Airlines Try to Balance the Number of Elite Flyers With Airline Capacity
Back in November I explained how frequent flyer programs manage their elite levels. “Too many elites” is a problem when a program can’t deliver benefits.
On the other hand, when elite ranks shrink (usually during bad economic times although also when an airline is going through problems like bankruptcy or a strike) airlines want to goose those numbers — such as with double elite qualifying promotions.
In recent times airlines have seen, overall, the problem of too many elites rather than too few. That’s because the economy has been good enough to support increasing air travel, while airlines have maintained capacity discipline — more people flying a whole lot more without a corresponding increase in available seats.
This could change with an economic downturn, or with airlines becoming more aggressively competitive now that fuel prices have fallen.
United Isn’t Balancing Its Elite Pool and Marketing Spend, It’s Aping Delta
With more elites and without more seats, upgrade percentages suffer. At the same time, airlines spend money on elites — such as giving out bonus miles — that they may not need to in order to fill planes.
It did not strike me strange that United followed. Years ago before the Continental merger United seemed to follow American. Now they manage by doing what Delta does. Plus, for all their problems, they were likely seeing some of the same phenomenon.
What struck me odd is that they chose the exact same criteria. If they were managing their elite pool relative to capacity it doesn’t surprise me that they would adjust the criteria to earn status to give them a pool that made sense for their marketing spend and to be able to consistently deliver benefits. But with:
- Different route networks
- Different corporate contracts
- Different load factors
- Different fleets
And on and on, I would have expected the exact numbers needed to get to a similar proportional elite pool to differ. It seemed like United wasn’t analyzing the data, the were analyzing the Delta.
So after a year of revenue-based status requirements, Delta raised their revenue requirement for elite status by 20% and then United followed in doing the same thing one month later.
United Believes It Has the Same Problem as Delta, It’s Just Tackling It Wrong
Delta declared, when raising the spend requirement for status, that when everyone is an elite flyer, no one is. To a certain extent they aren’t wrong, although they are focusing only on benefits where members compete with other members are ignore completely that it’s as much about reducing marketing spend the airline deems unnecessary. Fair to do, of course, although one wishes Delta was more honest.
But without the operation that Delta has, you’d expect that the same stringent criteria for status would mean that United would thin their elite ranks too much. And indeed United finds itself selectively waiving minimum spend requirements for status and offering 22 month corporate status matches up to 1K which bolsters their elite ranks.
What About American?
American may not need to spend as much to market to elites, American still gives 100% bonus miles to mid-tier elites which is a gain for US Airways Golds and Platinums and is more generous than United and Delta. I would expect some mean reversion there for 2016.
American certainly has the ability to track spending, likely better than United does, at least their data migration in late 2013 should have given them the capability. It’s not clear to me that they have the easy ability to do that on a backward looking basis for US Airways.
I’d expect that American will integrate US Airways Dividend Miles into the AAdvantage program in the coming couple of months. Then they’ll be positioned to start tracking spend across all members in the program. With a combined program they’ll learn just how many elites they’ll wind up with in the merged carrier (with a combined route network it could be even more than the two carriers had separately) and they’ll learn what requirements will be necessary to manage that pool.
I don’t believe American would just pick the same criteria as Delta if they were well-positioned to restrict their elite pools, they’d look at the data to determine what criteria gave them the right-size population at each elite tier. They may not have the data yet to answer this question, though eventually they certainly will.