Have airlines created their own currency?

Since it is a very topical issue being debated globally in the industry, she decided to deliver a paper entitled ‘Perspectives on airline customer loyalty, frequent flyer programmes and revenue maximisation’.

Prof Lubbe is currently researching the perceptions of business travellers on frequent flyer programmes. Some of the preliminary results was used, but the paper was largely based on secondary research and her knowledge of the industry from which she has drawn conclusions.

Research has shown that passengers are becoming increasingly disgruntled with their airline loyalty programmes because of the constantly changing devaluation and expiry conditions on their airline miles and the limited capacity that airlines set for redemption of miles, of which the most popular for passengers are airline tickets and upgrades. The status quo at the moment is where airlines almost operate in a closed economy with miles as their own currency. They have total freedom and control over the terms and conditions relating to how miles can be redeemed, valuated and cancelled.

The sale of miles to outsourced Frequent Flyer programmes is extremely lucrative for airlines both globally and in South Africa and the contingent liability to airlines is growing annually as more and more miles are awarded through these programmes, which include credit card purchases from flights to furniture to groceries, meaning that more and more miles accrue to frequent buyers rather than to frequent flyers. As far back as 2005, mileage accrual was growing ten times as fast as airline capacity and indications are that this gap is growing since airlines are increasingly selling miles but keeping their redemption capacity static.

In a special report by the International Air Transport Association on airline loyalty, it was mentioned that in 2011 a total of 15 trillion unredeemed miles were in the marketplace with the total of unredeemed miles growing by more than 2 trillion per year. This suggests that unredeemed miles could exceed 20 trillion in 2014.

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