I read elsewhere that some companies that give “free” frequent flier miles are starting to charge a tax to the person getting the miles.
The computation method is apparently known only to the airlines, but the “tax” appears to be about 2-3 cents per mile.
So, how much are FF miles really worth and how should the “tax” be calculated?
Huh? There’s two possible questions hiding here.
First possible interpretation of your question: the government is trying to view frequent flyer miles as “income” and thus to tax them. Generally, this has failed, on the grounds that frequent flyer miles are no different than grocery store coupons or special sales at stores.
Second possible interpretation: that the provider (for example, the airline or hotel) raises the price of its service for people who are in their frequent flyer program. That is, if I go to stay at a Marriott Hotel and I have a Marriott Rewards Card, then my rate is higher than the person who says at the same hotel but doesn’t have a Marriott Rewards Card. That sounds self-defeating to me. The purpose of the cards is to attract their regular, repeat customers and give those people a “deal” and a reason for repeat business; not to alienate them. If news of such a practice leaked, there would be massive reaction.
Third possible interpretation: that the provider (let’s stick with Marriott for the example), in order to fund its Rewards Program, must raise its rates, must charge higher fares for ALL guests than would a competing hotel that doesn’t have to foot the bill for the Rewards Program. Deep down inside, there’s undoubtedly some truth to that; in just the same way that a store that is continually offering sales must be doing SOMETHING else to make up for lost income. However, note that most competitors also have frequent-user programs, so the prices are all in the same ballpark.
You asked about the value of sucha program, if it were to be taxed. The amount is probably quite small – I have to fly 25,000 miles to earn a free ticket; if ticket costs average $350 and 2500 miles, that’s like a 10% discount. If ticket costs are higher and average trip distance lower (as they usually are for my business travel), the “discount” is accordingly reduced. If my business travel is during the week (say, average ticket price of $700) and my “free” travel is personal on the weekend (say, average price of $350), then the airline has got $7,000 from my company and given me a $350 value. Great for me, of course, and not a bad deal for the airlines if it retains repeat-buyers.
This is a scam by the employer. They’re not “giving” away the miles at all. In fact, the major airlines will happily sell miles to qualified organizations for promotional use such as this.
The price they charge (wholesale)? Coincidentally, 2-3 cents per mile.
The employer is spending anything extra on you at all. In fact, with some careful shopping, you can probably get a ticket to where you’re going, with less restrictions and better availability than with a Frequent Flyer ticket, for less than that.
They are really doing it!
Check out Alamo car rental. It is supposed to be like a sales “tax” according to them. I think they are just charging the customer for the miles, but I am not sure. Getting the reference from their site is too difficult
Second, Northwest airlines has stopped providing FF miles to people who buy tickets directly from NW on their internet site. You can only get miles if you use your credit card to buy the ticket - no miles for the flight!
see http://www.nwa.com/travel/cyber/disterms.shtml#euroterms
for an example.
Finally, I am really interested in how much people “feel” frequent flier miles are worth to them.
!
I guess I must be missing something here. But of course, nearly 100% of all my travel is business, and paid for by the client or my company.
So yes, the FF miles are really worth it to me. But I never use them for free tickets - only for upgrades for my personal trips.
Paying $1000 for a full-fare Coach ticket to Paris is pretty cheap, relative to the $5000 Business class ticket. So I buy the Coach ticket and use my miles to upgrade to Business. It puts a whole new attitude on the trip, I’ll tell you that…and it is worth it to me.
And I still have 3 Business class upgrades to Europe left to use. 