Q: One of our agency's clients has accumulated several million frequent flyer miles and wants to sell them to us. That would enable us to sell tickets to other clients and keep the difference, which could be hundreds of dollars per ticket. We can do this if the seller shows the mileage as a gift to the buyer on the airline's website, which states that gifting is allowed. Is this buying and selling illegal? Does it violate the ARC Agent Reporting Agreement? If not, what could be wrong with the practice, and what trouble could we get into by engaging in it?
A: Buying and selling frequent flyer miles or tickets does not violate any criminal law, government regulation or ARC rule. However, if the airline discovers what you have done, it will lift your agency's plate and possibly sue you for the full fare.
The legal theory that the airlines have successfully used over the last 20 years is this: The airline owns the program, so it can set the rules. Those rules are a part of the contract between the airline and the frequent flyer, which the traveler breaches when he sells the miles.
The travel agency that facilitates the flyer's breach of contract is liable for inducing breach of contract and fraud because, when the reservation is made, there is an implied representation that the reservation is being made in conformity with the airline's rules.
For at least two decades, so-called coupon brokers and other middlemen have tried to defend against these suits under various legal theories, and they have tried to argue that the airline has suffered no real loss. They have all failed, and the most prominent of these middlemen are no longer in business.
Unless you have been in the travel business for a long time, you might not realize the extent to which all major airlines despise travel agencies that facilitate the sale of frequent flyer mileage. The airlines shoot first and ask questions later.
Among all the travel agency practices for which airlines lift agency plates (such as back-to-back and hidden-city ticketing, churning and double booking), selling of mileage is unique in that, as far as I know, selling miles stands out as the only practice for which airlines lift plates 100% of the time when they find out about it. With all the other practices, the airlines send warnings and/or debit memos, but they lift plates only some of the time.
In my experience, agencies have lost their plates not only for actually buying and selling miles but also for simply honoring coupons made out in the traveler's name, if the traveler obtained the coupon by buying mileage elsewhere. In some if not most of these cases, agencies had no idea that the traveler had paid for the coupon.
Also in my experience, no agency has ever gotten its plate back, even if it could prove that it did not know what was going on, and even if it offered to pay the airline for any alleged loss.
Facilitating frequent flyer program violations is viewed so despicably by the major carriers that it is probably a good idea to prohibit your agents from helping clients to make frequent flyer reservations, unless you know and trust the client.
Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email Pestronk at [email protected].