The problem was that the federal government had recently deregulated his industry, freeing airlines to compete with each other on price. If the only way to ensure loyalty was to buy it with cheap fares, Mr. Crandall knew that American was in trouble. It fell to Mr. Plaskett and his team to get travelers to buy tickets on American even when it wasn't offering the lowest fare.

As he thought about what kept people coming back to the same company, his mind wandered to the kitchen of his childhood home in Raytown, Mo., where he would sit with his mother and lick S&H Green Stamps. The stamps had come from the local grocery store as a reward for shopping there, and when the Plasketts had pasted enough of them in a book, they took it to an S&H redemption center to claim a prize.

One time it was a toaster. Another time it was a vacuum cleaner. They weren't the most exciting items — nothing as alluring as, say, a Hawaiian vacation — but they were enough to tether the Plaskett family to that grocery store.

"It was the idea of getting something for nothing, really," he said. "So I began thinking, 'Why wouldn't that work for the airlines?' "

Over the next year, Mr. Crandall, Mr. Plaskett and their colleagues developed a secret plan modeled on green stamps, a surprise intended to catch their rivals off guard. On May 1, 1981 — 25 years ago next Monday — they unveiled a program called AAdvantage. Frequent-flier miles were born.

MILES have become one of the most successful business ideas not just of the last quarter-century but in the modern history of capitalism. They have been a diabolically brilliant way to separate people from their money while making them feel as if they were instead getting a gift. Sure, you just spent $800 fixing your car, but you charged it to a credit card that awards miles, putting you that much closer to a free vacation.

If you believe the popular idea that a mile is worth about a cent, the 14 trillion unredeemed miles that travelers hold are more valuable than all of the United States currency in circulation, as The Economist magazine has noted.

That does not include the points racked up in the many copycat programs. At my local Tex-Mex place, I'm a member of the frequent-burrito-eating club.

"We figured if we were successful," Mr. Crandall told me this week, "we could replace S&H Green Stamps."

They have obviously done that, and then some. But the comparison also has a darker side. Green stamps, after all, aren't around anymore. They were the victim of their own inflationary spiral in the 1960's, when stores started awarding double and triple stamps, which cost them gobs of money.

Soon, some store managers realized that they could offer eye-catching discounts instead, said Joseph C. Nunes, a marketing professor at the University of Southern California. About the only place to find the stamps these days is in Andy Warhol art (though S&H is trying to revive them online).

They were another example of the notion that corporate America tends to drive every good idea into the ground like a tomato stake, as the writer James Grant has said about Wall Street. Now frequent-flier miles are following a similar path.

They caught on because they did such a wonderful job of exploiting human nature. From his own experience with green stamps, Mr. Plaskett knew that collecting stickers or points could feel like an accomplishment in itself. So, American Airlines deliberately handed out thousands of them at once, because "10,000 miles" sounded a lot more impressive than "6 flight segments."

The company made miles flown the unit of currency, instead of dollars spent, to reduce the chances that businesses would try to claim the awards from their employees. Business travelers, after all, were the ones deciding which airline to fly, even if their employers were picking up the bill. Frequent-flier miles became a little kickback.

Best of all, the ultimate prizes — vacations — were just the sort of thing to induce daydreaming. Yet they cost American almost nothing, because the company was careful to give away seats that otherwise would have gone unfilled.

No wonder, then, that United Airlines copied American within days and every other big airline soon followed.

Just as they were intended to do, the programs delayed the march of low-fare carriers. One study done in the 1990's found that business travelers taking a 1,000-mile trip would pay an extra $170 on average to fly on the airline with their frequent-flier program.

But I'd bet you wouldn't find the same premium today. Low-fare airlines are a lot bigger than they used to be, and they have their own frequent-flier programs. Corporate travel managers, meanwhile, can use software to force business travelers to choose the cheapest ticket.

And miles don't have the pull they once did, because they, too, have been swept up into an inflationary spiral. Hard-core travelers who once viewed upgrades to first class as an inalienable right now find them hard to come by because so many miles are sloshing around and planes are so full these days. Claiming free tickets on popular routes can also seem almost impossible.

Frequent-flier programs are not about to disappear, because no airline can afford to abandon them unilaterally. But compared with Mr. Crandall's original goal — to keep airline seats from becoming a commodity — the frequent-flier mile is looking pretty old and tired for a 25-year-old.

Just look at what United is doing to celebrate the 25th anniversary of its program. It is letting its best customers use their miles to buy Callaway Golf clubs, Coach sunglasses and Canon digital cameras. That turns frequent-flier miles into just another discount, rather than the guarantee of loyalty that Mr. Plaskett envisioned.


Source: New York Times