The United Airlines devaluation has been covered by a lot of others already, so I’ll cover just the basics and then give my thoughts on what this means. Note that this change is in earning miles only. They already butchered their award chart earlier this year.
Changes
Currently, you earn UA frequent flyer miles based on the distance you fly. If your flight was 2,000 miles round trip and you had no status, you’d earn 2,000 UA MileagePlus miles. Starting March 1, 2015, you’ll earn miles based on how much money you spent on the ticket, regardless of how far you fly. If your ticket costs $300 and you have no status, you’ll earn 1,500 miles. Premier 1K members would earn 5,500 miles for the same $300 ticket.
This is a bad thing, because let’s say that you flew LAX-JFK round trip for that $300 ticket. Today, someone with no status would earn 4,950 miles for that flight because that’s the round trip distance flown. Next year, they’d only earn 1,500 miles because they paid $300 for the ticket, and based on the image above they only get 5x the price in the number of miles. That’s 70% fewer miles earned in this example.
A Premier 1K member would earn 9,900 miles for that same ticket with their 100% bonus. Under the new program, however, they’ll only earn 5,500 miles. That’s 44% fewer miles earned. Note that all the above examples are for redeemable award miles and not Premier Qualifying Miles (PQMs) that are used to determine status.
What United is attempting to do is reward people they consider to be their “best” customers, basically the ones who spend the most money. If you buy a more expensive fare, you’ll earn more miles. They’re copying Delta almost word-for-word here, as Delta made these same exact changes earlier in the year. The difference is that Delta at least is a good airline (with a terrible frequent flyer program).
Traveling on Star Alliance partners, when the ticket is issued from anyone other than United, will still earn miles based on the distance flown.
For a more detailed breakdown, I recommend this post from One Mile at a Time.
My Thoughts
This is almost comical. United is literally copying the changes that Delta already announced, and not adding anything new. The difference is that Delta is widely considered to be a better airline, with the only (and significant) downside being their frequent flyer program. Now that United has basically matched Delta’s frequent flyer program, United might very well be the worst US airline there is now. Yup…United is winning the race to the bottom right now.
It’s clear to see what these airlines are trying to do. They want to award their “best” customers, and they define “best” as the ones who spend the most money on them. But there are so many examples in which you can claim this isn’t true. Plus, is it fair to say that a person who buys one ticket and spends $8K to fly only 10,000 miles is a “better customer” than one who spends only $4k but buys 10 tickets to fly 100K actual miles? I don’t think it is. The $8K spender isn’t picking the airline out of loyalty – they’re picking them because it’s most convenient for that one flight.
They’re rewarding people who spend more money on them, but to call this a “loyalty” program is a sham, because you don’t even need to be loyal anymore to earn more miles. They’re hurting their loyal customers with these changes.
What This Could Mean for Businesses that Reimburse Travel Expenses
I worked in consulting before I quit my job in April, and one of my job functions was to review expenses, including airfare, of traveling resources to make sure they weren’t paying too much. We had a general set of rules that said you had to purchase economy tickets for domestic travel, you had to purchase tickets 21 days in advance wherever possible, and you had to book with our preferred airline partners using our custom travel website, which was run by Orbitz. Everyone was responsible for booking their own travel from this travel website, and everyone got to keep their own frequent flyer miles. I know many other businesses and industries work similarly.
Given these new rules, I think it’s very possible, and quite likely, that business travelers will start to abuse the use of their corporate funds in order to earn more miles because of these new rules. They have less of a personal incentive to book 3+ weeks in advance, because the higher the fare, the more they benefit. And really, it’s no sweat off their backs either because all travel is fully reimbursed, usually by a client in the consulting industry.
I think United and Delta have actually given people an incentive to spend more of other people’s money for their own personal benefit, and businesses who reimburse travel expenses will probably see an increase in expenses starting next year until they figure out how to monitor them more closely.
American Airlines is the Last Domino
American Airlines (merging with US Airways) is now the last of the three major carriers to offer miles based on the distance flown. I try not to make too many predictions, but I think we’re kidding ourselves if we say AA won’t follow suit here. They won’t do it immediately, especially because they’re working on the merger and will be for another year or more, but I have to think they will soon after that process is completed.
For AA, it just makes good business sense. They can win all the disgruntled UA and Delta customers right now and say their loyalty program gives you more miles than any other and still has a reasonable award chart. Then, whenever the merger is done, they can switch to the revenue-based program that UA and Delta have. United’s old customers won’t go back to UA because, well, they’ll have realized how much better AA is compared to UA. And other customers won’t want to make the switch because there’s nothing to gain unless it’s more convenient based on where you live. AA will end up with more customers.
Manufactured Spending is More Valuable than Ever!
These changes make manufactured spending more valuable than it’s ever been. Yes, we always could earn more miles by manufacturing spend, but we’re now living in a world where I can earn more United miles by buying $400 in gift cards for a fee of $14 at Staples with a Chase Ink card (2,070 miles) than spending $400 on airfare and flying cross-country with United. That’s ridiculous!
It means that when these changes go into effect on March 1, 2015, people will have fewer miles than ever. That means award availability should increase, and manufactured spenders are the ones that will be ready to swoop in and benefit because they’ll have the miles to burn. It’s almost like airlines make more money by selling miles than having people book airfares with them!
Summary
- United has made changes that are terrible for everyone that flies UA except those who spend a lot of money on them.
- I can also see it being terrible for businesses that reimburse travel expenses because employees will be given a personal incentive to spend more money on travel.
- American Airlines will grab all the disgruntled UA and Delta customers, but probably (in my opinion) make the same switch once the merger is completed.
- The unlikely winners in all of this are actually manufactured spenders, because there will be fewer miles to go around and more award availability.
You’re NOT kidding around when you named your blog! This is a GREAT summary of what UA did today and YES, manufactured spending just looks much more valuable now.
Thanks!
Earning less miles = increased cost to fly4free. It may take people that fly coast to coast twice as many trips to earn 25,000 miles.
I agree 100%. A UA non-elite will now have to spend a whopping $5K to earn those 25K miles!
United and Delta have basically decided “why give away for free what we can sell?” BIS miles are basically a rebate tied by historical accident to an illogical metric – miles flown. Reducing the rebate is one way of increasing the cost of flying. Given the ease with which miles can be printed and sold (so much more profitable than actually flying anyone anywhere), the changes make good sense to me.
As a flyer I don’t like them – they will up the cost of attaining a given status level and I may or may not decide to continue to pursue status. From a redemption side (as you pointed out) this isn’t that big a deal. If redemptions went dollar based that would significant (understatement!) but there are at least some arguments against that happening.
I do think two of the arguments you make above are a bit weak. Yes, there is a principle/agent problem when people book reimburseable airfares and maybe some people will book higher fares – but that problem already exists. Right now, people may fly longer and more expensive than necessary routings to earn extra miles or segments. Some people will follow corporate rules, others will engage in a bit of self-dealing, but that is true no matter how the program is set up.
I also think your argument about the one expensive ticket vs. the 10 cheaper tickets is a bit of a straw argument. As the airline, I’d much rather have you flying 2 segments for $8000 than be on 20 of my flights for a mere $4000. Yes, you are right that PERHAPS the more frequent traveler is more loyal (he/she may also just find the flights much more convenient, just as the single flight individual did). But in any case, the loyalty aspect here is the airline wants the $8,000 flyer to have that 11X incentive to keep bringing his/her very lucrative business to United. He or she may not be interested, but United is waving that carrot under his nose.
I completely agree that right now people fly *longer* routes than necessary – I’ve seen that happen many times and engaged in that myself at work – but that never impacted my company or my client. As long as I got to where I needed to be on time, it was a non-issue. As for people that currently book more expensive flights than necessary, they do so in order to take a longer route. That cost may be marginally higher. But I think now people will be looking for that expensive fare just to spend more money and not to maximize their route, so their incentive is simply to *spend more* rather than fly more, because the latter could be accomplished at a lower cost. Still, I get your point.
With the $8K vs $4K argument, I agree the airline might rather have the $8K customer because it’s more revenue for the airline. But the $4K traveler might very well be buying seats that would otherwise go unsold, and could be considered a high-margin or profitable customer. Also, I think the one-time buyer of the $8K ticket is less interested in the miles earned than getting a nonstop flight or convenient time. In either case, “loyalty” is undermined in my opinion. Again, you have a valid point but I look at it from a different angle.
And of course I don’t agree with anything you said here – as you pointed out, just a difference in emphasis.
I suspect we (you, me, your readers) are profoundly unrepresentative of any airline’s customers. We get maximum value out of the existing system and will continue to get maximum value out of whatever system comes into place. We can roll with the punches – the people getting hurt by this are BIS passengers who have a peripheral awareness of their loyalty program and don’t have the tools or the knowledge to get good value out of their redemptions.
It is possible there will be one day be programs that can’t be gamed (or the incremental benefits from gaming it just won’t worth the time and real costs of amassing points) but that’s a way off (if ever). Right now my thinking is that anything that makes it harder for the 99% of the airline’s customers to redeem awards is probably a plus for us, the 1% in this ecosystem.
sorry, first line above is DISAGREE, not agree!