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25 J. Consumer Pol'y 1 (2002)

handle is hein.journals/jrncpy25 and id is 1 raw text is: Catherine Liston-Heyes

Pie in the Sky? Real Versus Perceived
Values of Air Miles
ABSTRACT. Over 20 million people in the Britain and the US collect air miles - many
significantly distorting their consumption patterns to increase the rate of accumulation.
You can now earn and spend air miles without ever stepping foot on an airplane,
and air miles from the more popular scheme have begun to take on the status of a
pseudo-currency. The importance has attracted the widespread attention of gov-
ernments (worried about how they should most appropriately be incorporated into
the tax base) and financial regulators (worried about how the associated liabilities
should be dealt with under accounting and financial reporting legislation). To both
groups a key hurdle has been knowing how to value an air mile. The paper outlines
the characteristics of air miles that make them peculiarly well suited to use as a
shadow currency. The perceived value of air miles in a panel of UK consumers is
assessed (using the contingent valuation method) and compared to the actual value.
The former is shown to be substantially larger than the latter - consumers systemat-
ically over-estimate the purchasing power of air miles. These findings explain why
air mile programmes are, and are likely to continue to be, popular promotional tools
with businesses but are potentially harmful to consumers.
Consumers around the world are collecting air miles. Until five years
ago they could only be used to pay for flights and class upgrades
with a given air carrier. Now, they can be used to purchase flight
tickets with competing carriers and to acquire an increasingly wide
range of other goods from furniture to flowers. Moreover, collectors
no longer have to fly to earn them. There are 120 different air-miles
schemes, each of which is endorsed by hundreds of participating
retailers. Air miles no longer have much to do with flying and the
desire to accumulate them is distorting consumption patterns.
Consumers can earn air miles through their banks, utilities, super-
markets, hardware stores, and credit cards and this is affecting their
purchasing decisions.
Collectors are accumulating air miles at a faster rate than they are
redeeming them. As a result, there are currently over 3 trillion unused
Journal of Consumer Policy 25: 1-26, 2002.
I   2002 Kluwer Academic Publishers. Printed in the Netherlands.

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