Peter Greenberg TODAY Travel Editor • Profile • E-mail

The programs are now more than 26 years old, and chances are you’re a member of at least one of them. Some of you are members of multiple programs. And the numbers, to say the least, are absolutely staggering. Welcome to the addicting, confusing and frustrating world of the airline frequent-flier programs.

You’ve worked hard to earn your miles — either by flying or using a credit card — and chances are just as good that you’ve had difficulty in redeeming those hard-earned miles.

Consider this:

As of the end of last year, there were 17 TRILLION unredeemed frequent-flier miles, and the number grows by the millions every day. Some have argued that the real value of these miles is over $480 billion. It’s a 16-year inventory that airlines know they can’t — or won’t — redeem.

And, as more and more fliers discover, earning the miles is easy; you can earn miles from thousands of mileage partners by using affinity credit cards, dining out, buying flowers, refinancing your house ... everything short of breathing.

In fact, last year, more than 307,000 frequent fliers earned at least one million miles in their individual accounts.

Redeeming them, however, is another matter. A number of airlines changed eligibility restrictions and expiration dates of miles. They not only upped the ante for the base number of miles needed to redeem an award, in 2007, because of some of the rule changes, 39 BILLION miles actually expired from accounts.

It is probably the most profitable, yet misunderstood, aspect of the airline business. One could argue the question of what’s the point of a loyalty program that doesn’t reward you for your loyalty?

But it does reward the airlines ... BIG TIME.

In fact, the frequent-flier programs are often the single most profitable division of the airlines, making more money than the core operation of the airline operations themselves! How is this possible?

Airlines make hundreds and hundreds of millions of dollars selling mileage to thousands of those mileage partners. For the airlines, that averages out to about 1.7 cents per mile in revenue.

But the airlines also control redemption, which most keep at about 11 percent. What does this mean? The airlines know at the very moment they sell those miles they have no intention of redeeming about 89 percent of them! This is a bigger return on investment than just about any legitimate business you can imagine. It is, from the airlines’ point of view, a brilliant scheme.

And since there is no government regulation of these programs, the airlines can — and do — change the rules at will; they are not required to reveal how many award seats are available on any flight (if at all), and therein lies the big payoff for the airlines.

How big is their payoff from the mileage programs? The numbers vary, but at American Airlines program, considered the largest frequent-flier program in the world with 46 million members, the program itself carries an estimated valuation of more than $6 billion. This is actually more than the total capitalization of the airline ($5.5 billion)! There are even shareholder movements at a number of airlines to spin off the frequent-flier programs as separate business entities.

The annual revenue to American from its frequent-flier program: $1 billion, and almost all of that is pure profit. And while the airlines have to carry the unredeemed miles in their programs as liabilities on their books, the reality is that most of this liability is artificial, since the airlines control redemption without regulation or rules.

For consumers, even though we are addicted to these programs, it’s becoming tough, and in some cases impossible, to redeem the miles.

Why? Airlines are shrinking capacity. That’s one reason why you’re stuck in a center seat next to two sumo wrestlers. And this is when you are flying on a paid ticket. Since no airline wants to displace paying passengers, you can now understand why, in a world of shrinking capacity, fewer flights and higher fares, it’s so hard to cash in your miles.

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