Personal Finance

With all the airline fees, can you afford that 'free' flight?

If you're stockpiling reward miles for an airline ticket, be warned that the free trip you're dreaming of probably won't be free.

Over the past few years, airlines have jacked up the fees associated with redeeming airline rewards card miles. They've invented new kinds of charges, piling on fees for traveling within three weeks of booking your ticket or calling to make the reservation. And don't even think about changing your ticket -- that routinely costs $150.

Consumers who rack up miles on credit cards are especially vulnerable: Airlines waive many of the fees for their most-frequent fliers, but not for those who accumulate miles mainly by credit card spending.

The rise of fees connected to award tickets can eat into the value of airline award programs. Consumer experts say there are still good deals to be had with reward tickets, but that travelers need to understand when the charges kick in before they begin accumulating miles.

You're charging for ... what? For consumers accustomed to an earlier era with fewer fees, the changes can be frustrating.

T.C. Williams, a software salesman in San Carlos, Calif., says he transferred some of his wife's United Airlines miles to his account several years ago with no hassles. But when he went to transfer miles from his children's accounts two months ago so he could book a family vacation to Maui, he says the airline wanted to charge him $125 for every 5,000 miles he transferred -- even though he flies about 50,000 miles a year on the airline.

"It's asinine. It's ridiculous," says Williams, 38, who also accumulates miles with a United Mileage Plus Visa from Chase. "I'm an actual flier. I actually use their product. And they're trying to nickel and dime me."

The increase in award-ticket fees mirrors the addition of fees throughout the airline industry. Carriers now routinely charge for checked bags, food and other services that used to be included in the price of a ticket. Why?

"The simple answer is because they can," says Robert Mann, an airline-industry analyst with R.W. Mann & Co. in New York.

With award-ticket fees, airlines figure that travelers will tolerate nominal charges, Mann says, even if the fees have little connection to the airlines' expenses. For instance, foreign airlines routinely add "fuel surcharges" on award redemptions that more than cover the additional cost of higher fuel prices. "Processing fees" are also much higher than the airlines' actual costs of processing reservations, Mann says.

Airlines' balancing act Still, airlines have a careful balancing act when it comes to award-ticket fees. If they charge no fees, they miss out on a stream of revenue. If the fees are too high, they risk driving off cardholders and devaluing their frequent-flier programs, which are big sources of revenue. Banks that offer frequent flier cards pay the airlines hundreds of millions of dollars a year, according to a 2008 report by IdeaWorks, an airline marketing consultant. Citi's AAdvantage cards could account for $1 billion of American Airlines' annual revenue, the report said.

The award-ticket fees apply only to cards connected to airlines' frequent-flier programs, which are known as co-branded cards. Other travel credit cards, which typically allow cardholders to buy tickets with rewards points, offer rewards based on the total cost of a purchased ticket.

To get the most value out of an airline rewards program, the best advice is to familiarize yourself with the details of how it works, says Brian Kelly, founder of ThePointsGuy.com, a blog that helps people maximize their award miles and points.

Each program is different, he says. Continental, for instance, lets you change the dates of your award ticket for no charge. Delta charges $150 to change the date, but it doesn't charge for last-minute tickets.

"There are definitely landmines in terms of redemption, but there is value out there," he says. "Sometimes, people give up too easily and let the airlines win. The people who do their homework do come out ahead."

Tips to avoid the fees Some strategies for avoiding award-ticket fees:

Book farther out : Most airlines charge at least $50 for making an award reservation close to the booking date -- typically two or three weeks out.

Don't change your ticket : Most U.S. airlines charge $150 for changes to an award ticket after it is booked. Some waive or reduce the fee if the routing of the ticket stays the same.

Don't cancel your ticket : A $150 fee to cancel your award ticket and reinstate miles into your account is standard.

Book online : Airlines regularly charge at least $25 if you book your award ticket by phone or at a ticketing office.

Watch out for "fuel surcharges" : Many foreign-based airlines add "fuel surcharges" to award tickets, and the amounts can be substantial. For instance, a round-trip flight on British Airways in August from Washington to London costs 50,000 miles and $531, in large part because of the airline's "fuel surcharge."

Other taxes and fees : Some taxes and fees are unavoidable. Airlines typically charge $2.50 per flight segment for security fees. Other taxes and airport landing fees might apply, depending on the airline and the route.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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