OAG Travel News

Back in my corporate days, the rule was that for every ‘problem’  identified in the marketing plan one had to find a commensurate  ‘opportunity,’ however spurious, in subsequent ‘brain-storming’ sessions.
 I was having a quiet brain-storm of my own the other day, wondering if the economic crisis brought about by the collapse of delinquent banks, might be an opportunity to transfer my overdraft to a safer haven, when I saw a cartoon in The New Yorker, which had a man pleading with the mugger who had snatched his wallet, ‘Use the platinum card – I need the miles!’
 Exactly!  There is nothing like a spot of black humor for unleashing productive ideas. 
 Think of it! If frequent flier miles are as good as gold, as airlines claim, how would it be if miles were actually to replace money as convertible currency?  Mileage millionaires would then replace derivatives traders and hedge-fund managers as the new ‘Masters of the Universe.’  
 Frequent flier programs are said to be the most successful marketing idea of all time. Since American Airlines launched AAdvantage  a quarter of a century ago, more than 124 million travelers count miles with one or more of 140 airline programs – some of which have as many as 200 non-airline partners, such as hotels, car rental firms, credit card providers, and supermarkets.. Nobody needs to fly to earn miles. Many airlines make money from FFPs by selling miles to program partners.   United Airlines and American Airlines are said to generate more money in this way than by selling airline seats. If you’ve got a successful loyalty scheme going, who needs the pain of running an airline?
 That’s quite a universe.  
 My think-bubble had begun filling up with asterisks and exclamation marks when a call comes in from Stanley Zilch, an old sparring partner of mine and chairman of Blue Skies Travel Research Institute in Broken Springs, Colorado.
 Great minds think alike!
 Stanley reminds me that with more than 14 trillion unredeemed miles sloshing around the system there is more liquidity mileage, so to speak, than in today’s beleaguered monetary systems.  And with each mile worth an estimated 2 U.S. cents, that adds up to $280 billion. ’
‘Surely that’s not enough to bail out the entire delinquent financial system. And what about the airlines?   If an airline goes bust, surely its FFP  miles become worthless.
‘Not at all!  The idea is to package up what you might call “sub-prime” miles, and any other dodgy loyalty award schemes, into structured indebtedness vehicles, what we’ve called, ‘mileage derivatives.’ Nobody knows what they contain; but so long as people believe they have a value…’
‘I suppose that makes sense; my dentist values everything in golfballs. Although he didn’t like my idea of settling his bill with the ‘sub-prime’ golfballs we find in the garden. Anyway, didn’t Warren Buffett describe derivatives as ‘financial weapons of mass destruction?’
Zilch is unfazed. ‘Listen, can search for WMDs but everyone knows by now that they don’t exist!’
 ‘But surely, some miles are more equal than others, because FFPs have different rules, such as award levels or the category of fare that earns miles and “elite” membership privileges.  How would you be able to exchange miles that have different values?’
 ‘This happens now: The three main airline alliances,   Star Alliance; One World  and Sky Team, allow travelers to earn and redeem miles on their partner carriers – that’s a total of 32 major airlines. Frequent travelers often have several accounts. Thus by pooling their mileage in a single carrier, they are able to achieve elite status more rapidly and become mileage millionaires.  Elite members would be kept loyal by awarding them “stock options” in miles.  This might help solve the present problem of too many  miles chasing too few aircraft seats. Airlines find it’s a great way of diluting loyalty, whatever that means by now.’
 ‘Yes, but how do you encourage airlines to start lending to one another again?’
‘The way I see it is that the three major alliances, Oneworld, Star Alliance, and Skyteam, will act as banks, underwriting the issue of miles; collateralized debt obligation bonds; and credit default swaps.  We’ve set up a new Central Mileage Fund which will act as lender of last resort, pumping as many miles as necessary into the system. It’s called ‘quantitative easing.’
 Zilch stresses the importance of confidence.   ‘Frequent flier miles exist only because people believe that they do. I mean, you try to redeem miles for an award or and upgrade. There’s not such thing as a free flight. It’s like the cartoon character who only falls when he looks down and sees  that he has walked off the cliff,’ he says. ‘In the long run, any system will be profitable as long as you believe in it.’
 But to paraphrase John Maynard Keynes:  In the long run, we’ll all be terminally over-leveraged.

Roger Collis www.rogerandrandy.com