“What’s in there? Bars of gold?”
Every few weeks, the tiny RA working the front desk of my dorm would make the same joke, as she wrestled with the heavy box—29.1 pounds to be exact—and threw it to the floor. She had no idea that, over the course of two years, she would hand me approximately $72,000 in golden coins.
Like almost every college student, I didn’t fly often or have much money, but I wanted to travel, see the world, learn things you can’t learn from a grumpy professor who can’t retire anymore because his pension fund got wiped out by the market collapse. I came across some blogs that gave you ways to earn miles without spending money you wouldn’t spend otherwise. Typically, these come in the form of lucrative credit card sign-up bonuses. (Despite popular belief, you can sign up for many credit cards and, as long as you pay your bills in full, it won’t hurt your credit score. I know this because I have done it.). Banks pay airlines for their miles, and offer the miles to you in the form of a rebate or incentive for getting their credit card.
The coins were a particularly extravagant case of mileage accruing: I would order $3,000 in dollar coins (the maximum allowed) from the U.S. Mint and charge the purchase to my Starwoods American Express credit card. Then, the Mint would ship them to me for free, and I would deposit the coins into my bank account and pay off the purchase with the currency value of the coins. (The coins came rolled from the Mint, and my bank accepted them rolled, so there was no effort on my part in the turnaround.) The whole cycle would only cost me the time it took to bring the coins to the bank. Rinse, repeat, etc.
I never totaled precisely how many miles I accrued solely from the coins, but using my Starwoods points, I flew first class on Virgin Atlantic to London, so I could attend English Premier League matches. At the time, I was working for a non-profit making $32,000 a year. The miles from the coins more than covered the 64,000 points required for the trip. Not only did I experience a side of travel I otherwise never would have seen, but I doubt I otherwise could have afforded the trip at all.
The products in this whole exchange are never the points or the reservations; they’re the flight, the room, the travel, the look on your friends’ faces when you show them their first-class seat turns into an honest-to-god bed.
This was and is all good for me, of course. (Although you don’t get points for ordering coins on a credit card anymore, so that scheme is over.) But it surely wasn’t as good for the RA who got monthly exercise, or the Bank of America employee who had to deal with my coins every few weeks. Was it OK to be charging my selfish shipping costs to the U.S. taxpayers? What about the Mint’s intent of getting the coins in circulation when all I’m doing is just putting them right back in the banking system?
This might seem like an innocuous example, but it's indicative of how mileage programs have evolved from being rewards for frequent traveling to one of the most successful marketing concoctions in history, and a source of constant revenue for airline and hotel companies.
"I THINK EVERYONE'S GOT to set a limit for themselves for what they feel is OK and what they feel is not,” says Daraius Dubash, founder of Million Mile Secrets. To Dubash, buying merchandise from an online shopping portal, which offers customers rebates in the form of airline miles, with the sole intention of returning the products in-store is beyond his ethical lines. But discerning where that limit is is sometimes harder than it sounds.
About three years ago, Nordstrom’s website was offering 30 British Airways points per dollar if you went through a shopping portal. Thirty points per dollar is an incredible rate of return, and if you could find an item with decent resale value, the deal would be very lucrative. I noticed Nordstrom sold Beats by Dre headphones, which sell very well on the secondary market. I bought more than $8,000 worth of headphones, with the intention of reselling them and taking a slight loss, but gaining over 240,000 points in the process. (A round-trip flight in business class from New York to Rio de Janeiro would cost 100,000 points.) But, selling a few dozen headphones turned out to be harder than it sounded. EBay’s fees made that route unprofitable. Craigslist was too unreliable and slow. In the end, I decided to simply return them. Nordstrom screwed up the return, and after months of back and forth, I ended up with 100,000 more miles in my account than I had before, even though I hadn’t been charged a cent.
Did I violate some implicit ethical agreement here? Did I earn these miles? For this hobby, “earn” is a weird word. For airlines, businesses, and customers alike, its a mutually beneficial economic exchange, even if that may be tough to see at first, since it may look like we’re getting something for close to nothing.
“Frequent flier miles are the most significant, most successful marketing device in the history of the world,” declares Gary Leff, founder of View from the Wing, and one of the world’s top 135 travel specialists as named by Conde Nast for his award booking service, Book Your Award. “It’s no longer the case that even a majority of miles are earned by flying. Miles are a universal reward currency that supports a whole lot of consumer behavior.” As Leff explained to me, giving miles as rebates for purchases (instead of, say, cash) captures the customer’s imagination—it gets you that much closer to a vacation, whereas a few extra bucks is a candy bar—while providing value for all parties. A cynic might view it as a simple re-framing—a clever marketing ploy without providing the customer any actual benefit—but that’s an oversimplification since retailers can offer much more value in miles and points than they can through cash.
Hotel rooms and airplane seats are spoilable goods, because the second that flight takes off or the sun rises the following day, the seat or the room is worthless. As Leff explains: “Close to the moment of travel, any excess inventory can be purchased in bulk by a frequent flier program very cheaply. So if you’re giving a consumer $25 toward an airline ticket, that’s more valuable to the consumer and no more costly to the program.” As the day of departure (or of stay) approaches, the value of the seat (or room) approaches zero. There will be a time where it’s worth it to the airline (or hotel) or give that product for the value of those miles, no matter how cheaply the customer accrued them. Leff was careful to stress that, if you play by the rules the airlines, banks, and hotels set, it’s an easy and lucrative path to enormous value.
Still, he admitted there are times where one can be tempted to take advantage of mistakes or errors on the other end. "Last summer, what’s now called IHG Rewards (this is the hotel loyalty program for InterContinental, Grand Plaza, Holiday Inn, etc.), had an offer where, if you downloaded their shopping toolbar, you would earn a few hundred points, only they didn’t program it properly to actually require you to download the toolbar in order to receive the points, and if you went through the page again and again to do the download, they would keep awarding you points," he said. "So I do know people who scripted their Web browsers to do this over and over and over. The points, by the way, were being awarded in real time. So over a weekend, many people generated hundreds of thousands of points. These people, in many cases, knew what they were doing was really problematic. They went to such lengths to make it as difficult as possible for the program to claw back the points. So people would redeem them right away, but if you’re redeeming for the hotel stay a few months in the future, they can just cancel the stay and claw back the points. So that wasn’t what some people were doing. Some people were booking flights with the points. Well, tickets could be canceled. So gift cards were issued for things like Amazon, but those e-gift cards could presumably get canceled unless you spend them right away. So people were cashing in gift cards for computers. That crossed the line for me, so not only didn’t I do it, I also didn’t write about it until the deal was over."
Indeed, this is a problem not just for IHG Rewards. “There are obviously rules to the program,” Charles Hobart of United Airlines told me. “You have to abide by those rules.” But, savvy customers can find these instances of programming errors not just with regards to miles and points, but also with how prices are listed online. They’re referred to as “mistake fares,” and they exemplify who controls the process down the line.
I DON'T KNOW WHAT you were doing on September 12, but many people were booking domestic flights on United for between $5 and $10, all-in. United mistakenly listed the base fares as $0 on several routes due to “human error,” and some people booked dozens of flights. United decided to honor the flights, but often times, airlines and hotels won’t honor similar tickets.
I asked Hobart about the logic that goes into whether to honor those mistake fares or not. "It's going to depend on a number of factors," he said. "It's going to depend on what the situation is for that particular issue." I asked him if he could tell me what types of factors they take into consideration. "No, I’m not going to get into that."
From a consumer perspective, though, is there anything wrong with getting in on what is obviously a mistake? “If its a very apparent mistake, I think its fine to go in and book a few tickets,” Dubash observed, “but you shouldn’t get upset if they’re not honored, because they’re very likely to not get honored.” In general, Leff shares his views: “If someone makes a genuine and obvious mistake, I don’t see anything wrong with buying that ticket and sometimes it's going to get honored, but I totally recognize that they’re going to decide what works for them in terms of how they manage that. If they cancel it in a timely manner and communicate it well to their customers, I’m good with that.”
Here is one of the great imbalances of the industry. Although airlines allow you 24 hours to cancel with a full refund, many hotels are pre-paid non-refundable, and yet if they list a mistake price, they have the ability to renege on that reservation. Not only that, but they get to define what constitutes a mistake. We can all agree a $1 suite is certainly a programming or human error, but what about a $100 suite? A $300 suite? A $1,000 suite a block from the Superdome during NCAA Championship weekend? You can see how the distinctions get more difficult the deeper you go.
In 2010, I booked a flight and hotel package through Expedia.ca from New York to Las Vegas that included a hotel room on the strip for four nights for $86 all-in. This was the result of a programming error where Expedia’s Canada site was offering a $300 discount (using a coupon code) to all travelers to select cities. Basically, it was not nearly as targeted as they wanted it to be. Is this a “mistake deal”? In some ways, yes, and other ways, no. But I was in college, had turned 21 four months prior, and went to Las Vegas for $86. Two of my high school buddies got in on it. The ethics of the situation weren’t that concerning to me, mostly because Expedia always had the option to rescind the reservations.
The products in this whole exchange are never the points or the reservations; they’re the flight, the room, the travel, the look on your friends’ faces when you show them their first-class seat turns into an honest-to-god bed, and that despite what David Fincher made Justin Timberlake say, there are some ways in this world being smart and savvy actually still substitutes for money. Until we are on the plane or in the hotel, though, we don’t have anything.
It’s easy to imagine flying as a particularly unequal and class-segregated industry, since any given flight is partitioned by ugly curtains or curt flight attendants telling you which way you go based on what is written on your ticket about you. But what this caricature of the industry ignores is how mobile you can be between those classes from flight to flight. I can be in economy class for one flight and first the next, with only a little bit of effort and attention on my part to make it so, simply because I want to fly first class. It feels like we’re gaming a system when we’re doing it—and just like any other industry, you can do things that cross the ethical lines if you’re so inclined to go a step too far—but you definitely don’t have to in order to get what you came for.
“Airlines are in the business of making money, and they realized selling miles makes them quite a lot of money,” Dubash concluded. “For the average person I think it’s a benefit as well, because the average person can earn as many miles sitting in front of the computers in his pajamas compared to flying around the world twice. It’s getting a little more democratized, in that most people can get miles and points without flying, but I think that’s a good thing.” Because flying is often miserable. Unless, of course, you’re in first class.