Follow up on my post about the rumored Mileage Plus changes in 2012

I’ve gotten a ton of emails over this and have also seen a lot of discussion in other places, so figured I’d make a quick follow up post regarding my post of the rumored 2012 Mileage Plus changes.

First of all, let me say this once again — the first two words of the title of my post were “rumor” and “possible,” so I didn’t post the 2012 Bible of Mileage Plus. I was actually sent that information a couple of weeks ago. Based on United’s response, they indicated that they hope to announce the new Mileage Plus program by the end of next month. Something tells me that things will change over a two month period, so I can’t imagine the program will look exactly as I posted it (unless United is as bad as I was in college, where my rough draft was the same as my final paper, minus the spelling and grammar errors I intentionally put in the rough draft so I could show some level of improvement with the final draft).

Furthermore, they indicated that my post contained “some inaccurate information.” Of course it does, I posted only a small part of the information I was given. For example, I had posted that to qualify for status one needs to fly four segments on United. It should have said four segments on United, Continental, Copa, or Aerorepublica (who the heck are they?). My point is simply that my post contained some inaccurate or incomplete information in the interest of keeping things brief and looking at the big picture. Though they may very well have changed their minds on many things in the meantime, or never actually considered this proposal. Who knows. Regardless, cut them some slack, I’m sure this caught them by surprise.

Let me also answer a few other questions. First of all, there are a lot of questions regarding the revenue requirement, and specifically how United could track revenue. Trust me, they can. All I know is that revenue from United, Continental, and “select joint venture” partners would count towards the revenue requirement. I suspect they’re still trying to figure out what exactly that means as well. As far as booking a ticket with travel on multiple airlines goes, it’s actually quite easy for the airlines to break down the revenue to a per segment basis, so it’s something United could easily track if they wanted to.

The next point of frustration seems to be “how dare United do this on such short notice.” Keep in mind this is the 2012 program, meaning this would be what’s required to requalify in 2012 for 2013. I think that’s plenty of time, given that we’re talking about a huge merger. To many this would be no different than an award chart devaluation, in which case 3-4 months advance notice would be considered plenty.

A couple of additional points I figured I’d share, according to my source:

  • Economy Plus would be limited to passengers on the same PNR, except for Global Services members
  • When flying coach, Global Services members get a free meal, free drinks, free entertainment (headsets and DirectTv), and free Red Carpet Club premium drink. Diamond members would get the choice of two of those when flying coach, while Platinum members would get to choose one.
  • Global Services, Diamond, and Platinum members would get a Global Entry enrollment fee waiver

Regardless of where you stand on these changes, there’s one comment I always find funny — “I bet the airlines wish they would have never started frequent flyer programs.” Really? I’d be willing to bet the two biggest legacies would be out of business if it weren’t for exactly that. Honestly, US legacies nowadays are little more than credit card companies with a fleet of several hundred private jets they’re willing to charter any day of the week in exchange for cash or miles.

And what continues to crack me up about all this is how much easier it gets to earn miles through all means except flying. Back in the day (and no, I’m not too young to use that phrase) mileage running made sense because there weren’t that many ways to earn miles other than flying. A 25,000 mile credit card sign-up bonus was huge. Now some people won’t consider anything less than 100,000 miles.

Besides, who needs to fly to earn miles anymore? Delta will sell them to you for just over a penny a mile, while US Airways will sell them to you for under 1.5 cents per mile.

I think a lot of people are considering loyalty programs too narrowly. Should the airlines be rewarding high revenue flyers? Absolutely. But that customer that spends $20,000 on a full fare ticket to Australia today for a work trip may never fly United again, and may not even have chosen to fly United. It’s the same thing as paying for airport security as part of ticket taxes. For every segment I fly I pay a $2.50 9/11 security tax. I fly about 250 segments a year. Does the TSA reward me for my business? Yeah, I suppose they do with my weekly full body massage. But at the end of the day I’m not choosing to give them my business. To many people, US airlines are no different than the DMV or a colonoscopy.

Meanwhile there might be 1Ks that spend $5,000 a year to requalify. On the surface those might not seem like profitable customers. But that doesn’t consider the fact that they might use the United credit card for all their purchases. Or do their shopping through United’s online shopping mall. Or dine at Mileage Plus Dining restaurants. Or recommend United to their friends, families, and colleagues.

My point is simply that programs should be more than frequent flyer programs. They should be more than “profitable single transaction” programs. They should be holistic loyalty programs that consider a customer’s overall profitability to a company, be it direct or indirect. Somehow telling a customer “you flew 100,000 miles with us this year, but only spent $7,500” doesn’t give you that warm and fuzzy feeling you may have hoped for. Meanwhile that customer may have spent $200,000 that year on their Mileage Plus credit card, while someone else spent $500 more on tickets but doesn’t have a Mileage Plus credit card.

Of course it’s unrealistic for an airline to track each customer on a case-by-case basis. But the big thing they’re overlooking here is that spending $8,000 a year on United doesn’t make the customer any more profitable than without such a requirement. If I previously took twenty $250 trips per year, I would have spent $5,000. Let’s assume those are transcon trips and United wasn’t making any money on them. I was an “unprofitable” customer. Yet if the above program were put in place, if I fly double as many transcons I would clear the threshold. But guess what? I’m double as unprofitable.

Anyway, with that sermon out of the way, here’s what I’d much rather see airlines pursue, and I realize it’s ballsy, but to me it makes sense if they want to go the path of awarding status based on profitability. Just as they’re potentially considering increasing class of service bonuses for high fare classes, why not make low fare buckets earn fewer miles, be it 50% or 75%? I realize it’s something that would leave many unhappy, but to me it simplifies things. It doesn’t make it feel like the airline is saying to you “hey, give us 100,000 miles AND $8,000” or else you’re not a valuable customer. Ultimately I’d much rather see things stay the way they are, but if they wanted to go the path of awarding status based on profitability, that approach would leave most feeling a lot less like the cost of their ticket…

Anyway, just my two cents.

Comments

  1. Wow I feel weirdly lucky to be a Delta flier right now. Hell, I’d still earn 500 miles for LAN-DTW even if I wasn’t an elite. Of course redemption is a bitch, but never mind

  2. Great post…I guess we can say thanks to jet blue, southwest and virgin america for tying miles and revenue together. It was only a matter of time the legacies followed

  3. My thought is the same as yours about being a doubly unprofitable customer……

    $8k spend doesn’t INSURE profitability. It just insures revenue. If a customer is unprofitable, why would they want them to fly more?

  4. What about rewarding spend on United at 1 eqm per $, capped at say $50k. I understand they feel they are not rewarding their best customers, but I’m not sure they can actually get more “loyalty” out of those high margin customers. And they risk driving away the average road warriors who week in and week out shell out an extra $20 to $200 or however much to stay on United.

  5. If this is what’s required in 2012 to qualify for 2013, what’s requires to qualify in 2011 for 2012 (current United tiers, Continental tiers, or something else)?

  6. @ Adam — Current tiers published by both airlines are required to qualify this year for 2012 status.

  7. One point I’ll make regarding flyer profitablity. Historically, when loads were NOT 100% (or near it), the passenger flying a transcon and paying 250$ was not an unprofitable flyer per se, if they weren’t on that flight and an EXTRA empty seat was on the plane then the FLIGHT would be even MORE unprofitable.. Having that 250$ paying passenger brought the flight closer to profitability. Today, with loads near 100% on most flights, it then becomes a game of MAXIMIZING profitability per passenger and MORE revenue is better in that case. That so much capacity has been removed from the system it has had the effect of increasing demand and also increasing profitability.

    I still think a mileage AND money requirement is going to be difficult for the flyer to figure out and achieve. Sure, many will eclipse both thresholds easily on an annual basis, but the flyer who does 45K a year and by November has 3000$ in spend now must find a flight to get to 50K miels and 4000$ spend, do they buy a y-up transcon for 1000$? What if there company only allows discount coach? What if they have the time for ONE flight, First is 1800$, they only need 5K miles and Y is 450$?, what do they do? It will become very frustrating, very quickly for many legacy VERY LOYAL flyers.

  8. The problem is that it is difficult to run the counterfactual here. How do you know that airlines would not be more profitable without these silly FFPs? Do you think they like selling miles at less than a cent per? The reason they have to do so is competition, not necessarily because they want to. I’ve talked to airline executives before who have confided that they think the industry would be better if FFPs never existed.

  9. @ Scholar in Training — Are you saying that US Airways and Delta don’t want to run the mileage sales they’re having right now?

    Let’s keep in mind there are two aspects to frequent flyer programs. There’s the program as it relates to flying with elite tiers, upgrades, etc., and then there’s the program on a larger scale, which includes billion dollar deals with credit cards. I suspect they love the latter, while the former is necessary in order to be able to run these programs.

  10. @Lucky That’s basically what I’m saying, yeah. Imagine a world without FFPs and those sales don’t take place, you don’t have people sitting in premium cabins because they signed up for credit cards, don’t have to race to bottom in terms of miles incentives with respect to other carriers, and so forth. The airline execs I’ve spoken with also point out that the FFPs are expensive to run and maintain.

  11. @ Scholar in Training — Out of curiosity, what competitive pressures do you think US Airways is responding to by constantly selling miles so cheap? I’d be willing to bet anything they’re doing so because they make money on it. Miles go unredeemed. Those that do redeem them are for the most part doing so at a lower rate than what they paid for the miles. It’s a win-win.

  12. @Lucky – US Air sells miles cheaply because their competitors do as well – they’re trying to attract business away from carriers like DL, UA, etc. If their competitors didn’t sell miles cheaply then they wouldn’t have to. Both sides would be better off under that scenario.

    Imagine if all FFPs were eliminated tomorrow. What do you think the likely effects would be? I think airlines would make more money, not less.

  13. So basically…. you didn’t provide all of the details, but still think it’s a reliable source, but don’t imagine it will look exactly as you posted it, but don’t know if UA may or may not have decided on this “proposal”…

    Essentially you just stirred up a hornet’s nest of rampant speculation, for no reason? The buzz sure did get a lot of hits for your website though!

  14. Of course this all impacts non-US based elites a lot more. We have no credit cards we can use to earn status, and of course a lot of our ticket price is taxes, especially if you fly from the UK. For me, I’ll have to look at buying B fares from the UK or Asia where I can find decent deals or perhaps one or two D/Z tickets and a number of US domestic ones to keep 1K – or whatever they are calling it now.

  15. I miss Tilton. Maybe I should start wearing a t-shirt saying “Bring Tilton Back.”

  16. As far as I can tell, the airlines are not struggling to maintain profitability. It’s not like it’s “hard times require extreme measures”. They’re doing fine, so it’s disappointing that they might be considering seriously devaluing an excellent FF program.

  17. @ Antonio

    And really that’s my point. We see what airlines really think of FFPs when they’re in the position to do something about it. This consolidation gives UACO more power, less competition, etc. And how do they respond? By massively changing their FFP. Really this move tells us all we need to know about how airlines view these programs.

  18. Ben — I’m going to take issue with your assertion that they are giving us enough time to plan ahead for these changes.

    This is clearly not true. Assume that your announcement on 8/11/11 is the official announcement. The booking calendar is open to 330 days, meaning people may easily have trips booked through June 2012. That’s HALF the year! And now, suddenly, we’re told that tickets on various *A carriers aren’t going to help with our UA status next year.

    By the time UA gets off their asses and finally announces this thing on Sept 30, nearly 2/3 of 2012 will be open for booking!

    While 3-4 months might be fine for award chart changes, a major policy shift like this deserves 18 months of notice or more.

    Think of it like this — there might be some folks out there who actually WANT to play by these rules, but already have half their 2012 locked in. They’re now screwed. Ridiculous.

  19. @Lucky Does that imply the rewards systems from each airline remain intact in 2012? E.g. if I earn 50K United EQMs and 25K Continental EQMs this year do I qualify for CO Plat through 2012 and how are reward priorities across the two systems weighed/reconciled?

  20. @ Adam — That’s correct. For this year you can still earn miles as you usually would, and at the end of the years the totals will be combined. We’re waiting for an (official) announcement as to what happens after that.

  21. @Ben – >> why not make low fare buckets earn fewer miles, be it 50% or 75%?

    Air New Zealand operates in this manner today. From June 1st, the amount of Airpoint dollars earned is based on the fare class (http://www.airnewzealand.com/airpoints-dollars-earned-on-airnz-from-1-june). Since this change was made, I’ve stopped flying them and switched to United for my trips to Oz, though I miss the in-flight entertainment system on Air NZ. It didn’t make sense to spend $1,500 (avg lowest-priced economy ticket) to earn $30 in airport dollars. Just awful.

  22. Attention American Airlines: Do not follow United! As an EXP I’ve been considering moving over to United to have better access to more partners and generosity with award stopovers. I’m forgetting all those thoughts and staying loyal to you… As long as you don’t change on me like United’s changing on their peoples!

  23. Lucky, I think the airlines shoould reward premium tickets and high fare class passengers by rewrding them with more miles and more EQMs. For axample, a full fare intl F ticket could earn 300 percent EQMs, C 250, Z 200, Y and B = 150 percent. The rest of the economy fare claases should then earn 1 EQM. This rewards those whom have higher ticket expenditures while still providing incentive to all passengers to stay loyal to a program. The revenue requirement is plain cumbersome and stupid. The airline will derive enoguh money from those whom fly 100K BIS per year, as there are very few people whom will earn their status via cheap $350 transcons.

  24. I have an additional suggestion to all here: let’s send a mass writing campaign to the new United CEO Jeffrey Smisek. He needs to know that loyal and long time United flyers will not tolerate having this type of proposed frequent flyer program that devalues the program and insults its customers. We can go to DL, the dAArk side, or the better international carriers whom have a superior product compared to United.

    Let’s inform him that the program must remain the same as now, and United may add the benefit of rewarding premium tickets and higher fare customers with more EQMs, as I mentioned above. The email for Jeffrey Smisek is jeff.smisek@united.com

  25. Interesting thoughts on the different possible directions that frequent flier programs could go. But here’s something that the major miles bloggers usually don’t mention.

    People like you and I like the frequent flier system because we know how to use it to our benefit. We essentially piggy back off of the regular folks who don’t bother to invest any time or brainpower into their flying. Regular people all over the US are generally subsidizing our flying, our lounges, our credit card bonuses, etc. The whole frequent flier arrangement is essentially a transfer from the people who are uninformed or uninterested in miles/points, to people like you and me.

    Ultimately, it may be more efficient for frequent flier and loyalty programs to not exist whatsoever. This is because a loyalty program introduces a sort of ‘switching cost’ for the consumers.

    http://bit.ly/pGBXWG [Wiki]
    http://bit.ly/pjjVjC [A random paper that I Googled]

    It’s clear that the airline’s interest is to maintain these loyalty programs. You and I, if we’re being totally self-interested, will also support the scheme because we benefit from it. So I don’t think these loyalty programs will disappear anytime soon, even though that may be for the better overall.

  26. @Lucky and Latimer:

    Regarding matching miles awarded to fare class, Air Canada also does this. For within-Canada flights, the lowest fare “Tango” option offers only 25% status miles. You also used to be able to choose to save $3 per ticket to not earn any status miles at all, though this option doesn’t seem to be available anymore. Tango is only an option on domestic flights, likely because this is where AC is competing more heavily with Westjet (and on some routes, Porter). All fares on flights that leave the country earn 100% status miles.

  27. I’m curious how Million Milers will be thought of. If categorized as the same as a future “Gold” vs. “Platinum”, the efforts we made to be loyal will have been seriously diluted.

  28. When Hilton HHonors devalued their program a couple years back, Priority Club made an offer to put many points in their accounts for those whom sent in their HHonors statements. If the new United Mileage Plus described by lucky comes to fruition, how many people would jump ship to the dAArk side if American made an offer to match the miles in their Mileage Plus accounts and match their status to American AAdvantge as well? AA must be salivating at poaching away UA’s elite flyers. Be careful what you do United, you may end up losing the golden goose by alienating and angering your elite flyers!

  29. I do think attaching different percentages to fare classes make sense, but obviously I hope they don’t go that route.

    Also, just curious why they feel the need to change from 1K to Diamond

  30. This is an unusual scheme in that it would require indicating on united.com exactly what your qualifying spend is with UA at any given time so that you know how to meet the requirements for the following status year. That’s markedly different from what other airlines with EQP or accrual-restricted fare buckets do.

    I would argue that it’s rather discouraging to all but the most high-revenue flyers to see in, say, April 2012 that you’ve earned 25,000 EQM with United but only spent $1,800. The first thing to come to mind upon pulling up your homepage is, well, is it worth it to spend another $6,200 (at least) to get to 1K status? It’s much more pleasing to think of requalifying in terms of all the places that you’ll go (represented by miles) rather than how much money you have to draw out of your bank account. It will dilute the draw of these loyalty programmes and comparatively make the flexibility that Southwest offers more appealing.

    It also feels like a total money grab; even as an American, I have to say that I can’t think of any other country’s airlines overtly viewing their customers in such crassly transactional terms. The EQPs and the fare buckets are a more delicate, if less transparent, way of letting you know that you’re not the most valued customer.

    Moreover, the perceived value dilution is all the more striking if you know that some flyers who are ultra-high revenue are actually penalized by the current system, and would be much more likely to reach top tier status under the new one. Essentially virtually all future complimentary upgrades will go to high-revenue business travelers who travel >20,000 miles a year on very expensive tickets — consultants, lawyers, salespeople, etc. backed by big corporate accounts. Will this really generate more revenue for United? It might make them more loyal, but they’re already pretty loyal as it is. Under the current system, if you’re flying JFK-SFO or JFK-LAX for example, you’re probably buying that PS service flight anyway — I don’t exactly see the benefit for United to give business travelers more than they’re actually getting. If this is the way United is trending, I’d also emphasize that it’s likely they’ll increase the 1K level to 125k EQM or even higher — it would be too easy for, let’s say, an Los Angeles or New York lawyer who flies to Shanghai twice a month to reach 100k EQM.

    This is actually a reflection of a current trend in American society: upper-middle class professionals pay 50% tax in CA and NY (federal+state+city) on income above $200k, but corporations like Google and Goldman Sachs pay 0-3% based on their current tax structure. It’s rather offensive for UA to expect that leisure travelers should match dollar for dollar the spend that these these cash-rich and undertaxed corporations can mobilize at a moment’s notice.

    Really, count me out ; if all US-based airlines eventually make such a change, I’ll have no reason to stay captive to an American frequent flyer program.

  31. There is another big point here with a revenue based scheme that United is rumored to consider. Why would any sane high yielding passenger give their money to United? LH Miles & More, SQ Silver Kris, and many other programs highly reward their high yield flyers. United’s product is non competitive with the likes of SQ, VS, LH, LX, CX, and SQ to name a few. So imagine how this plays out. Happy New Year United flyers here is the devaluing and destruction of the new United and its Mileage Plus program. Now how would you respond if you are a long time loyal customer? Elite travelers have choices, and they can certainly explore them in this bad economy. I am sure a competitor like American or maybe even Delta would be thrilled to take away elite customers from United. It is much better to keep your existing customers happy rather than loose them and have to seek new customers.

  32. @chitownflyer

    Excellent point. I don’t do as much high-yield flying as some, but I value a program that rewards my high-yield spending by providing me consistent overall benefits, even when I’m not flying a high-revenue fare. Under the rumored system, I see those benefits declining on UA, which would make me rethink my choices. Why route my C travel to UA if when I take my Y trips UA reduces my benefits substantially?

  33. Given UA new attitude and plus who knows what is next I have decided to focus on other carriers and more foreign airlines for my travel. I would easily make elite with the new system but now its clear they cannot be trusted to keep playing with the system that I feel comfortable with and so the safest bet to to push my expensed travel to other sources. Who wants to deal with miles in a carrier that seems to be following Delta?

  34. If the UA loyalty program is so crappy, why should I stay with them? The service is terrible. It’s better to choose any Asian carry than to choose UA.

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