American Airlines considering selling bonus miles for travel

Nearly a year ago American Airlines sent a letter to the IRS defining about 40 different “services” that the carrier offers to its customers. They asked for specific rulings on each of the 40 with respect to § 4261 of the IRS code, the section that covers the specific activities for which the airlines are required to collect and remit taxes. In general such a document wouldn’t be all that interesting, but there are a couple things that this particular one has in it that are worth noting. The impact on taxes for baggage fees has already been covered, and that is reasonably interesting, but there are two specific entries in the services list that describe potential future offerings. These are the two bits that piqued my interests most.

Service P allows Members to purchase “bonus” Miles (i.e., double or triple miles) on certain flights to be credited to the Member’s Account. Currently, this service is occasionally offered to members free of charge on a limited-time basis. However, Taxpayer is preparing to offer Service P for a fee.

United Airlines currently offers a program similar to that identified as “Service P” above. They call it their Award Accelerator and it is generally a pretty bad deal; the points are too expensive. Continental also offfers something similar with their “Extra Mile” promo every year. So American wouldn’t be breaking new ground with such a more. Still, it would be an interesting move to see American attempt to further monetize their frequent flyer program and cash in on the obsession with points.

Service CC allows Members to redeem Miles for the purchase of air transportation on Taxpayer’s website. At the time this letter ruling request was issued, Taxpayer was not charging a fee for Service CC. Taxpayer is, however, contemplating implementation of a fee for this service. The fee would be charged at the time of ticketing.

This one is a bit more worrisome from the consumer perspective. It suggests that AA is considering adding a booking fee for reward ticket reservations made through the website. Currently most airlines charge for such reservations when they are booked through the call center. Extending that out to bookings made online would be quite a leap. Currently there are a couple airlines that have such “convenience fees” for bookings but it would be quite a shock for a legacy carrier to start down that route. The verbiage is sufficiently different – “contemplating implementation” versus “preparing to offer” – that it doesn’t seem likely such charges are imminent, but it is out there now and intriguing enough to raise an eyebrow or two.

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