One way to read the move towards revenue-based mileage earnings, as announced by United and Delta, is as a move away from frequent flyer programs as having anything to do with rewarding flying.
It’s a move away from programs’ roots, rather than a return to them. MileagePlus and Skymiles are getting out of the airline business, even if they don’t admit it. Here’s why.
The mantra of the revenue-based frequent flyer person is ‘rewarding the right travelers’ but I’ve debunked this myth extensively.
- They aren’t ‘rewarding the right travelers’ at all. They are giving more points for high fares than for low fares. But that doesn’t mean they are getting any more business, or making any more money. Expensive tickets aren’t always more profitable tickets, and customers buying those tickets may do so independently of receiving miles at all (making the awarding of miles a marketing expense with zero upside).
- And they aren’t really even rewarding business travelers more than they did before. They’re just rewarding everyone less for flying.
We know they will be giving out fewer miles, because the break-even for mileage-earning is a ticket price of 20 cents per mile flown. But airline revenue per seat is far less than 20 cents per mile (even after adjusting for load factors).
And we know that the break-even price is set very high when revenue-based elite status requires 10 cents a mile in fares but just breaking even in mileage earning requires 20 cents a mile in fares. That’s what a business traveler has to average just to come out the same. That means many tickets will need to be much more expensive than that.
Leisure flyers lose, but many business travelers lose too.
This makes sense for an airline that’s full anyway, why incentivize more passengers when you have no seats left to sell? But airlines that aren’t full or that have to dump inventory cheap to fill their planes, it’s dangerous.
You can make the arguable case that Delta is in a place to cut back its marketing spend. I think it’s a much more dangerous position for United to take.
These changes go beyond United and Delta just not wanting to incentivize flying anymore through frequent flyer mile redemption programs, it also means that it’s only third party mileage sales that matter going forward.
The President of Avianca’s Lifemiles gave a presentation about 6 weeks ago where he explained miles earned from flying were cost centers and miles earned from sales to third parties were much more profitable. (See Wandering Aramean on this as well) United’s director of partnerships David Oppenheimer explained at the same conference that customers providing the airline with ancillary revenue, and earning miles through United’s partnerships, were in many ways more profitable than flyers for the airline. It doesn’t cost United much to redeem miles sold to third parties (on average), but miles for a ticket are an expensive proposition.
One way to understand revenue-based mileage earning, at least the way United and Delta have done it, is that miles are no longer about flying at all. An airline not looking to use its frequent flyer progam to put butts into airline seats will want a revenue-based program that cuts down on mileage awarded for flying.
These programs aren’t cutting down on credit card earning, or on earning through other partners (although Delta has in recent years cut down on bonus offers, including with partners, as they’ve planned their transition).
That makes credit card earning, and other third party partner transactions, relatively more valuable than flying in terms of earning miles.
The same $25,000 in credit card spend earns 25,000 miles (or more with category bonuses) than before. But it will take 2 or 3 times as much spending on tickets to earn the same amount of miles. That makes partner earning more important than it was before, compared to flying as a way to earn miles.
- You can join the 40,000+ people who see these deals and analysis every day — sign up to receive posts by email (just one e-mail per day) or subscribe to the RSS feed. It’s free. You can also follow me on Twitter for the latest deals. Don’t miss out!