3.5 trillion in unused miles: Why frequent fliers are worried about the Korean Air-Asiana merger

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3.5 trillion in unused miles: Why frequent fliers are worried about the Korean Air-Asiana merger

Published: 25 Mar. 2025, 06:00 Updated: 25 Mar. 2025, 18:05

Audio report: written by reporters, read by AI

An Asiana Airlines plane lifts off above Korean Air aircraft at Incheon International Airport on Nov. 29, 2024. [NEWS1]

Why is there so much speculation and attention around how Korean Air and Asiana Airlines will combine their frequent flyer programs? It has to do with whose passengers will benefit more from the mileage stacked at the respective airlines, industry insiders say.

Frequent flyer programs take off in 1981

The current frequent flyer program of stacking mileage points based on flight distance and redeeming them for a certain amount to get a free ticket or upgrade seats started in the United States. American Airlines first introduced the system 44 years ago on May 1, 1981, under the name of “AAdvantage.”

It was actually Texas International Airlines that first gave out rewards based on accumulated mileage starting in 1979, but the initiative had no visible effect because data was not computerized. Western Airlines gave out discount coupons for certain routes, but that didn’t take off either.

To successfully operate a frequent flyer program, an airline must have a system where numerous passengers’ reservations, tickets and accumulated mileage points can be saved and viewed. This means elaborate software, not just hardware, is necessary.

American Airlines’ computerizing, and later systemizing, data for users to stack and use their mileage points brought the carrier recognition as the creator of the first frequent flyer program.

Passengers like airlines that let them collect mileage and use those miles at a certain point. This is why airlines all over the world competitively push their own frequent flyer systems. A total of 14 trillion miles have been accumulated under all global airlines so far, according to some estimates.

Passengers register mileage at Korean Air's counter at Incheon International Airport on Feb. 22, 2023. [YONHAP]

3.5 trillion won worth of mileage

In Korea, Korean Air first launched the system in 1984 and was followed by Asiana Airlines in 1989, shortly after the airline was founded. Korean Air has been operating its system for 41 years, and Asiana Airlines for 36.

The airlines say they cannot disclose how much mileage passengers have accumulated during these periods as it is confidential information. But there’s a way to find an estimate for how much mileage passengers haven’t used up.

This is by looking at deferred revenue: the money that airlines get but is not recognized as income because the service — such as the upgrades or flight tickets for which miles are redeemed — has not been provided yet. Basically, it’s the monetary value of unused mileage.

Korean Air reported deferred revenue from unused mileage worth 2.57 trillion won ($1.8 billion) as of last year. Asiana Airlines had 960.9 billion won. The amount from the two firms adds up to more than 3.5 trillion won.

This money is recorded as a liability on the two airlines’ balance sheets. If the mileage is used up fast, the companies can reduce liabilities, but since they prioritize passengers who pay for their tickets without using mileage points, customers have been complaining that it is hard to purchase them through the frequent flyer program.

Another huge remaining conflict is how the mileage systems at Korean Air and Asiana Airlines will be combined once the two airlines merge. It’s not a problem for miles stacked at Korean Air, but it is for those obtained from Asiana.

At first, it seems the issue can be easily resolved by recognizing all of Asiana Airlines’ mileage as Korean Air’s, with equal value. But that scenario could prompt complaints of unfairness from Korean Air passengers. Passengers have been accumulating miles not just by taking flights but also through spending with affiliated credit cards, and those affiliated with Asiana Airlines have historically accrued more miles per won spent — meaning, essentially, that Asiana miles have been cheaper to obtain.

Asiana loyalists, on the other hand, could argue that should Asiana Airlines mileage be accepted at a lower rate — that is, that one Asiana mile should be worth less than one Korean Air mile under the combined rewards program — would unfairly penalize travelers who had no say in the merger decision.

This is why Asiana Airlines is operating domestic flights just for mileage users, and why it recently announced that it would open popular Korea-U.S. routes, such as those from Incheon to Los Angeles or New York, exclusively for mileage users starting in April.

[YONHAP]

But industry insiders say the move won’t use up as much as mileage Asiana Airlines expects it to. All eyes are on the mileage integration plan that Korean Air must submit to the Fair Trade Commission (FTC) by June for this reason.

“We are in the process of analyzing the value of the two companies’ mileage through a third-party consultancy,” a spokesperson for Korean Air said.

“The submission deadline is in June, and there is nothing confirmed about how long the review will take,” the spokesperson added.

Even Hanjin Group Chairman Walter Cho said that “Skypass and Asiana Club is a sensitive issue for everyone” and that the company would “announce the merger plan for mileage soon” at a news conference for the company’s new corporate identity at Korean Air’s headquarters on March 11. Skypass and Asiana Club are Korean Air and Asiana Airlines’ respective frequent flyer programs.

The government is also staying vigilant regarding the mileage debate. The FTC and the Ministry of Land, Infrastructure and Transport have signed an agreement to closely monitor and supervise matters that will impact consumers, such as fare hikes and mileage reduction, after Korean Air fully acquires Asiana Airlines.

The two airlines’ merger will likely be mired in controversy from the start based on how they combine the frequent flyer programs, airline industry insiders say.

BY KANG KAP-SAENG [[email protected]]