The ethical dimensions of airline frequent flier programs

Business Horizons, Jan-Feb, 1997 by David W. Arnesen, C. Patrick Fleenor, Rex S. Toh

Utilitarians require that for something to be considered ethical, the benefits should exceed the costs. But ethicists have often complained of the difficulty of quantifying the hedonistic notions of pleasure or happiness, and this is no less true in the case of free travel and upgrades. Corporations cough up about $6 billion annually in extra air travel costs. The airline industry spends more than $1 billion annually to set up and operate these programs. And a significant percentage of bonus awards (2.3 percent of airline passenger miles) are redeemed for seats that would otherwise have been sold. In addition, the overall traveling public is subsidizing frequent fliers through increased fares.

It has been claimed that frequent flier programs cost the airlines so much in added administration costs and lost revenues from displaced paying passengers that if they were eliminated, fares could be reduced by 10 to 15 percent. One can conclude, then, that frequent flier programs, as U.S. airlines presently structure them, are unethical under consequential utilitarianism because they are contrary to the agency relationship.

2. Personal Use Of Awards Earned Through Business Travel

There is no statutory law that requires an employee to turn in frequent flier awards to the corporate employer unless one works for the federal government. (Interestingly, but not surprisingly, members of the House of Representatives are exempted from this federal regulation, and in January 1996 the Senate voted 55-44 to support the House policy of allowing its members to make personal use of frequent flier travel awards received as a result of taxpayer-funded travel.) Nor are there any known cases of an employer suing an employee for frequent flier awards earned on business travel.

As A.C. Michalos (1983) points out, it can be argued that the Law of Agency obliges employees to discharge their duties loyally and in the best interest of employers. Karen Hanson (1986), however, believes that in some respects loyalty to one's employer may be optional. And Raymond Pfeiffer (1992) argues that loyalty at the workplace can be elective. Thus an employee who uses free travel awards--earned through business travel--as a fringe benefit is justifiably exercising this optional elective to loyalty if there are no corporate policies forbidding it. Harold Shenton of Avmark, a worldwide aviation management service, maintains it is perfectly ethical for employees to use frequent flier benefits earned on company travel, as long as the company does not require employees to turn them in.

In fact, many firms specifically permit employees to keep the frequent flier benefits. Citicorp's travel policy reads, "Travel mileage credits accumulated by Citicorpers in the course of business travel belong to them." AT&T also allows its employees to keep the bonus awards earned on company travel. Kent Johnson, chief operating officer at Brazier Forest Industries, believes that allowing business travelers to keep their frequent flier awards is simply a fringe benefit to compensate for being away from home. Steve Hooper, chief financial officer at McCaw Communications, concurs, saying that encouraging employees to use company-earned frequent flier benefits is an integral part of McCaw's strategy of taking care of its employees.