Think-Dash: United Just Destroyed Its Frequent Flyer Program as a Way of Rewarding Travel on United

United announced today that they are moving to revenue-based frequent flyer earning next year.

They say this is part of making their program better. More faux changes you’re gonna like.

Here’s how many miles you will earn for flying United flights and crediting miles to United’s frequent flyer program starting March 1 of next year — based on the cost of your ticket.

It’s not actually that simple, of course, since

Actual mileage posting will be determined by the actual ticket price, purchased ticket routing, fare class, Premier status, residency and ticket issue date. For tickets purchased in a currency other than US dollars, we will convert the purchase to US dollars and then calculate the number of miles you will earn.

Got that?

United already devalued their award chart. This change is earning only, the redemption side has already been gutted. So here they’re making changes to earning by flying.

Should You Care? What Does This Mean to You?

The only people who should care are those who fly United and earn elite status.

Here are the key things to know, if you are not a United elite frequent flyer:

This doesn’t affect credit card earning. All of the United miles I need I will get through partners, like transfers from Chase Ultimate Rewards or through hotel stays with Rocketmiles.
This doesn’t affect the occasional United flyer who pays attention to their miles. Just credit miles earned from flying United to partner airlines.
This doesn’t change anything for flights on partners when the partner issues the ticket. Buy a partner airline ticket and fly that partner airline, credit the flight to United and you’ll still earn miles based on distance flown.

For United elites flying mostly international, this shouldn’t matter a whole lot

Premier status will still be earned based on miles flown (just as it still will be at Delta)
You can earn miles flying on partners, so fly the limited number of United flights required to earn status and do the rest of your flying on partners. Buy your tickets on partners and mileage-eanring doesn’t change.
If your address is outside the United states, then United spend (partner tickets don’t count) won’t apply to you. If you’re in the United states, $25,000 spend on the United Visa still exempts you from the spending requirement for elite status up to Platinum (75,000 mile status).

United elites living in the U.S. and flying domestically need to understand that they will earn fewer miles unless their average airfare is 20 cents a mile. (Like at Delta, short haul high fare flyers will benefit, paid international premium cabin flyers will also benefit somewhat.) That’s double the fare level required to earn elite status under the new revenue-based requirements for recognition. For many of you, it’s time to dump United as an airline.

You may think, where do I go? American has said they won’t be making major changes until they complete integration with US Airways. Switch to American (or Alaska, which has considered a revenue-based program) and tell them why you are doing it. If American can make money under the current model they won’t have a reason to switch. And integration with US Airways gives them a reason to wait and see.

Why is United Doing This?

United CEO wanted the MileagePlus program to become more revenue-based. And so it is.

The usual arguments in the industry for revenue-based programs is “Delta is doing it and Delta is really profitable.” There’s tremendous Delta-envy. Although Delta has been profitable and has not had a revenue-based frequent flyer program. Revenue-based at Delta doesn’t start until next year. And Delta knows well that while they have been running the best airline, going down the list of things and how they rank against other carriers, they are at the top of US airlines in almost every category but would concede (and have conceded to me) not in Skymiles. Still, ‘Delta see United do.’

(Just like Delta, United is even capping the number of miles you can earn per ticket to 75,000 — so not really rewarding the highest spend; members can game this on expensive tickets by buying one-ways instead of roundtrip, but still perverse.)

Delta introduced revenue-based elite qualification. Then United followed.

Delta then went to revenue-based mileage-earning for flights and then announced a new five-tier award chart both to begin in 2015.

Delta’s program means less mileage will be earned from travel. And in some sense, that makes flying less important in the program. Meanwhile, United’s earning structure — nearly identical to Delta’s — will mean fewer miles from travel too.

Delta didn’t go all the way — scared off by how it would hurt them with their most valuable customers.

For an airline losing $600 million last quarter, this is management by ‘doing what Delta does’. Even though United knows darned well the downside risks.

Revenue-based earning does not unequivocably reward the right people. Rewarding based on spend is often misguided, what you want to do is incentivize more spend not give people more who spend a lot.

A flyer may buy one expensive ticket with you because you are the only airline who flies non-stop on the route. Does it make sense to reward them? You’re essentially just lighting money on fire if they’re going to pick your airline anyway.
The same hold holds for business travelers who are part of managed travel programs, if they aren’t choosing their airline then what are you rewarding?
A high fare passenger may trade off with another high fare passenger (for instance they both buy the last seat available on a flight). That high fare customer wouldn’t actually be profitable in an economic sense (opportunity cost basis).
On the other hand a low fare passenger may fill empty seats and be pure profit — or they may ultimately displace a high fare passenger and be very costly if the airline didn’t get their revenue management right.
Low fare customers may also engage with an airline’s ancillary products. Base airfare isn’t the only contribution to revenue that matters, and other products are often higher margin than the actual airline seat.
Meanwhile third party partner customers are profitable too. A member who carries an airline’s credit card and uses it, credits points for their non-air travel to the program, and uses their shopping portal may be a profitable customer.
And ultimately the program needs to try to influence incremental business. You may reward a high spend customer but not get additional business from them than you would otherwise have gotten. But you might be able to move the needle with some of your other customer segments.

What Other Changes Were Announced?

Revenue-based mileage earning wasn’t the entirety of the announcement. They’ve also let you know that they’re providing more ways to waste your (harder to earn) miles.

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