American Airlines introduced frequent flyer miles in 1981 in response to a problem caused by the deregulation of the airline industry. They were introduced as a way to ensure customer loyalty, but the scheme's creator could never have imagined the plethora of similar incentives that would be created over the next quarter of a century.

The introduction of air miles owes much to a store-based nationwide loyalty scheme; Green Shield Stamps. For it was fond memories of licking his mother's green shield stamps and sticking them into books to be redeemed at a later date that prompted AA Marketing Director Tom Plaskett to devise the frequent flyer scheme.

Plaskett was new in the job, having stepped into the shoes of Robert Crandall who had recently been promoted to company president. The two had taken up their new positions at a time when the airline industry had just been deregulated by the federal government, removing price barriers and forcing them to come up with a way of selling tickets other than using price as the key factor.

Crandall knew that the business would soon be in trouble if passengers opted only for cheapest flights and was frantically looking for ways to sell higher priced tickets yet maintain the airline's profit margin. In order to solve the problem he turned to Plaskett, who came up with the Frequent Flyer scheme.

It was a particularly shrewd marketing move to structure a reward scheme that awarded loyalty bonuses as miles, rather than as dollar rewards. That way, businesses were prevented from reclaiming the rewards from their employees. By designing the scheme to be aimed at business travelers AA ensured its success. Business travelers accounted for the majority of airline passengers in the early 80s and it was their company - not them - that bore the cost of buying a more expensive airline ticket.

And so it proved; business travelers soon took to booking with an airline that offered a legitimate kickback. By accumulating air miles business travelers could eventually end up with a free vacation, all paid for by the company.

Within weeks of American Airlines introducing frequent flyer miles, United Airlines and others followed suit. It wasn't long before companies outside the airline industry devised their own similar schemes. Soon, credit card companies started awarding reward points and the hotel reward scheme - collecting loyalty points in return for staying at one particular hotel chain - was also introduced.

The loyalty scheme became an established alternative to discounting, has been adopted by numerous industries and has engaged hundreds of millions of consumers throughout the world. Such schemes have evolved over the years and now many rewards schemes are even linked to another affinity marketing partner. For example, you can use a credit card that rewards spending with air miles or hotel points, and some even offer cash back.

It's doubtless that Tom Plaskett had any idea how far his Frequent Flyer miles concept would develop when he came up with his unique solution to ensure customer loyalty at American Airlines.

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