Day: November 3, 2005

The Next Pudding Guy?

by  Gary Leff in

The type of thing I usually write about on my frequent flyer blog is a deal like the one that came across in today’s MilesLink Newsletter: Airtran and Wendy’s have partnered to give away credits in the Airtran frequent flyer program when you buy drinks or combo meals.

You earn a quarter of a rewards credit for each combo, 20 or 32 ounce drink purchased at participating Wendys through December 31st.

An Airtran coupon will be printed on the cup. You can only buy five drinks per transaction, so you may need to go stand in line a few times or circle ’round the drivethrough driveway in order to really load up on coupons.

After you have consumed your beverage, carefully cut out the Proof of Purchase/AirTran Flight Coupon along the dotted line. Fill out a 3×5 card with your complete name, street address (no P.O. Boxes) and AirTran Airways A+ Rewards account number and mail in a handwritten business size (#10) envelope along with at least four (4) but no more than one hundred and twenty-eight (128) Proofs of Purchase/AirTran Flight Coupons per stamped envelope to Wendy’s/AirTran Airways Promotion, AirTran Airways Special Services, 1224 Bob Harmon Road, Savannah, GA 31408 to be received by 2/13/06. Extra postage may be required.

Since there’s a cap of 32 Airtran A+ Rewards credits (enough for two roundtrip coach tickets on Airtran, or if you prefer Airtran will buy you a single roundtrip ticket on another airline) you can’t become the next Pudding Guy (and you won’t get a movie made about your mileage exploits). Of course Pudding Guy gave his pudding away to charity and took a tax deduction. In all likelihood, you’ll just wind up eating this.

Frequent Flyer Miles as Currency, the Coming Devaluation, and What You Should Do About It

by  Gary Leff in

Even if mileage values held constant, I’d rather spend miles now instead of money to get my tickets… and invest the money I saved for retirement (or something else). Money earns a rate of return when properly invested.  Airlines have never paid a return on miles held in an account.

But mileage values won’t hold constant. All we need to see that is a basic monetarist formulation, the very mv=pq that college freshman learn, without any other fancy tools.

If the quantity of airline award seats remains the same (because airlines aren’t growing capacity) or quantity is even going down (because airlines are selling the seats) while new miles are printed faster than they’re redeemed, prices rise.

Airline bankruptcies have sped up the rate at which awards are being redeemed. When loyalty program members are uncertain about the future of their points you get a run on awards — United and USAirways both experienced this when their frequent flyer members believed they needed to cash in their points while the airline was still around. Both lasted in the end, in USAirways’ case in spite of near-universal pundit predictions. But many frequent flyer program members didn’t wait — they wanted to travel for fear of winding up with nothing.

On the whole, though, 8% of airline seats go to award redemption (over time and across programs), and this has remained fairly stable.  But while the quantity of award seats being redeemed stays fairly constant, the quantity of miles outstanding rises.

Unfortunately, additional award seats aren’t made available and consumers simply experience more miles chasing a fixed pie of seats.

That’s why prices of awards do and will rise.

But airlines, especially in financial jeopardy, are loathe to alienate their best customers (the ones most likely to be earning mileage) through price increases, so we see some selective increases and also award seat shortages. Instead of achieving a new equilibrium by raising prices, airlines frustrate customers in a different way, turning them away when they look for awards.

(By the way, the Capital One ‘mileage cards’ are about the worst credit card decision you could make outside of earning no reward at all, that will be the subject of another post in the next few days).

Here’s where I part company with the rest of the pundits: this inflationary future does not mean you should walk away from mileage programs. It just means that you should earn and burn miles in the same period to the extent you possibly can. Don’t save for retirement, spend your miles just as quickly as you earn them before prices rise.

As for me I do have a seven figure mileage balance but I also spent 675,000 miles on a single three week vacation this summer.

This advice won’t change until Alan Greenspan decides that for a retirement job he’ll become the head of Mileage Plus (and Paul Volcker takes over AAdvantage).

Airline ‘Outsourcing’

by  Gary Leff in

First off, thanks to Tyler for the generous introduction and to both Tyler and Alex for inviting me to guest blog. It’s a great honor, since I read Marginal Revolution each morning with my coffee. Hopefully I’ll have some interesting things to pass along, and I look forward to reader comments (gleff -at- yahoo.com).

Moving call centers to India is nothing new. On the whole, Americans seem to have a visceral distaste for it (though they may still opt for it if given the choice). So criticizing outsourcing, an effective rhetorical tool, has spread in its uses. In the battle between Northwest Airlines and its flight attendants, the Wall Street Journal uncritically picked up on the language. This Susan Carey piece (link is to a reprint of the Wall Street Journal article) offers a rather odd definition of outsourcing:

    Those intra-Asia flights are mostly staffed by nearly 700 Asian attendants from bases in Japan, China, South Korea, the Philippines and other countries. They operate under different pay and work rules but have language skills for Asian destinations as well as English. The current union contract allows this limited but longstanding outsourcing.

(Emphasis mine.)

According to Susan Carey (and the PR voice of the Northwest flight attendants union), staffing planes flying within Asia with flight attendants from Asia is outsourcing.

Northwest has significant operations in Asia, and operates a mini-hub at Tokyo’s Narita airport. The airline was formerly known as Northwest Orient Airlines. They maintain local crew bases for their Asian flights for several reasons, only one of which is wages. The airline saves on per diem and hotel costs. But mostly American union members don’t possess the language skills that local residents do.

The practice isn’t unique to Northwest and stretches back decades. Pan Am had a contingent of flight attendants from Kenya 50 years ago. And it works both ways – non-U.S. carriers generally outsource their US government relations function to Americans….

Guest blogger Gary Leff

by  Tyler Cowen in

We have another guest blogger this week, namely Gary Leff.  Gary is CFO at the Institute for Humane Studies and Mercatus Center.  When it comes to aviation, luxury travel, and loyalty marketing, he is without peer.  Inside Flyer magazine called him "one of five experts to listen to" on business travel.  The Financial Times, San Francisco Chronicle, Washington Post, and The New York Times all have promoted his work.  And he’s Senior Moderator at airline megasite Flyertalk.com. 

Gary usually blogs at View from the Wing (http://blogs.flyertalk.com/blogs/viewwing/), which Gridskipper advises "true fanatics" to consult when seeking an airline upgrade.  He tells me that until a short Sydney-Melbourne segment in June, he hadn’t flown coach in
over two years.