2000s, flyers saw their opportunities to earn and redeem miles across different carriers dramatically increase as well.
Star Alliance, of which United is a member, became the first of these organizations when it was formed in May 1997. Today, it is the largest alliance, both by number of airline members (26) and market share (just around 24% by recent estimates).
Oneworld was founded in February 1999 by carriers including American Airlines, British Airways, Cathay Pacific and Qantas. Oneworld now counts 14 full members (including the most recent, Alaska Airlines), making up around 16% of market share.
Finally, Delta formed SkyTeam in 2000 along with other carriers such as Aeromexico and Air France. It now has 19 members and accounts for nearly 20% of market share.
All this means that flyers should be able to earn miles in their two or three target programs on nearly every major flight they take. On the redemption side, it means being able to use their miles to fly to hundreds, if not thousands, of destinations that might otherwise have been inaccessible. While airline credit cards vastly increased the opportunity to earn miles, the formation of airline alliances likewise increased travelers’ options for redeeming them in incredible ways.
Airline mergers have occurred since almost the beginning of commercial aviation. But in the last 18 years or so, the number of mergers and the size of the airlines participating have resulted in unprecedented consolidation within the industry and further standardization of frequent flyer programs into the forms we know today.
Without going into an exhaustive history, here are a few of the most significant recent mergers.
American Airlines took over TWA in 2001, and America West merged with US Airways in 2005, though it kept the US Airways moniker.
The next major merger was that of Delta and Northwest in 2008.
In 2010, United and Continental merged, while Southwest and AirTran came together in 2011.
US Airways and American Airlines joined forces in 2013.
Finally, Alaska Airlines and Virgin America closed their deal in 2016.
Outside the U.S., Air France-KLM was formed in 2004.
IAG, or International Airlines Group, was formed by the merger of British Airways and Iberia in 2010 and then grew further with the takeover of Aer Lingus in 2015.
Lufthansa purchased Swiss in 2005 and Austrian in 2008.
In Asia, Cathay Pacific purchased Dragonair in 2006, while in South America, Avianca and Taca merged in 2010, and LATAM was born of LAN and TAM in 2012.
Each of these mergers has represented both benefits and costs to consumers. On the positive side, mergers included the integration of mileage programs so people could combine their various accounts. In some cases, this opened up new awards to flyers as their miles became part of new programs and usable on new alliances.
On the negative side, mergers produced a lot of uncertainty mile-wise. Airlines could switch alliances. For instance, Continental was in SkyTeam before merging with United and joining Star Alliance. US Airways was in Star Alliance but switched to Oneworld due to its merger with American. TAM was part of Star Alliance until it also joined Oneworld as part of its takeover by LAN … and then left the alliance in May 2020 due to a new linkup with Delta.
Those shifts meant that flyers who had diligently accrued miles in a certain mileage program in the hopes of redeeming awards on specific partners either had to book their awards within a very limited time frame or rethink their entire strategy.
Not only that, but flyers had to learn new award rules and charts based on those of the mileage program that remained standing after a merger. With each consolidation came a frenzy of mileage activity that also sent award space into a tailspin, which probably created some of the increasing scarcity of saver-level awards (at least pre-pandemic).
The disappearance of an airline and its mileage program also usually meant the changeover or outright cancellation of associated credit card products. We saw this in the case of the US Airways Mastercard, which was converted to the AAdvantage Aviator World Elite Mastercard. The Virgin America family of cobranded cards was closed in January 2018.
Although fewer choices generally mean worse options for consumers, the offerings have remained fairly competitive and consistent in the case of airline credit cards. We still see some great bonuses and benefits being offered.
Revenue requirements: 2014-present
In 1987, America West established a mileage program called FlightFund, which issued miles based on fare price rather than miles flown. FlightFund went the way of the dodo in 2006 after the airline merged with US Airways. However, its FlightFund formula was the one that both JetBlue and Southwest replicated with their mileage programs in the 2000s.
In 2014, the U.S legacy carriers decided to pursue a similar path. Delta and United announced that their respective mileage programs would become revenue-based the next year. American followed suit in 2016. The airline world has not been the same since.
Now, instead of earning miles based on the distances flown, members of most frequent flyer programs earn between 5 and 11 miles per dollar spent. The exact number is based on the type of fare and elite status level.
Partner mileage earning generally remains based on the fare class purchased (discount economy, full-fare economy, discount business class, full-fare business class, etc.) and the distance flown. However, even these rates have been slashed — to 25% (or less) of miles flown in some cases.
Earning elite-qualifying miles and segments on American Airlines and Delta remains based on distance or segments flown. Still, both have also instituted spending requirements for elite status ranging between $3,000-$15,000 depending on the airline and tier (Alaska has not instituted spending requirements at this time). Spending thresholds are waived at most levels if you make $25,000 or more in purchases annually on a cobranded credit card.
Meanwhile, United has adopted an entirely revenue-based elite system where you must earn both Premier Qualifying Points based on spending and Premier Qualifying Flights based on actual travel, though distance is no longer a factor.
Interestingly enough, both Air France-KLM Flying Blue and Lufthansa Miles & More also went revenue-based in 2018. Flying Blue also dropped its award charts soon after and began dynamically pricing awards based on paid airfare, though this structure remains illogical at best.
While the implications of these overhauls are complicated, there is one key takeaway: Airlines are rewarding travelers who spend rather than those who merely fly. It is more difficult to earn both award miles and elite status now, and it’s only likely to get harder.
That said, airlines worldwide relaxed their elite status requirements in 2020 and 2021 due to the pandemic, so it might be a while before they bounce back to their previous mileage and flight demands.
Surcharges and devaluations: 2004-present
Beyond predicating their mileage programs on spending, the legacy carriers have also significantly devalued their award charts over the years by repeatedly raising mileage requirements.
Delta began the trend, pulling its award charts in 2015 and beginning to price awards dynamically based on airfares. That means some economy awards are cheaper, but premium awards have shot up in price again and again … and again.
Unfortunately, the trend has continued during the pandemic. United raised partner award prices in April 2020 and then again in October. That same month, Delta hiked up prices on partner awards with no notice.
For now, both American and Alaska Airlines still publish zone-based award redemption charts with fixed mileage levels for awards in various classes between specific regions … after raising those mileage levels multiple times.
Even Southwest has upped its mileage redemption rates multiple times in the last several years, most recently last April. And foreign carriers, including Singapore Airlines, have been doing the same lately.
Now for one non-mileage type of devaluation. Let’s go back to 2004. That’s when oil prices spiked … to $40 a barrel. Airlines that had failed to hedge their prices beforehand began implementing small “fuel surcharges” on award tickets to offset part of the ticket cost.
The price of oil spiked again in 2008, resulting in an even greater imposition of these additional costs — and the more generic catch-all phrase of “carrier-imposed surcharges.” Despite ups and downs in the oil market, however, they’ve been with us ever since, albeit with dramatic increases that dwarf the rise in oil prices and can add up to thousands of dollars in some cases. Though they don’t ostensibly affect mileage prices, they’re nevertheless a factor in frequent flyer programs because these fees are frequently levied on award tickets and thus bring down the practical utility of the miles of airlines that charge them.
Luckily, U.S. frequent flyer schemes don’t levy these onerous charges, and the mileage programs of international carriers, including the newly revamped Air Canada Aeroplan, Cathay Pacific Asia Miles and Emirates Skywards, have begun axing them as well.
What’s next for the frequent flyer programs?
Given the uncertainty of the past year as well as what’s to come in 2021 and beyond, trying to predict what’s next for airline frequent flyer programs might be a fool’s errand. But that doesn’t mean we can’t try.
Four major trends stood out from this past year.
First, airlines leveraged their mileage programs to underwrite their financing, so there is no doubt that they will continue to regard frequent flyer miles as key not only to their survival but as major assets for any turbulence to come.
Second, we’re going to continue seeing miles flood the market. Several airlines, including United and Delta, sold massive quantities of miles to their credit card issuers to generate cash when travel demand dropped in the second and third quarters of 2020. That has resulted in some jaw-dropping credit card bonuses and spending promotions so far, and consumers can expect those to continue.
Just look at the recently launched the United Quest Card, which comes with 70,000 bonus miles after you spend $4,000 on purchases in the first three months your account is open.
On the flip side, though, that means we’re also likely to see further award devaluations as more consumers look for more ways to redeem more of their miles after a year of pent-up travel demand. In short, if you’re sitting on a stash of miles, now is the time to start thinking about how you’ll redeem them.
Finally, if you were a super-triple-platinum-diamond-crusted elite in the past, this is the exact right moment to consider whether you want to hop back on the elite-status hamster wheel with your airline of choice or to branch out and explore new options. Many frequent flyer programs are offering generous status challenges this year to woo flyers back on their planes and they’re gunning for competitors’ customers. But if you want to stick to what you know, chances are the qualification requirements are much lower this year, and that means you can aim for an even higher echelon than you’ve ever achieved before, depending on how much you intend to travel.
In the four decades since the inception of modern frequent flyer programs, airline miles have become markedly more complicated. Many of the developments have been positive, including the panoply of perks-driven, cobranded credit cards now available for all the major airlines.
At the same time, however, consumers have faced a constantly shifting skyscape of labyrinthine earning and redemption rules, an elite-status system that keeps pushing qualification thresholds higher and higher, and increasing restrictions on how and where consumers can use their miles.
As is often the case, though, adversity also means opportunity for individuals who take the time to learn about mileage programs and master their complexities. Staying on top of ongoing developments, adjusting your strategy and maximizing your ability to earn and redeem miles make it still possible to reap tremendous value and benefits from frequent flyer miles as we see where airline programs evolve.
Featured photo by Smith Collection/Gado/Getty Images.
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