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The Man Who Turned Credit-Card Points Into an Empire

“Using incentives was hardly new,” says Bob Crandall, American Airlines’ C.E.O. at the time. Supermarkets gave out S&H Green Stamps, luring customers with prizes like free toasters. In the airline industry, experiments like United’s “100,000 Mile Club” had already demonstrated some success, but the big impediment to administering such programs was keeping track of customers. (Who could say whether the John Smith who flew New York to London was the same John Smith who flew Houston to Detroit?) On this front, American had a technological advantage — a new computerized reservation system. “So we started doing some research about what kind of rewards people would like,” Crandall says. The answer, somewhat obvious in hindsight, was travel.

“The only thing people want more than cash, as an incentive, is travel,” says Hal Brierley, a consultant who helped design American’s first program. AAdvantage, as it came to be called, debuted in May of 1981 with a wave of pre-enrollment mailers directed at the airline’s top customers. From the beginning, the program was tiered, with the top prize being a free round-trip ticket. “If you flew 50,000 miles in one year,” Brierley says, “you got a first-class trip to wherever we flew, which at the time meant ‘Go to Hawaii.’ Even a business guy wants a beach in Hawaii!”

With haste, other airlines unveiled their own mileage programs. (“I credit United for having responded to the program literally over the weekend,” Brierley says.) These early miles, unlike modern points, were measures of actual distance: miles flown from A to B. Program enrollees received monthly statements, tracking their progress toward the reward. At this early stage, a free trip cost an airline almost nothing to give away. Airline seats were perishable; planes take off, full or not. By turning this so-called distressed inventory into an asset, airlines retained their most loyal customers, who more than paid them back in repeat business.

Within a few years, an estimated 75 percent of all business travelers had joined at least one frequent-flier program. The programs were free; there was no risk in joining. Consumer expectations were low, and most still saw the miles as a kind of funny money. Business sections, throughout the early ’80s, devoted column space to explaining terms of service — and complaining about blackout dates and mileage thresholds. One reporter deemed frequent-flier programs “as confusing and as complicated as Rubik’s Cube.” Another critic, the former senator Eugene J. McCarthy, took to The New York Times to complain:

I was rarely able to take advantage of the special reduced fares, given if one scheduled three months in advance, or agreed to go on Tuesday and return on Sunday, before noon; or to complete one’s round trip within the Octave of the Feast of All Saints, or of the birth of Clare Booth Luce; or buy a ticket before the spring equinox and use it before the summer solstice or, failing in that, only after the September equinox and before the winter solstice, flying west before noon and east after sundown.

The gimmick reputation of early mileage programs proved to be a hindrance, but soon a set of early adopters came to see the programs for what they were worth — or rather, what they could be worth.

In 1981, when AAdvantage was introduced, Randy Petersen was 30 and working in the corporate offices of Chess King, a groovy young-men’s mall retailer founded on the market-research proposition that teen males loved auto-racing and chess. Flying from grand opening to grand opening to reposition racks of nylon parachute pants, Petersen accrued a free trip to Hawaii, booked a room at the Sheraton Waikiki and ate dinner at the luau every single night. When he returned to the Chess King offices in New York, his co-workers gathered around his desk with questions about taking free trips of their own. Seeing latent demand in their barrage of inquiries, Petersen put in his two weeks’ notice. By 1986, he had struck out on his own as the publisher, editor and only employee of the world’s first frequent-flier magazine.

The first issue of InsideFlyer looked, in Petersen’s words, like a “bad ransom note.” Typewritten commentary on airline programs mixed with photocopied offers clipped from monthly statement mailers. Its first readers were road-warrior types — guys in wrinkled suits with Hartmann luggage — who traveled enough to earn a free trip now and then, but didn’t go out of their way to earn further. This all changed in 1988, with the debut of Delta Triple Mileage, one of the first industry experiments in driving consumers to actually fly more than they might otherwise. The promotion, which delivered on the promise of its name, shortened the free-ticket accrual time from a period of years to a period of months. A free trip to Hawaii, which cost about 30,000 miles, used to be an ambitious goal. Now, it could be earned in one-third of the distance — just two round trips from LAX to J.F.K.

For the average business traveler, Delta Triple Mileage increased the immediate value of belonging to a loyalty program. For mileage obsessives like Petersen, taking miles off the gold standard of concrete distance transformed program membership from a static, passive interest to a game that could be played. Triple Mileage gave rise to a frequent-flying frenzy, one that could be amped up even further by learning and exploiting airline-route particulars. Back then, routes were more limited, and travelers often completed the last leg of a trip with a short flight from a hub airport to a smaller regional one. To make accounting for these brief jaunts less annoying, Delta decided to compensate all flights with a minimum of 1,000 rewards miles, even when the actual distance was shorter. Under Triple Mileage, the minimum, well, tripled. And quickly, InsideFlyer readers realized that by stacking these short flights they could mint their own free trips. Flying back and forth between two short-leg cities, a rewards ticket to Hawaii could be earned in just eight continuous hours of flying. “One of the most popular ones was Dallas to Austin,” Petersen says. “People would do that eight, nine, 10 times in a day.”

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