Missing something? Economist.comOpinIon Airline miles Frequent-flyer economics May 2nd 2002 From The Economist print edition One of the world's main currencies is heading for a fall Get article background THE world has a new international currency: frequent-flyer miles. Launched exactly 21 years ago, they are a lot like money. Collectors check their mileage statements as keenly as their bank statements. American courts often lace a value on mileage balances in the course of divorce settlements. In a recent poll of frequent travellers, two- hirds said that they see frequent-flyer miles as the next best thing to actual cash: almost half even thought they should earn interest on their accounts. will they still be as keen a year from now? Maybe not. This peculiar new currency has not been well-managed. Devaluation is on the cards Frequent-flyer miles started as a marketing gimmick but they have become a lucrative business Airlines sell miles to partners, such as credit-card companies and car-rental agencies. Roughly half of all miles are now earned on the ground not in the air. This makes them ever easier to acquire (see article). Miles can be worth anywhere between two and nine cents apiece when they are used to buy an air ticket. Valued at the mid-point of this range, the total global stock of frequent-flyer miles may now be worth almost $500 billion Comparing this with all the notes and coins in circulation around the globe frequent-flyer miles could be said to be the worlds second-biggest currency after the dollar. Indeed, at its present pace of growth the stock of miles is likely to overtake the physical stock of dollars within two years. Of course this ignores the much bigger stock of dollars sitting in bank accounts. But frequent-flyers care more about liquidity-preferably a glass of champagne after take-off-than about the precise differences between MO, Mi and M3 fast as the supply of dollars. Central bankers would suffer sleepless nights at such reckless s as Miles outstanding have risen by an average of 20% a year since 1995-two-and-a-half time monetary expansion were it not for the fact that they are usually up in first class collecting double or triple miles. The plain truth is that airlines have been printing too much of their currency. They are issuing more miles than they can ever supply in free seats. (Only a small fraction of miles areAirline miles Frequent-flyer economics May 2nd 2002 From The Economist print edition One of the world's main currencies is heading for a fall Get article background THE world has a new international currency: frequent-flyer miles. Launched exactly 21 years ago, they are a lot like money. Collectors check their mileage statements as keenly as their bank statements. American courts often place a value on mileage balances in the course of divorce settlements. In a recent poll of frequent travellers, two￾thirds said that they see frequent-flyer miles as the next best thing to actual cash: almost half even thought they should earn interest on their accounts. Will they still be as keen a year from now? Maybe not. This peculiar new currency has not been well-managed. Devaluation is on the cards. Frequent-flyer miles started as a marketing gimmick, but they have become a lucrative business. Airlines sell miles to partners, such as credit-card companies and car-rental agencies. Roughly half of all miles are now earned on the ground, not in the air. This makes them ever easier to acquire. At the end of April, the worldwide stock of unredeemed miles was probably close to 8.5 trillion (see article). Miles can be worth anywhere between two and nine cents apiece when they are used to buy an air ticket. Valued at the mid-point of this range, the total global stock of frequent-flyer miles may now be worth almost $500 billion. Comparing this with all the notes and coins in circulation around the globe, frequent-flyer miles could be said to be the world's second-biggest currency after the dollar. Indeed, at its present pace of growth the stock of miles is likely to overtake the physical stock of dollars within two years. Of course this ignores the much bigger stock of dollars sitting in bank accounts. But frequent-flyers care more about liquidity—preferably a glass of champagne after take-off—than about the precise differences between M0, M1 and M3. Miles outstanding have risen by an average of 20% a year since 1995—two-and-a-half times as fast as the supply of dollars. Central bankers would suffer sleepless nights at such reckless monetary expansion were it not for the fact that they are usually up in first class collecting double or triple miles. The plain truth is that airlines have been printing too much of their currency. They are issuing more miles than they can ever supply in free seats. (Only a small fraction of miles are