Frequent-Flyer Programs Aren't Bank Accounts

Another glib old fallacy from the early days is that business travelers should "bank" miles to claim awards when it suits you—or even when you retire. For starters, frequent-flyer accounts are not bank accounts; there are no federal agencies insuring your "deposits," and you don't earn interest. In fact, in this hyperinflationary cycle, the value of your miles continues to deteriorate as you hold on to them. One painful recent example: US Airways has been raising small amounts of cash throughout this year by selling miles to frequent flyers for about half their usual retail price. A 100 percent bonus scheme reduced the effective cost to about 1.25 cents a mile from 2.5 cents. Gullible frequent flyers lapped up the miles and were then shocked to learn that US Airways was instituting a new award chart for 2010 that more than doubles the price of many of the most desirable award seats. Word to the wise flyer: Cash your miles for awards as soon as you qualify and can secure the seats.

Frequent-Flyer Programs Are Unregulated Lotteries

More than any other business-to-consumer promotion, frequent-flyer plans are unregulated. Airlines are almost completely free to change the rules, prices, partnerships, and payouts without regard to what would normally be considered fair play. An example: Continental Airlines switched to the Star Alliance from SkyTeam in late October. So out went frequent-flyer awards on SkyTeam partners such as Delta and Air France and in came awards (and new prices with different restrictions) on United Airlines and Lufthansa. Members of Continental's OnePass program had no choice but to adjust to the new realities, take it or leave it.

There Is No 'Best' Program

The gamers, navel-gazers, and other posters at sites like FlyerTalk are constantly and creatively assessing the programs in search of the "best" award plan or affinity card or the "richest" promotion. (The current trick is buying coins in bulk and postage-free from the U.S. Mint with an airline credit card, then using the coins to pay the credit-card bill, thus yielding a bonanza of "free" miles.) But that is wag-the-dog doggerel for the average businessperson. Most business travelers should pick their frequent-flyer program only after weighing more important factors such as schedule, price, and quality of the airlines. After you've chosen an airline based on those logical factors, then join that carrier's frequency plan.

There Is No 'Minimum' Payout

I just scored two business-class seats to Rome on Continental Airlines for 105,000 miles each. (Fees cost about $50 a ticket.) That's a very nice payout, but not the bonanza it seems. Walk-up business-class seats to Rome on Continental cost $7,700 roundtrip, but since I was booking for travel in February, Continental's advance-purchase price in cash would have been a more modest $3,340 roundtrip. In other words, I'm getting about 3 cents a mile in real-world value for my award, not 7 cents. That's still about twice the payout you can expect for most awards these days since miles are now so easy to earn, so heavily devalued, and so difficult to cash. A 1-to-1.5-cent-a-mile payout is acceptable, assuming you didn't do anything silly to earn the miles and didn't allow the airline or its partners to warp your buying habits.

The Fine Print…

The last bastion of true "loyalty programs" are the elite levels of the frequent-flyer programs. Once you fly about 25,000 miles each year with a carrier (and sometimes its alliance partners), you get more perks and privileges. These days, however, you must be a "super elite" flying about 75,000 miles (and sometimes more) to earn top-tier status. That is where the real rewards for airline loyalty—"free" upgrades, special services, reduced-price awards—kick in. Unfortunately, even these Clooneyesque super-elite levels have been diluted in recent years as airlines have sold so-called "qualifying" miles or offered other fast-track ways to reach the status. Still, if you actually fly 25,000 miles a year or more, it's wise to concentrate your business on as few carriers as possible in order to reach the higher elite tiers.