United Air Lines' frequent flier program has been good to Blair Johnson.
Taking advantage of the carrier's offer to give him triple mileage credit toward free flights, Johnson already has racked up about 30,000 miles this year, bringing his total in the program to well over the 75,000 he and his wife need to take a first-class trip to Hawaii."Triple mileage is a generous offering. I think it's great," said Johnson, a public relations official with U.S. West, a regional telephone operating company. Last summer he chose British Airways for a flight to Europe, even though a somewhat lower fare was available, because the British carrier has a reciprocal frequent flier arrangement with United.
While United's largesse has turned Johnson into a loyal customer, it also has contributed to a problem for the airline and its competitors. Frequent fliers industry-wide have accumulated enough miles in these programs that they could claim free trips worth as much as $1 billion if they decided to cash them in.
Airline earnings could take a real hit if too many travelers tried to cash in their bonus miles at once. Right now the accounting profession is trying to decide how much of that potential liability the airlines should have to report on their balance sheets.
One possibility under consideration by the Financial Accounting Standards Board would be for each airline to set up a reserve account to cover frequent flier award claims, much as banks structure reserves to cover large sums of bad debt.
In the meantime, the airlines are contemplating ways they can get frequent fliers to use some of those unclaimed awards and reduce the airlines' overall liability. United took the first step this month when it announced a series of changes to its frequent flier program. Other airlines are expected to follow suit.
The letter announcing the changes did not come as a complete surprise to Johnson. "You had the feeling you were on borrowed time. You felt like they were going to fold their tent and leave town with this program," he said.
Under the new program, fliers will need fewer miles to qualify for some free flights. But triple mileage credit will end, and restrictions will be placed on some of the most popular flights.
Two first-class seats to Hawaii, for example, will require 240,000 miles under the new program, compared to 75,000 miles under the existing program. First-class and business-class travel to Tokyo, Hong Kong and Australia will be cut back substantially.
The goal, industry analysts say, is to get frequent fliers to use their awards, while trying to funnel the free passengers into seats that otherwise would be empty rather than seats that would be filled by paying passengers.
"The point is to get people to use their miles so they don't hang over the airlines' heads," said Peter Tanous, editor of Frequent Flier Newsletter.
The potential costs of unclaimed frequent travel awards are hard to pinpoint, in part because some airlines are not forthcoming about how many fliers are enrolled in their program or how many miles they have accumulated.
Julius Maldutis, an analyst with Salomon Brothers, has estimated there are 30 million frequent fliers industry-wide, and that 2.7 million of them already qualify for awards valued at $300 million. By the end of the year, with triple mileage bonuses in effect, he believes frequent flier programs will cost the industry more than $1 billion.
But some analysts believe that figure is overstated.
"Some are seats that never would have been occupied, so the liability may be much less than that," said Louis Marckesano, an analyst with Janney Montgomery Scott Inc. in Philadelphia.
The larger airlines with their sophisticated computerized reservations systems should be able to work free passengers into empty seats without losing many paying customers, said Edward Starkman, an analyst with Paine Webber.
"The value of an award is five or six bucks, based on the meal and the incremental cost of fuel, unless you bump a paying passenger," Starkman said.