Making the most of your frequent-flyer miles

When American Airlines executives launched the first frequent-flyer award program in 1981, it's unlikely they envisioned the astounding impact the concept would have on worldwide air travel.

The notion began simply enough. After airline deregulation in 1978, ideas for rewarding customers and increasing loyalty floated around marketing departments and advertising agencies. American Airlines was the first to jump on the bandwagon, with United Airlines following so close behind (just six days later) that it is often credited with being first off the runway.

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Today, frequent-flyer programs boast an estimated 130 million members worldwide. Experts calculate the total number of unused miles among all airlines at more than 10 trillion - a staggering liability, and not the only one facing struggling airlines.

Five carriers � United, ATA, US Airways, Hawaiian and Aloha � are operating under Chapter 11 bankruptcy protection. Delta, the nation's No. 3 airline, revealed in a recent Securities and Exchange Commission filing that its cash reserves are eroding so rapidly that it also might opt for Chapter 11.

To further cloud the horizon, industry watchers predict the liquidation of at least one major carrier in 2005, raising the specter of even greater chaos and the potential collapse of a frequent-flyer program.

Frequent-flyer members nervously watching this turning tide are finding it difficult to decide whether to stay the course or use miles as soon as an award is earned.

First, it's important to acknowledge a couple of realities. Earned miles have been decreasing in value as airfares have fallen. And while airlines won't share the statistics, frequent-flyer award seats have become increasingly difficult to obtain as full-size aircraft are replaced with smaller regional jets.

Does this mean your storehouse of frequent-flyer miles will soon be worthless? It's unlikely, except in the event of an airline's total shutdown, but it would be prudent to re-evaluate how and when you use them. Here are some things to keep in mind:

•  Begin by determining what it would cost to buy a ticket to your chosen destination on your airline in your chosen class of service. Using frequent-flyer miles to snag a low-priced seat means your miles would be worth just a fraction of a penny. Instead, play around with destinations, routes, travel dates and fares and spend your miles on those tickets that offer the greatest per-mile value.

•  Consider, too, how you are accumulating your miles. If you belong to several frequent-flyer programs, chances are good you are not maximizing the potential for leverage. Instead, consolidate your purchases among a select few airlines and use your loyalty and elite status to capture upgrades and other benefits.

•  Stay with your chosen carrier as long as it makes sense for the way you travel. If your company assigns you to a new territory, consider switching to another carrier that is a major player in the new location. Similarly, if service has deteriorated or you're finding it impossible to obtain awards on your chosen carrier, it might be time to switch programs. Call the loyalty program at a new carrier and ask that they match your current standing.

•  If you are not a frequent traveler, consider membership in second-tier airlines that offer good service and have fewer members competing for upgrades and other benefits. Apply this same theory when aligning with hotel and car-rental programs.

•  As tempting as it might be, try to avoid hoarding miles. While banking a million miles might feel good, the downside could be dramatic if your carrier files for bankruptcy, downsizes its fleet or cuts back scheduled flights.

n If there is no way you can realistically use your accumulated miles, consider donating them to charitable organizations such as Operation Hero Miles (www.heromiles.org) or Northwest's AirCares program www.nwa.com/corpinfo/aircares/donate.

It's anyone's guess how long the devaluation of frequent-flyer miles will continue. For now, assume that the miles you redeem today are worth more than the miles you will redeem tomorrow or next week or next month.