The man who turned credit card points into an empire
“The use of incentives was nothing new,” said Bob Crandall, CEO of American Airlines at the time. Supermarkets handed out S&H green stamps, luring customers with prizes like free toasters. In the airline industry, experiments like United’s 100,000 Mile Club had already shown some success, but the big obstacle to administering such programs was following up with customers. (Who could tell if the John Smith who flew from New York to London was the same John Smith who flew from Houston to Detroit?) On this front, American had a technological advantage – a new computerized reservation system. “So we started to research what kind of rewards people would like,” says Crandall. The answer, somewhat obvious in hindsight, was travel.
“The one thing people want more than money as an incentive is travel,” says Hal Brierley, a consultant who helped design American’s first program. AAdvantage, as it has come to be known, made its debut in May 1981 with a wave of pre-registration letters aimed at the airline’s major customers. From the start, the program was multi-layered, with the top prize being a free return ticket. “If you’ve done 50,000 miles in a year,” Brierley says, “you’ve got first class travel wherever we’ve flown, which at the time meant ‘Go to Hawaii’. Even a businessman wants a beach in Hawaii!
In all haste, other airlines unveiled their own mileage programs. (“I thank United for responding to the program literally over the weekend,” Brierley says.) Those early miles, unlike modern points, were measures of actual distance: the miles flown from A to B. Enrolled in the program received monthly statements, following their progress toward the reward. At this early stage, free travel costs an airline next to nothing. Airline seats were perishable; planes take off, full or not. By turning this so-called struggling inventory into an asset, airlines have retained their most loyal customers, who have more than paid them back by building customer loyalty.
In just a few years, an estimated 75 percent of all business travelers have joined at least one frequent flyer program. The programs were free; there was no risk in joining. Consumer expectations were low and most still viewed miles as some kind of fun money. Commercial sections, throughout the early 1980s, devoted column space to explaining terms of service and claiming blackout dates and mileage thresholds. One reporter said loyalty programs “as confusing and as complicated as Rubik’s Cube”. Another critic, former Senator Eugene J. McCarthy, took to The New York Times to complain:
I have rarely been able to take advantage of the special reduced rates, given that we planned three months in advance, or agreed to leave on Tuesday and return on Sunday, before noon; or to complete his round trip within the Octave of All Saints, or the birth of Clare Booth Luce; or buy a ticket before the spring equinox and use it before the summer solstice or, failing that, only after the September equinox and before the winter solstice, flying west before noon and around east after sunset.
The gimmicky reputation of early mileage programs proved to be a hindrance, but soon a group of early adopters came to see the programs for what they were worth – or rather, what they could be worth.
In 1981, when AAdvantage was introduced, Randy Petersen was 30 years old and worked in the offices of Chess King, a groovy young men’s mall retailer based on a market research proposition that teens loved racing. and failures. Flying from a wide opening to a wide opening to reposition racks of nylon parachute pants, Petersen racked up a free trip to Hawaii, booked a room at the Sheraton Waikiki, and dined at the luau every night. Upon his return to the Chess King offices in New York City, his colleagues gathered around his desk with questions about free travel. Seeing the latent demand in their barrage of investigations, Petersen put his two weeks notice. In 1986, he started out on his own as publisher, editor and sole employee of the world’s first frequent flyer magazine.
The first issue of InsideFlyer sounded, in Petersen’s words, like a “bad ransom note”. Typed comments on airline schedules mixed with photocopied offers from monthly statement mailings. Its first readers were types of road warriors – guys in crumpled suits with Hartmann luggage – who traveled enough to earn free travel every now and then, but didn’t go out of their way to earn more. That all changed in 1988, with the launch of Delta Triple Mileage, one of the industry’s first experiments to get consumers to fly more than they otherwise would. The promotion, which lived up to its name promise, reduced the accumulation time of free tickets from a period of several years to a period of months. A free trip to Hawaii, which cost around 30,000 miles, was an ambitious goal. Now it could be won in a third of the distance – just two round trips from LAX to JFK
For the average business traveler, Delta Triple Mileage has increased the immediate value of membership in a loyalty program. For mileage obsessives like Petersen, pulling gold standard miles out of concrete distance transformed adherence to the program from static and passive interest in a game that could be played. The triple mileage has given rise to a frenzy of frequent flights, which could be further amplified by learning and exploiting the details of airline routes. Back then, routes were more limited and travelers often made the last leg of a trip with a short flight from a central airport to a smaller regional airport. To make the bookkeeping of these short escapades less boring, Delta decided to compensate all flights with a minimum of 1,000 award miles, even when the actual distance was shorter. Under the triple mileage, the minimum has tripled. And quickly, InsideFlyer readers realized that by stacking these short flights, they could create their own free trips. By making short trips between two cities, an award ticket to Hawaii could be earned in just eight consecutive flying hours. “One of the most popular was Dallas in Austin,” says Petersen. “People would do this eight, nine, 10 times a day. “