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They are used to obtain customer marketing data that can help business.

How do mileage programs help air carriers?

Jan 08,2008
Many air travelers build up their mileage credits by presenting their mileage card at check-in counters at airports. By saving frequent flyer mileage, air travelers can receive free flights and upgrades. Every mile traveled is credited to the mileage total. Air carriers try to attract more customers by offering mileage saving programs. To rack up more miles, travelers often use only one airline or make purchases with a credit card that gives miles in exchange for every 1,000 won ($1.1) they spend on the credit card.
But there have been recent changes in air carrier mileage programs.
Korea’s flagship airline, Korean Air, recently announced that it would introduce an expiration date for mileage. In the past, Korea’s two major air carriers, Korean Air and Asiana Airlines, did not have such expiration dates. The miles saved could be used any time. But beginning in July 2008, miles collected by those flying Korean Air need to be used within five years from the time they are credited. Otherwise, the miles will be invalid. Miles saved before June 30, 2008, however, can be used at any time. The period before July is a grace period.
Asiana is also considering introducing an expiration date. Some travelers are complaining. So why are these air carriers introducing a plan against the wishes of their customers?
When miles have no expiration date, travelers often postpone the use of them. “I can always use them later,” many people say. Because of that, unused miles are piling up. The problem is that most people want to use their miles at a certain time on a certain route. Most mileage members want to use their miles for Seoul-Jeju flights or for flights to Europe or America. They also want to use them during the peak vacation season in July and August. Seats saved for such free flights, however, are limited. That’s why people complain that mileage seats are almost impossible to get. So why don’t air carriers increase mileage seats? Airlines want to make a profit, so they cannot offer too many free seats.
Usually, only 70 to 80 percent of airplane seats are occupied. This means that there are many empty seats during the off season. Airline companies want those empty seats to be taken by travelers who buy their seats with their miles. Airplane seats cannot be saved for later sale. No matter if the occupancy rate is 50 percent or 100 percent, airplanes still take off, fuel is used and employees are paid.
If mileage seats are sold, miles are deducted and occupancy rates rise. It is good business for air carriers. Thus, airline companies hope that miles will be used up faster if they introduce an expiration date. Korean Air is worried that if the use of miles remains as slow as it is now, the demand for mileage seats will rise to 10 percent of the total seats available. Then the mileage seats will be in short supply and customer dissatisfaction will grow. This is also bad for air carrier profitability. Airline companies are setting aside allowances to cover seats sold in exchange for miles, and the amount of the allowance is surging. The allowance for Korean Air increased to 188.6 billion won from 77.3 billion won. The allowance for Asiana jumped from 17.2 billion won to 59.5 billion won. Air carriers can eliminate uncertainties if their customers use their miles in a timely manner.
A number of global airline companies have expiration dates for mileage. The expiration ranges from 18 months to three years.
Both American Airlines and Continental Airlines limit the use of their miles to 18 months. Delta Air Lines limited it to two years and Northwest Airlines to three years. Air France, Lufthansa, Singapore Airlines and Cathay Pacific all have three-year expirations for mileage.
Customers complained a lot following Korean Air’s decision. There are people saying it is difficult to get free tickets in five years if they fly once or twice a year. So it becomes harder to save miles and get a free flight to Europe or America. They also say there are many restrictions on using mileage.
Many people know how difficult it is to get a free ticket during the peak season. Foreign airlines allow their customers to use their miles in restaurants or donate them to charity organizations, but Korean Air does not allow those options. In addition, customers are not happy with the fact that Korean Air did not discuss the issue thoroughly.
Korean Air is considering different ways to soothe customer dissatisfaction. It suggests that customers use family memberships so they can build up miles faster. It also recommends that customers plan ahead.
For that purpose, the company plans to introduce an Internet service whereby customers can check mileage seats and routes available one year in advance.
Why create the mileage program?
The mileage program is a marketing tactic that rewards frequent customers. It was created by the airline industry and then spread to almost all service businesses, including department stores, mobile telecom firms, credit cards, gas stations, coffee shops, bookstores, restaurants and movie theaters.
The program was born in the United States. In 1980, Western Airlines started giving $50 air travel coupons to travelers who flew between Los Angeles and San Francisco. The coupons could later be used to buy tickets for flights between the two cities.
As the number of customers increased, helped by the discount, the airline expanded the program to other routes.
The following year, American Airlines systemized the program by managing its customer flight records with its computer system. The program was called “AA Advantage.”
The program spread in the United States and around the world. Korean Air introduced its “Skypass” program in 1984 and Asiana created “Asiana Club” in 1989. Such plans are called frequent flyer programs.
The basic principle of mileage programs is to provide points or coupons to customers on every purchase, and when the sum of points or coupons reaches a certain amount, the points or coupons are exchanged for certain rewards.
It is similar to people saving coupons after ordering pizza and trading the coupons for a free pizza or collecting stamps on a card from a coffee shop and swapping the card for a free cup of coffee.
Mileage from flights can be traded for free flights or seat upgrades. In other industries, points can be used like cash.
Mileage programs have more purposes than just attracting customers.
They are used to collect information on customers, such as their profession and seat preferences. Firms can obtain information about customer tastes and consumption patterns.
Airlines can determine when and where customers travel and use the data for various purposes. If firms target certain customers, information obtained by mileage programs can be very useful for business.


By Park Hyun-young JoongAng Ilbo [so@joongang.co.kr]


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