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What is the right way to repudiate frequent-flyer debt?
According to The Economist, frequent flyer miles are now the world's dominant currency, with outstanding balances at $700bn; some sort of devaluation seems inevitable. But what is the best way to do it?
Airlines could simply repudiate the debt, but this seems unnecessary. The alternatives are devaluation or restricted convertibility. British Airways seem to have decided on the latter: they are making it nearly impossible for me to book frequent-flyer tickets, rectify their errors or coordinate with my wife's bookings. But this is a puzzle - a simple devaluation would go unnoticed, but the current shenanigans are hugely irritating.
Explanations:
1) They have devalued already and I didn't notice, but they still had too much debt outstanding.
2) The frequent flyer contract makes devaluation illegal but obstructiveness legal.
3) Never attribute to conspiracy that which is adequately explained by incompetence.
Posted by Tim Harford on July 26, 2005 at 05:10 PM in Economics | Permalink
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