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Now 30 Years Old, Frequent-Flier Plans Draw Consumer Ire

Passengers are pictured at Check-In desks at London's Heathrow airport.
Carl de Souza | AFP | Getty Images
Passengers are pictured at Check-In desks at London's Heathrow airport.

On the 30th anniversary of frequent-flier programs, miles and user options have soared — but so has frustration.

With literally billions of miles chasing a scarcity of cheap seats — 25,000-point flights, the longtime industry minimum for a domestic coach seat — consumer complaints are rampant. Ever-changing fees, blackout dates and other restrictions are adding to the discontent.

Now — thirty years after AMR'sAmerican Ailrines introduced the idea in 1981 — a third of all air miles go unused.

“They are trying to make it easier to redeem miles, but the travel and hospitality sector still has a long way to go,” says Kelly Hlavinka, managing partner with Colloquy, a loyalty marketing research company.

To help ease consumer ire and gobble up some of the estimated 15-trillion to 20-trillion miles outstanding, airlines, credit card companies and others doling out frequent-flier points have come up with a slew of new ways for customers to cash in.

Choices now go well beyond free flights and first-class upgrades to anything from flat-screen TVs and Super Bowl ticketsto a lease on a new Mercedes, cooking school or charity donations. If those options aren’t enough, some miles can be converted into cash.

Industry experts say any redemption — whether it’s a gift card for gasoline or two tickets to Hawaii – builds customer loyalty. But for consumers perhaps nothing is more precious — and appealing — than a free flight.

“I would never cash in my miles for golf clubs because I would get less than a penny a mile in value,” says Randy Peterson, a frequent-flyer guru who’s built up a cache of more than 17 million air miles.

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When traded in for travel, air miles have long been said to be worth an average of two cents a mile. But with so many points outstanding and limited availability of low-redemption flights, their average value might be sliding closer to a penny.

Only a decade ago around 97 percent of redeemers were getting 25,000-mile domestic flights. Now it’s only 77 percent to 80 percent

The diminishing worth of a mile might not be cause for concern for many consumers, however, given how easy it is to rack up points nowadays.

Capital One, for instance, recently wooed prospective card members with a promise of an immediate award of up to 100,000 miles — the equivalent of four coach seats or two full-fare domestic tickets.

Travel Dollars - A CNBC Special Report
Travel Dollars - A CNBC Special Report

Peterson, who hears from a few hundred air-miles program participants each week through his network of travel-related Websites, says one husband and wife and their three kids took advantage of the offer and raked in a half a million miles.

“They’re going to fly to Europe first class for getting five pieces of plastic with no annual fee for the first year,” he says. “It’s like Finance 101 or investing in the stock market. With miles, you’ve got to know when to burn ‘em and when to earn ‘em.”

Airlines are taking steps to get back to the original aim of frequent-flier programs: building loyalty.

“While there’s rightly been some grumbling about how easy it is to redeem for seats, there are a lot of things that airlines are starting to do better,” says Hlavinka of Colloquy. “They have innovated more than any other industry when it comes to perks and privileges for their most profitable customers, whether it’s upgrading them to first class or allowing them to speed through the security line.”

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Where airlines are failing to meet their members’ needs, new companies are cropping up to fill the void.

Beginning earlier this year, members in certain frequent-flyer plans can get cash for their points in a PayPal account through Points.com.

Another new company, Swift Exchange, is building an online marketplace to help consumers consolidate their collection of air mile and other rewards points to make them easier to manage and cash them in.

“The industry is ripe for a transition,” says Nancy Gordon, Swift Exchange’s chief operating officer. “The culture has gone from, ‘Let’s accumulate all of these miles,’ to, ‘How do we realize them?’ That would mean helping reward-based purchases be as easy as any purchase you make in every-day life.”

Even with these new options, it still seems consumers will get the most bang for their buck by redeeming for free flights — as long as they're savvy enough to find a cheap one.