The Evolution of Frequent-Flyer Programs
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Since the creation of the first frequent-flyer programs nearly 40 years ago, the world of airline miles has changed dramatically, for better and for worse. Mileage schemes that were once straightforward and comprehensible are now some of the most complicated consumer loyalty programs in the world. (Good thing we have new content on TPG every day, unpacking the nitty-gritty details.)
Today, let’s take a brief look at the history of airline mileage programs to see how we got here from where they first started, and how it has affected the way we travel today. We’ll mostly focus on the US programs, with some international players thrown in for context. Rather than a simple chronological timeline, we’re going to take a look at trends and patterns over the decades to see how we ended up where we are, and where we might go from here.
The Early Years: 1979-1986
The origins of frequent-flyer programs are a little 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, but it lives on in frequent-flyer lore thanks to spearheading the modern mileage program. Incidentally, another carrier called Western Airlines created a program called Travel Bank in 1980; the airline was taken over by Delta in 1987.
The next major frequent-flyer program launched is one that travelers today should still recognize: American Airlines’ AAdvantage. The official program launch date was May 1, 1981. Mere days later (yes, it was literally less than a week), United unveiled Mileage Plus, which was conflated to MileagePlus, just one word, in June 2011.
Later in 1981, Delta unveiled its own mileage program. Called Frequent Flyer at the time, it was eventually renamed SkyMiles in 1995. Alaska Airlines’ program had the fanciful name of Gold Coast Travel when it debuted in 1983, and was renamed Mileage Plan in 1989. Air Canada launched a miles program in 1984, and Continental established OnePass when the airline combined its program with that of Eastern Airlines in 1987.
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 US airline to cooperate mileage-wise with an international carrier: British Airways. AAdvantage members could start earning and redeeming miles on BA flights to Europe. That same year, British Airways launched its own frequent-flyer program (or programme, as they’d write it across the Pond), 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 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 (can we please bring back this 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, a new combined frequent-flyer program called Flying Blue was created 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 certain number of points per dollar spent on airfare and then could redeem them at a fixed rate, also based on airfare. Southwest adopted the same model in 2011 with its restructured Rapid Rewards program. The system for earning and redeeming points was converted to fixed rates based on ticket prices. This spawned a model where you could redeem your points for any open seat on the plane — the rate depended on the price, just like purchasing airfare.
Growing Pains: 1987-1993
Following the advent of modern frequent-flyer programs in the early ’80s, airlines began tweaking their 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 signed on with Avis. These became the precursors to mileage-earning partnerships that have grown exponentially to this day, including online shopping portals and Dining Rewards. 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.
United introduced the idea of elite status in 1983 with a single threshold of Premier. American created its AAdvantage Gold program, which was awarded to its top two percent of flyers, in 1987. We’ll get into some of the more recent developments in elite status below.
Award charts and redemption rates as we know them today really took 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, sparking the idea of “mileage runs” for miles and status. As a result, airlines also raised the number of miles needed for many awards to levels more like current ones, 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 of (usually half) the cost of normal awards, but they had restricted availability. Since then, the other legacy programs adopted 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) and JetBlue TrueBlue points (since 2013). 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 beginning to charge a fee for changing awards. 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.
Although frequent-flyer miles now clearly had a monetary value, 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 with which you could earn miles through spending. This single evolution shifted the entire landscape of mileage programs and expanded their reach to the public at large, whether they were frequent flyers or not.
The first US airline-specific credit cards were introduced in 1986-87. Continental (and Eastern Airlines) teamed up with Marine Midland Bank (now part of HSBC) on the Continental TravelBank Gold MasterCard. American first partnered on a card with Citi in 1987, and 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 co-branded cards in 1996.
While these first cards were modest compared to current products in terms of bonuses and perks, they set the mold for the travel rewards credit-card marketplace of today, where you can earn award miles on everyday purchases. Since then, the major airlines have developed models of offering 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 in-flight food…which now you often have to purchase instead of expecting a free meal.
The frenzy for consumers has also reached a fever pitch at times, including the until-then-unprecedented offer of 100,000 miles as a sign-up bonus on the British Airways Visa in 2009. 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 new batch along with targeted offers on premium, transferable-points cards like The Platinum Card® from American Express.
Speaking of which, besides airline-specific cards, several credit-card issuers created proprietary 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 three major transferable points programs — American Express Membership Rewards, Chase Ultimate Rewards (launched in 2009) and Citi ThankYou Rewards (launched in 2004, though revamped several times) — each partner with over a dozen airline and hotel partners, and all three 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 increase 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 a number of different carriers dramatically increase.
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 (27) 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, and now counts 13 full members, 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 our options for redeeming them in incredible ways.
Airline mergers have occurred 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 a 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. This a mix of merger agreement closing dates but not necessarily the years in which these airlines were finally, totally integrated with one another.
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. Not long after, in 2010, United and Continental merged, while Southwest and AirTran came together in 2011. US Airways and American Airlines joined forces in 2013, and finally, Alaska Airlines and Virgin America closed their deal in 2016.
Outside the US, 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. In South America, Avianca and Taca merged in 2010, and LATAM was born of LAN and TAM in 2012, to name a few.
Each of these mergers has represented both benefits and costs to consumers. On the positive side, mergers included the integration of mileage programs so that 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.
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 timeframe 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 and which has probably created some of the scarcity of saver-level awards we see today.
Finally, 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 US Airways Mastercard, which was converted to the AAdvantage Aviator World Elite Mastercard, and the Virgin America family of co-branded cards, all of which were closed in January 2018.
Although fewer choices generally means worse options for consumers, in the case of airline credit cards, the offerings have remained fairly competitive and consistent, though, and we still see some great bonuses and benefits being offered.
Revenue Requirements: 2014-Present
Back in 1987, America West launched a mileage program called FlightFund where flyers earned miles based on airfare dollars rather than miles flown. FlightFund went the way of the dodo in 2006 after the airline merged with US Airways. However, this was the formula that both JetBlue and Southwest replicated with their mileage programs.
Then, in 2014, the legacy carriers in the US decided to pursue a similar path. It was that year that Delta, followed by 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 of flights, flyers of most major airlines earn between five and 11 award miles per dollar based on the airfare purchased and their level of elite status. However, 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, too, have been slashed — to 25% (or less) of miles flown in some cases.
While earning elite-qualifying miles and segments for all three carriers remains based on distance or segments flown, all three also instituted spending requirements for elite status ranging between $2,500-$12,500 depending on your airline and tier. These requirements were waived at most levels if you spent $25,000 or more annually on a co-branded credit card.
All three airlines have since raised those elite spending requirements at least once, and it now takes $3,000 to earn the lowest status and $15,000 in airfare spending annually to reach top-tier status.
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 last year 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.
Surcharges and Devaluations: 2004-Present
Beyond just predicating their mileage programs on spending, the legacy carriers have also significantly devalued their award charts over the years. Though some airlines like Continental once offered “redemption guarantees” of several months’ notice on award-program changes and the chance to lock in awards at lower rates for extended grace periods, those days are long gone.
For now, both American and United still publish zone-based award redemption charts with fixed mileage levels for awards in various classes between specific regions. However, United has announced that it’ll be removing these charts as of November 15, 2019, and American has also committed to dynamic award pricing — something that’s already being seen online.
Over the last few years, both airlines have also raised their redemption levels — even for saver awards — by double-digit percentages and introduced distinct (and usually more expensive) award charts for partner flights versus those on their own metal starting in 2014. Both carriers have periodically raised prices ever since, most recently in January.
For its part, Delta stopped publishing award charts in 2015 and seems to have begun pricing awards dynamically based on the actual cost of airfare. While some economy awards are consistently pricing out more cheaply than before, many awards in premium cabins have shot through the roof. Without much notice, Delta has devalued its miles unexpectedly in terms of awards on its own flights, partner flights and those in premium cabins again and again…and again.
Even Alaska Mileage Plan, an atypically steady and high-value frequent-flyer program, jumped in on the action with a no-notice, Emirates-specific devaluation in 2017. Southwest has raised 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 moniker 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 the price of oil 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.
In the three 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 major airlines.
At the same time, however, consumers have faced a constantly shifting skyscape of byzantine 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 thus 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 from here.
Featured photo by Dallas Kilponen / Fairfax Media / Getty Images.
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