The Economics of Frequent-Flier Surcharges

Call it the frequent flier arbitrage: rack up lots of miles when oil prices are low and flights are cheap. Wait a year or so for oil prices to skyrocket and fares to rise. Then cash in your miles, receiving in return a much higher dollar value than anybody anticipated when you earned them.

I’m not sure that anybody forced to fly in today’s unhelpful skies can be considered a winner here, but there’s no doubt who the losers are: the beleaguered airlines. So it makes perfect sense to me that Delta and others are slapping fuel surcharges on awards flights.

At $50 a surcharge, the dollar value of those miles will still have gone up, since the fare is likely to have risen by more than $50 since the miles were awarded. It’s not a "terrible precedent" – the terrible precedent is what happens when an airline goes bust and all miles expire worthless. Just think about the value of your miles, rather than the cost of redeeming them, and the surcharges will be much more palatable.

(HT: Wiesenthal)

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