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Some Facts Agents Should Know About Frequent Flier Miles

October 1, 2007 By: Joe Pike Home-Based Travel Agent
 

What You Might Not Know May Land You in Court


The concept of frequent flier miles seems pretty self-explanatory, doesn't it? You show loyalty to a particular airline and you are rewarded for it in the form of free miles. Well, when it comes to the behind-the-scenes practices of these miles and the loopholes some agents and coupon brokers find in making money off what is technically someone else's property, you might find a more complicated issue—and one that continues to find agents and coupon brokers in court. In fact, there are several cases pending in the U.S. where major airline carriers have sued agencies that have bought or sold frequented flier awards. How to use frequent flier rewards is a debatable issue

Now, before we get into the meat and potatoes of the issue, let's make it clear that Home-Based Travel Agent is well aware that many of these agencies aren't exactly recognized as legitimate by the rest of the travel agency community, and we are not at all implying that most agents facilitate the buying and selling of rewards.

But we still thought we'd go over the facts and speak with experts to show you why this is wrong, or, depending on who you ask, why this should be allowed.

A Little Background

When frequent flier programs were first introduced in 1981, members could in fact redeem their miles with legitimate travel agencies, according to Randy Petersen, the editor of The Official Frequent Flyer Guidebook and a man who is described by the Wall Street Journal as "The most influential frequent flier in America."

"The industry, however, rescinded that practice in 1987, citing the abuse of agents to circumvent their rules against buying and selling of awards," Petersen says.

Al Anolik, co-author of Traveler's Rights: Your Legal Guide to Fair Treatment and Full Value, describes it less mildly.

Frequent flier miles were created as a "false loyalty program," he says, because airlines knew the practice of earning them "would grow as an addiction." Anolik says many travelers will spend more money earning the free miles than simply paying for the ticket. Be careful: Earned miles don't constitute ownership

When the program first began, you could trade them for other items including soft dollars. But they kept tightening the regulations or as Anolik puts it, "taking away an asset, which was earned rightfully by the customer."

"It is true that, to the best of my knowledge, no federal, state or municipal law prohibits the practice of selling frequent flier miles or award tickets," says John Hawks, the other author of Traveler's Rights.

Hawks, among other career achievements, also is the author of the Outside Sales Support Network's (OSSN) newsletter.

"And, it's also true that you don't hear many instances of fliers being yanked off flights because they're traveling on an award ticket they bought from a travel agent or ticket broker.

"However, every major airline (again, to the best of my knowledge) expressly prohibits selling, buying or bartering its mileage credits or travel awards. That language is in the fine-print boilerplate every traveler agrees to abide by when he/she signs up for the frequent flier program. And, that same language usually states just as clearly that the airline reserves the right to deny travel to anyone using award tickets purchased from another party, and to pursue legal action against the sellers," Hawks says. Airlines have the right to toss a traveler off a plane if he or she is flying on an illegally procured award ticket

A Textbook Case

For a tangible example, we thought we would focus on one case in particular, a pending suit filed by American Airlines in which the carrier is suing three different known companies and two unnamed defendants for wrongfully selling its miles.

"(Coupon brokers) have existed in popularity since the '80s in one form or another, with most of the popularity being in the '90s," says Petersen.

"A large number of these brokers have been busted in the past," Petersen told us, "perhaps fifty or more, in fact, but they would be improperly confused with the legitimate travel agency community."

The Facts

According to the complaint, this is a suit for damages and injunctive relief arising from unlawful sales of American's "valuable property."

Also according to the complaint, the defendants are in business to profit from "wrongfully targeting" American's frequent flier AAdvantage program, based and operated in Texas.

The defendants are Frequent Flyer Depot, Inc.; Luxury Travel Source; Main St. Travel Center of Mousey, Inc.; and two other defendants who are unnamed in the complaint. Not knowing how your frequent flier miles were obtained can land you in court

American Airlines alleges that the defendants are "unlawfully selling award tickets procured with wrongfully obtained frequent flier mileage credit."

Over the past 75 years, Fort Worth-based American Airlines has grown to be the largest commercial airline in the world, with the greatest number of passengers carried, the most revenue passenger miles flown and the largest fleet of planes.

A Advantage Program 101

American's AAdvantage frequent flier program is designed to develop passenger loyalty and increase revenues by rewarding its best customers—those who regularly fly American. It is the oldest and most used frequent flier program in the industry.

In exchange for adhering to the AAdvantage contract that sets out the rules governing the program and its members, members accrue mileage credit by flying on American or its partner airlines, staying at hotel partners, renting a car from a partner company or by other means.

Mileage credit accrues only to the account of the member who accumulates the miles by flying, staying at a hotel, etc. Members earn award tickets for free travel on American or its partner airlines, upgrades to a higher class of service, and other benefits. AAdvantage award tickets and upgrades may be issued in any name designated by the AAdvantage member at the time the request is made.

The AAdvantage contract is made available to members and the public in several written forms, including in the program application and on American's web site, www.aa.com. The rules in the AAdvantage contract state, "accrued mileage credit and award tickets do not constitute property of the members." They belong to American and the airline protects them by prohibiting their purchase, sale or barter and enforcing penalties for violations, a term known as the "No-Sale Rule."

The Airlines Reporting Corporation

The selling of miles doesn't just violate American's policies; members of the Airlines Reporting Corporation (ARC) are also in jeopardy. ARC is an airline-owned company serving the travel industry that provides ticket distribution, reporting, and settlement services for 145 air and rail carriers and more than 20,000 ARC-accredited travel agencies and corporate travel departments. To become ARC accredited, a travel agency must meet, and continue to meet, certain minimum requirements, including financial standing and personnel standards. The agency also must enter into a contract with ARC known as the Agent Reporting Agreement.

An ARC-accredited agency is bound by the terms and conditions of the Agent Reporting Agreement and its addendums. The Agent Reporting Agreement effectively appoints the ARC-accredited travel agency as an agent for the various airlines—including American—that have a contractual relationship with ARC in the sale of air transportation.

"Thus, for an agency like Main St., (one of the defendants) to be authorized to issue tickets and upgrades for travel on American, it must enter into the Agent Reporting Agreement, which includes the terms and conditions set forth in the American Airlines Addendum to the Agent Reporting Agreement," the complaint states.

The Addendum covers all travel agencies in the United States acting for American that have entered into the Agent Reporting Agreement with ARC. It is intended to, and does, clarify the agency's responsibilities and duties under the Agent Reporting Agreement. According to the complaints, this agreement was broken when the defendant resold the miles.

"I'm surprised any agents who sell such tickets don't run into a bigger problem than the legalities involved— such as, there are so few frequent flier seats available these days on many desirable flights that it's hard to imagine anyone making a business of this," Hawks says.

"My guess is that any agents doing this type of work sell award tickets on business routes with lots of frequency, making it a little easier to book and sell the awards. Airlines track such sales by, for example, identifying in the computers award tickets issued to a traveler with a different address than the frequent flier. In the post-9/11 era, that's easy to do."

Weighing In on the Issue

So technically it's wrong, but should it be? Should reselling miles that you've earned be against the rules?

"While I certainly think that frequent fliers should have the right to use their miles in any way they feel fit, it is still clear that the rules against 'buy, sell or barter' are part of the conditions to actually joining the AAdvantage program and earning those miles. The point being that businesses also have rights to their products and their use," Petersen says. "Anyone joining AAdvantage agrees to their rules before they ever earn a single mile, so whether it's right or wrong becomes philosophical."

The argument is that while it is American's property, the customer still essentially paid for them in one way or another. In most cases, there is some money exchanged in order to earn the miles, whether it's a car rental or credit card charge. For Anolik, who is also representing the defendants in the case, it's not simply about reselling something, it's more general than that.

"It's telling somebody what to do with something that is rightfully theirs, something they earned," he says. "The point of a reward is that it is yours once you've earned it. Let's say I go to McDonald's and I get a Happy Meal and it comes with a prize. I could do whatever I want with the Happy Meal prize because I earned it."

Anolik says they will still make money regardless—and he probably isn't wrong. To make his point, Anolik cited a recent study that found of the 19 trillion miles that were earned in the past 25 years, only about 25 percent of them have been redeemed.

"The bottom line is, whether you think it's right or wrong, agencies are going to keep doing it," Anolik says. "It's gone on all along, it continues to happen and it will continue to happen. The lesson learned here is to make sure the customers know who 'gave' the miles to them."

Petersen says that advice may have some harsher consequences than an agency simply being called untruthful.

"In one of the cases (where an airline sues for reselling miles), it all started with a debit memo," he says. "Typically, an agency can't lose its license for participating in these types of activities, but it often puts their clients in grave danger, since airlines often seek the customer database and then go into that data and flag the accounts of their members who have sold awards in the past, setting them up for losing the balance of their own personal accounts."

And Hawks says agents should think about their clients' well-being, too.

"Given the fact that the practice violates airline contract terms," Hawks says, "and the risks involved in having one of your favorite clients being the one-in-a-billion instance of getting yanked off a flight by an airline because he/she is flying on an award ticket bought from someone else, agents would be wise to steer clear of this practice."


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