Folks seem to be reasonably obsessed with frequent flyer points and airlines make a lot of money selling them to just about anyone they can find. Why not combine the two and sell the points to passengers as a “bonus” during the trip? After all, getting double or triple miles would be great, right?
American Airlines has introduced a program to do just that. Mileage Multiplier will permit passengers to buy miles in addition to those they will otherwise be receiving on their flight, either double or triple the base number. The program is similar to one that United Airlines operates and apparently such programs are quite profitable for the airlines.
The devil is in the details, however, and digging into such details it would seem that the new program from AA is actually a horrible deal for passengers. They are pricing the miles at $0.03 each, rounded up to a round dollar, plus a 7.5% excise tax. And customers are limited to only 2x or 3x of the actual flight miles. For JFK-SFO that would be roughly an extra 2,500 or 5,000 miles for the passenger. The 2,500 mile level would cost approximately $75, plus tax while the 5,000 would cost roughly $150 plus tax. But American already allows customers to buy miles directly from the airline, and at a much better rate than $0.03/mile. Buying 5,000 miles would cost $137.50 + tax + a $30 processing fee. Yes, the processing fee makes a bit of a difference, but you don’t have to pay the original base airfare either when buying the reward miles direct so there is some savings there, too. The break-even point is actually right around 6,000 bonus miles being purchased where going direct is a better deal.
So if you only need a handful of miles to top off an account or get to that next reward level – and you are flying anyways – the value of the new program isn’t terrible. But if you’re just looking at the abstract cost of points it is a pretty horrible deal. I’m sure plenty of folks will still pay for the new program and AA will profit from it, but that doesn’t mean it was a smart move for those passengers.
Update (9:10pm EDT, 27 May 10): Of note on this topic is that AA actually filed a request with the IRS over a year ago asking about the tax implications of this offering. I even wrote about it back in January (though forgot about it until just now when reading through some older posts). The worrisome part to me is not that they went down this path but that some of the other things in that IRS brief might come in to play.
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