MilePoint.com: Cure or Con?

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With unused frequent-flier miles soaring into the trillions, MilePoint.com and six airlines have joined forces to create a new redemption opportunity -- MilePoint Money. This currency, which will be available next month, can be exchanged for discounts and potentially free items at online shopping sites such as Amazon.com.


But at least one industry expert has spoken out against this currency, calling it a shell game designed to distract consumers from the fact that it is becoming more difficult to redeem miles for their intended purpose -- free travel.


America West, Continental Airlines, Delta Air Lines, Northwest Airlines, TWA, US Airways and Hilton Hotels have agreed to allow their combined 45 million members, who have accrued an estimated 1.6 trillion miles, to redeem their miles at the MilePoint.com Mall.


The frequent-flier miles will be worth 2 cents apiece. Consumers can use this currency to get from 5 percent to 100 percent off of their purchases, depending on the merchant. The average amount likely will be 10 percent. More than 150 vendors, including Amazon.com and SkyMall.com, will accept MilePoint Money.


"It's a scam," said Richard G. Barlow, CEO of Frequency Marketing Inc., an integrated loyalty solutions provider based in Cincinnati. "How many customers want to trade a free airline ticket for 10 percent off of a book? Miles for free airline tickets has just turned into discounts for mundane items. I don't expect this to succeed."


Mark Lacek, CEO of MilePoint.com, Minneapolis, thinks Barlow is missing the point. "It's not a discount. We don't describe it as a discount," Lacek said. "We are creating another form of currency. The treatment of your miles as money is real and tangible. There is no hocus-pocus. This is real."


The problem is that bringing cash into the equation destroys the foundation of consumer loyalty, Barlow said. "The axiom of the loyalty business is 'discounts aren't rewards.' Anything you get with MilePoint, you have to spend money out of your pocket. A 10 percent discount is meaningless. You can get 10 percent off anything, at anytime, especially on the Internet."


Lacek disagreed. For travelers who don't have enough miles to get a free ticket or burnt-out businessmen who have no desire to get back on a plane, this award is ideal, he said. "They will still have a viable and valuable option," he said.


This offering was borne out of the airline miles surplus problem. In the beginning, the airlines used miles to fill empty seats. Now demand has outweighed the supply because "airlines are addicted to selling miles," Barlow said. "It's the most profitable thing they do.


"Now in order to keep members happy, they have to displace revenue. So they're becoming much more interested in finding ways to burn these miles without putting people in seats. This is one of the first of many schemes. Not all will be as flimflam as MilePoint."


Lacek doesn't deny that the airlines are looking for new ways to bring value to their customers. The carriers are so committed to MilePoint that they are all shareholders in the company.


By joining the program, online merchants will reduce their cost per acquisition "because we deliver consumers to their door," Lacek said. "It's a pay-for-performance model. They only pay us when the customer buys."


MilePoint.com earns a commission for each sale as well as a small fee from the airlines for administering the process. While it is not currently in discussions with American and United Airlines, Lacek said, "he would welcome them."
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