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13-3 Frequent Flier 2

13-3 Frequent Flier 2 - You've got Miles Carriers boost...

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You’ve got Miles! Carriers boost profits by linking up with marketers like AOL Source: Business Week, 6 March 2000 In the late ‘80s, when U.S. airlines wooed passengers by tripling frequent-flier miles, Wall Street cringed. Investors worried that the giveaways would result in crushing future liabilities. Today, as American Air- lines Inc. prepares to join America Online Inc. to give away miles to people who use AOL services, airline analysts are cheering. What has changed is that the airlines have figured out how to turn their frequent-flier programs into profit centers. They’ve fashioned them into marketing tools for credit-card issuers, telephone companies, and even supermarkets. Under a deal announced Feb. 9, shoppers at 1,300 Safeway Inc. stores are earning miles on United Airlines Inc. when they buy their groceries. On average, marketing partners pay the airlines about 2 cents a mile. Randy Petersen, editor of InsideFlyer, a magazine that tracks the business, estimates that in 1999, that amounted to at least $2 billion. Bruce T. Chemel, head of American’s AAdvantage program, thinks Petersen’s estimate is low but declines to make one himself. “We’re selling those miles at very good prices,” he says. American, which created the first program 19 years ago, says more than half the miles its members earn now come from nonflying activities. And the revenue
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