My thoughts on the rumored United Airlines Mileage Plus changes

Ben over at One Mile at a Time gave many of us quite a shock last night when he posted details of the Mileage Plus program rumored to begin in 2012. Here’s a summary of what he learned:

As for upgrade priority, the all mighty fare value on each segment will be the primary metric among the elite ranks as far as who gets the seat. Additionally, mileage upgrades with a co-pay will take priority over elites using Systemwide Upgrades or Regional Upgrades.

Back in June I postulated that the time would be near where airlines here in the United States would attempt to changeup the method by which they grant elite status. It’s no secret to them just how many of us reap the benefits of top-tier status at such an insignificant spend each year, but I would have guessed the changes would be restricted to making the low fare buckets accrue a fraction of total elite qualifying miles or segments. The program as outlined above takes the game to a new level, and while it will definitely be a huge impact to bottom feeders like myself, I (shudder) absolutely agree with the revenue contribution portion.

Seth over at The Wandering Aramean couldn’t paint a clearer picture with respect to the rationality of this probable change. The cost to United to break even on a flown seat is about 17 cents per mile. To put it in perspective, that equates to a $297 one-way fare from Los Angeles to Chicago. I can honestly say that with a few isolated exceptions, I have never been a profitable customer with United Airlines. In fact, I’m taking them for a free ride ten times over in First Class.

Gary from View From the Wing perfectly explains the portion of the change I absolutely disagree with. Namely, the upgrade priority for any given flight will fall exclusively with the elite passenger holding the highest fare. The new cry would become “Don’t tase me, bro!” “I am not my fare!” I don’t think an airline should penalize their highest elites in cases where, for example, they’re taking their entire family on vacation and purchased a discounted fare in advance. True road warriors who purchase the highest fares on business trips should not be penalized in instances they buy a cheaper ticket. There is no “loyalty” in this scenario. United, please don’t do this.

As far as the reduced bonus mileage, well… again, I tend to agree with it and in fact; it WAS that way years ago. Just glancing over my lifetime mileage summary I see in cases where I was a 50,000-miler, I received only a 50% bonus. We’ve been spoiled with 100% bonuses as mid-tier elites, so United seems to be the carrier to first give this reduction a shot.

Finally, let me say that I don’t think this will take effect for the 2012 program year, but rather will be published as the requirement to achieve elite status in 2013 and beyond. Next year is the transition year and I’d put money down that United will give us the tools (revenue tracking) beginning January 1 to track our progress. Otherwise, they had better damn well take down the “progress tracker” at the top of everyone’s My Mileage Plus page today. Don’t get me wrong, I as a mileage runner would hate this program, but as a realistic businessperson I agree with the revenue requirements. What say you?

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  1. I think that the expectation that upgrades will be solely processed by fare within the entire elite pool is off. Look at the current CO process and expect more like that.

    And there is no way it will take effect for current qualifications for the 2012 program year.

  2. The revenue question makes sense but it will be very difficult to measure and apply fairly. For example, a non-elite checking a couple of bags makes good money for UA. Should that revenue count? What about an international first class flyer with segments on UA’s partner airlines (eg EWR-LHR-JNB). How much counts? What about a flight ticketed by Air Canada and operated by UA? Will the fares be what I actually pay or will they be what UA receives after taxes – this will require a lot of explaining to people who think they’ve spend >$8000? What about fares bought in foreign currencies? I could go on.

    Also, surely what UA is getting at is profitability, rather than revenue. A 17c per mile 200 mile segment on a regional jet will probably not be profitable, whereas it will be very profitable on a 5000 mile segment on a full 777. Someone who gets to 1k through lots of cheap fares and one deeply discounted business class fare in off season may well not be a profitable customer.

    I absolutely understand the rationale, but I suspect that its implementation will throw up all sorts of unfair anomalies. I think it might have been better to do what so many airlines do and give status miles dependant on fare class eg 0% on S class, 50% on W class, 100% on B class, 150% on Y class etc.

    • Good points, NB. I’d have to assume they’d leave ancillary revenue off, as it’s not part of the fare (is that fair? YMMV). I think, too, the revenue would have to be flown on United metal… will be interesting to see how they handle partner flights. That 17 cents was an average, but I see your point.

  3. I understand the revenue part as well as the segments. I feel more segments should be required for higher elite status. I even get the mileage bonus and think it makes sense, even though I personally don’t like it.
    I don’t get achieving 1k based on $20k spent. That could be just 1 ticket!
    I also don’t get the reduction in baggage for Silver.

    • I’m glad to get some feedback agreeing with the revenue portion. If we all step back, it just makes sense to reward those who more significantly contribute to the bottom line. Yes, I guess a $20k purchase for one ticket is the “easy” way to get Diamond, but perhaps that’s some rationale behind requiring 4 segments.

  4. You HAVE been a profitable customer for United. Comparing your revenue with average cost makes no sense. Your seat would have flown empty and the loyalty program brought you over, they took in your revenue rather than zero and made themselves much better off.

    Don’t confuse average and marginal analysis.

    It makes no sense to reward a high spending passenger who has no choice but to fly United. The smart mileage program that is boosting profitability affects consumer behavior at the margin. Rewarding high spenders doesn’t help profitability. Attracting dollars that wouldn’t otherwise have been attracted, without significant marginal cost (ie filling an empty airline seat) helps profitability.

    United sold you those low fares PRECISELY because they believed it was better to sell them to you than to have the seats go out empty or be filled for less money.

    Saying you weren’t profitable to United is effectively saying that United would have been better off if you weren’t flying. Not true at all.

    • Probably a good thing I don’t work in revenue management anymore for United, then. 🙂

      I understand your point and agree with it in theory given the incremental revenue I bring to United does reduce a potential bottom line loss. That’s why yield management systems allow people like me to fly on cheapo fares, as you note. I absolutely still maintain, though, that I’m not a “profitable” flyer for United, but will agree I contribute revenue to ensure losses aren’t greater.

      I guess then, I’m one of their most loyal loss-reduction agents.

  5. With 85% average load factors (that are 95+% on flights preferred by frequent flyers), the “empty seat” argument is not as compelling as many believe.

  6. I agree with the revenue but I also don’t agree with completely shaking up the MP program, which they always say is so award winning.

    There are ways to reward revenue and loyalty.

    For example, they can stick with the upgrade priority based on fare code and status–while upgrading all Y/B fares first. I wouldn’t jump for joy, but I don’t see that as necessarily an outrageous change.

    They can increase the amount of EQM required to achieve status, and maybe go forward with their plans to reduce the benefits that go with the status (upgrade window, etc). Fine.

    But I just don’t see how it will be beneficial to them to alienate those who enjoyed that “award winning” program.

    Obviously I have a vested/selfish interest in allowing for my MRs to give me top tier status, but I think UAL can award both revenue and loyalty

    • If frequent flyer programs didn’t exist then I’d be all for having the highest fare on any given flight given preference for the upgrade seat. As airlines want to cultivate loyalty and attract repeat business by bestowing extra benefits for continued patronage, they shouldn’t screw you over in instances you weren’t the highest fare on a particular flight. I’ll agree they had better be careful about the award winning statement in the future.

  7. I think that the experiment will fail. This whole revenue based elite status thought process is going to make corporate travel managers totally cringe. A lot of businesses people are going to be gaming the system to maximize spend. This will cause some businesses to start looking at things like 10-12 hour minimum flight times for C tickets. (My fortune 5 company already makes everyone go to the back of the bus unless you are a full VP or above on any length of flight)

    A few six sigma projects later and presto, UA/CO starts bleeding corporate contracts or companies start enforcing lowest fare rules. When the new Y only policy was implemented 8 years ago by my company, overseas travel declined 43% in one year. It seems that if you have to travel in the back of the bus, you don’t seem to have to go overseas as much.

    The minute those corporate travel managers see this there is going to be a revolt

    • Interesting re: the potential of “lowest fare rules” when it comes to corporate travel. Do companies currently allow changable/refundable fare purchases in coach if a cheaper more restrictive ticket is available? Thanks for the comment.

  8. My fortune 5 company policy makes everyone take lowest fare bucket even for the people who get to fly in C/J. If you cancel you take the credit and change fee. This works out by far much cheaper than buying full Y fares. The domestic full fare coach ticket runs something like $700 to $1000. Average fare on low fare bucket, perhaps $350. You can pay for a whole lot of change fees. This is an easy lean/six sigma project. I have a feeling most companies would see big cost savings. Its all about behavior. If people know that your ticket is non-refundable/changable with a fee, they don’t change them as much.

    • Thanks for the comments… have to agree that the change fees (maybe once per ticket) would equate to a lower total cost than less restrictive fares.

  9. Required UA segments? I hardly ever fly non-UA metal.

    Revenue requirement? At first I was appalled, but when I checked my 2010 and 2011 flying, I easily met the platinum standard last year, and will meet the diamond status this year.

    The downside is how they are further devaluing benefits across the board. Silver under the new rules is a joke. The mileage bonus reduction is the one thing that is going to get me looking at the competition. Making Diamond/1K will mean little when you can’t use the SWU’s you get.

    Just more evidence that this merger might be good for the airline but lousy for its customers.

    • The more I look at the revenue requirement, the more I actually think it’s incredibly reasonable and not at all unachievable for many, many people. The downgrade in bennies at the lower levels does suck, and I’ll definitely have to consider what to do for 2013. I’m anxiously awaiting the details for the million miler program. THAT will impact who I fly next year.

  10. Looking back at my flying, in 2009 I got 50,054 EQMs for all of $1100. Last year I spent just short of $4K for Premier Exec, so while I initially was shocked about the revenue requirements, it won’t really hit me. The main problem is the benefits. They are (possibly) totally gutting to benefits to the point where it is no longer worth it to be a mid level elite on UA and I will go to the dAArk side.

  11. I agree with Brian, that under new rules Silver is a joke and without double miles at gold, there is little incentive to try and make mid-tier like I have in the past. Time for me to look for a new airline.

    • Yes, Silver is pretty ridiculous under the current elite level structure, but is the proposed plan really that appalling under this likely new program? I’ll agree this structure is horrendous under our current system, but the Silver here makes “sense” from a business perspective.

  12. if UA/CO goes with this plan, they are going to lose a lot of customers to Asian/European partners. The UA segments thing really game the system for short hops and middle range (750-1000 miles/segment) domestic F fliers…

    the new systems doesn’t reward people who goes transoceanic since their Asian competitors gave much better benefits. I found it difficult to enforce the 1 bag deal since flights from Asia almost always allow 2 bags @ 50 lbs. (otherwise their Asian load factor would plummet.)

    I totally understood the revenue component…but this is overkill in changing the whole program…I rather enact 50% or 0% mileage for deeper discounted tickets and less EQM/EQS bonuses for non-full fare C/F tickets..

    I think it is time to reconsider Delta, Asiana, or Singapore Air again…

  13. DL has tackled the status versus fare issue on upgrades pretty eloquently I think. They offer preferred priority on Y and B fares (and ranked within that group by your status), then all lower fare categories are grouped into a bunch (and elites are ranked by status within that group). So, a lowly silver on a y would outrank a platinum on an k fare. This has felt like a reasonable solution to this dilemma.

    Now, however, overlay that there may be a spend requirement to reach elite status. In which case, the elite has already reached a spending requirement – but they now have to face ranking by the fare they’re paying on a given flight? That strikes me as the wrong solution on two fronts (under this rumored regime):
    1-the pax at the higher status is overall spending more on the carrier
    2-high status pax value the higher certainty of upgrading. Adding a whole new dimension to the upgrade rankings really devalues the upgrade certainty proposition.

    Personally, I wish the loyalty programs were ranked purely by spend. I suspect many of the carriers wish AA had set it up that way some 30 years ago!

    The only other carrier that I’m aware of with a spend-based status is sq. I don’t recall all the details, but they have a side-car sort of program based on spend which when I looked at it a few years back seemed pretty interesting.

  14. I don’t see the logic in the spend requirement. The purpose of frequent flyer programs is to encourage loyalty and incremental revenue.

    The only incremental revenue I can see this program encouraging is from the business traveler who is just short of a threshold. However I can see United loosing the loyalty of more price sensitive frequent flyers or those who self fund their travels.

    Finally it seems there are a lot of individuals who are equating spend with profitability. This is really an apples vs. oranges comparison. Yes, United has an overall CASM number that you can compare your spending and seat-miles to and see if you are above or below the value.

    But that comparison does not equal profitability.

    You are a profitable customer for United as long as the marginal revenue united gains from selling that seat is greater than the marginal cost of putting you on that plane.

    Basically, you are only an “unprofitable” customer if it would have been better for United to send that seat out empty than to put you in it with a low fare.

    Otherwise, why would United ever sell a seat for less than CASM?

    The answer is it just wouldn’t be profitable!

    • I agree my incremental revenue helps the bottom line, but my fare doesn’t contribute to profitability on a one-off basis. So… I’m agreeing with you & Gary & others with regard to the big picture that my spend does indeed benefit the airline on a seat that would perhaps had gone out empty.

  15. As a GS member of MP I definitely think it’s about time to reward the high revenue people with more RDM’s considering the $$ they bring in. UA has been giving these things away in the last 2-3 years with all the promotions they have had. It seems like a rational business approach to reward those who provide the most $$…Of course YMMV as usual…

    • Couldn’t agree more, and I’m jealous of your status. Having had some time now to digest what will likely become the 2013 program, I see myself making the spend requirement for Diamond. I’m hopelessly addicted and want that top (mileage) status. GS will remain always out of reach unless major things change in my life.

  16. Many United flyers will tell you that UA is a lousy airline but MP is a great program. It is the only reason I fly UA.
    Messing with the bait too much means the fish are off the hook.

    This stinks of an MBA project that will ultimately skunk their business.

  17. As a 1k who only travels domestically and mainly the western half, I know I spend more in last minute one-way fares and change fares than many mileage 1k’s. But yet, I have to crawl to 120 this year. Thanks UA it’s been awesome, I still need you to get to small towns on UA express, but who cares thers nowhere to be upgraded to on a Brasilia. Direct flights to the Northwest on Alaska isn’t so bad Jeff, thanks for the loyalty Chief, “2012 the year of defection”

    • I have to agree the segment 1Ks, like yourself, have been punished with the new 120 level. Alaska gets high rankings in customer service and the (former) Horizon staff is superb.

  18. My wife and I are the classic vacation travel “silver”. We plan our travel (in some cases taking trips we add to our agenda) so as to attain 25K miles and ‘premier’ status. We do that because United usually goes where we want to go and we value the economy plus seating. In some ways United as snared us in a marketing trap because the need to get 25K miles means we hardly ever use our miles for travel.

    I understand giving higher fare passengers first crack at the upgrades, but taking economy plus away from ‘silver’ means that United will no longer be my airline of choice. Southwest goes to most of our domestic destinations. British Airways is actually more convenient for our most frequent European destinations.

    So, after we burn off the 800,000 or so miles we’ve accumulated it will be “so long United” unless United has a clear advantage in cost or schedule.

    • I completely understand why you and likely many other Premiers will fly other airlines next year. The removal of E+ until check-in is a big slap in the face. Burn those miles on Business or First Class trips for the best value/mile!

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