United Reveals Plan to Deny Premier Benefits on Entry Level Fares

I didn’t listen to United’s presentation at the JP Morgan Aviation and Transportation conference yesterday, but they’ve posted the presentation (.pdf) by CFO and Senior Vice President of Finance Gerry Laderman and Senior Vice President of Revenue Management Doug Leo. (HT: Demetrius)

Just as American will be introducing ‘Basic Economy’ fares – fares that exclude many of the benefits we’ve come to expect with a ticket, like an advance seat assignment — United will be as well.

It’s interesting to see the way they’re presenting their thinking.

They see (3) customer types and three benefit types, and it seems illogical to them that all three customers get the same ‘stuff’.

What they fail to recognize here is that there may be three types of fares in their conceptual model, but that doesn’t mean there are three types of customers.

Business travelers are leisure travelers. The person who buys a full fare ticket at the last minute for work also buys a weekend getaway with the family. They’re the same valuable customer. And you earn their loyalty based on how they’re treated every single time they walk into the airport and onto one of your planes. In fact, how you treat them when they’re with their family may be even more important. Abuse them during the week, but treat them right with a partner, with their kids, make their life easier and make them a hero and you’ve won them.

Going forward, if you buy the cheapest fares United wants you to have ‘segmented expectations’.

“Premier benefits” won’t apply to “entry level fares” although United hasn’t said which Premier benefits. One imagines they will follow Delta (and American) excluding complimentary upgrades or even perhaps all upgrades from their version of basic economy fares. We’ll have to wait and see which other Premier benefits may be excluded as well.

Bear in mind that for a US resident to earn elite status with United, they have to either spend a minimum of 12 cents per mile on their tickets — which means offsetting basic economy purchases with more expensive tickets, spending a minimum of $3000 for bottom-tier status and a minimum of $12,000 for 100,000 mile flyer status — or spending $25,000 on a United co-brand credit card (which doesn’t exempt members from the revenue requirement for 1K status). So these aren’t bottom-feeders who will be denied the benefits of their full year of travel loyalty.

This is all about the value of the individual trip, not the customer, which is anathema to the idea of a loyalty program.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

More articles by Gary Leff »

Pingbacks

Comments

  1. You are spot on that they are the same customers! Airlines don’t seem to understand the same loyal flyers that buy J class tickets and full fare last minute tickets also travel with their families. They really missing the ball on “loyalty” and I believe even making the high value customers free agents. I am.

  2. Air Canada beat them all to it years ago, removing elite tier inflight benefits from its low Tango fares. Reduced mileage accumulation, no free advance seat selection, no seating in E+ without paying (even at OLCI), no upgrading…welcome to the new world. But agree that not all “lowest fare” purchasers are alike, but it is another shot at clearing elite tiers of low-spending members. Just wonder what happens when several thousand $5K a year spenders decide it’s time to stop flying…that’s a hundred or two million no longer flowing to the three majors.

  3. @Gary,
    So this might sound a little out there, but I’m curious….are there any anti-trust actions/protections that can be invoked if it’s found that companies (in this case the big 3 airlines) are colluding with regards to how they run their FF programs? Obviously it’s nowhere near the same ballpark as price fixing (which they’ve been accused of in the past), but given how IDENTICAL each program is becoming, it’s hard not to notice. Just food for thought. Thanks.

  4. I think the legacies are going to realize that other than those purely or close to earning top-tier (DL Diamond, UA 1K, AA EP) on OPM (other people’s money) paid work travel, the rest of us business travelers will stop caring about the otherwise minor perks of mid-tier status and will just become complete free agents.

    As oil prices remain low for the foreseeable future, F9, NK, and others will have massive expansion opportunities. If F9 and NK improve operational reliability and improve frequency, AA/UA (maybe not DL) could be shrinking fast.

    UA is already taking a beating with the energy sector’s decline at IAH. If tech pops, expect SFO to suffer too.

  5. Great post as always. It’s funny because I had been sitting down and deciding whether or not it still made sense to go for United Silver this year, but their hostility to the customer may have finally hit a tipping point with this. United Specials will surely now be on the outs for this, and they are a key part of my travel.

    I used to be United Gold, and they could count on me for all business travel and all leisure travel, even when more expensive. Then they put in place the revenue minimums and I just missed, and since United remains one of the least comfortable airlines to fly, I gave up and adjusted my stuff to just hit Silver. And now, if there is no point in Silver, I will probably give up and find another airline except for pure price decisions.

  6. This DL PLT is now a free agent. Booked on WN rather than play the DL Basic game. DL lost $500 in fares, probably not going to hurt them, but if enough free agents change their purchasing, the LCC benefit and will maybe start their own lucrative frequent flyer programs.

  7. I am interested to see how this plays out with business travelers. We aren’t all small business owners, or last minute ticket buyers. Many companies have policies where you must purchase the cheapest direct ticket. Getting points and status for work travel has always been an unstated/un-taxed bonus for having to travel for work. Removing status benefits will make work travel tougher, and probably reduce performance for those on the road.

    I used to travel weekly, but now only travel once a month, and have a business that allows me to put through a large amount of credit card spend per year. It is crazy that airlines treat me better now that I use them less (since I have enough miles to book in first when I travel for fun), than they would treat me if I still flew weekly. They are forgetting what their core business is. The banks could change who their preferred credit card beneficiary is, and airlines will be left high and dry.

  8. Hi Gary – Your download is of the AA Presentation at the JPM Conference.
    Double check your download link…
    UA’s presentation has same file name but FINAL is all caps – AA is lowercase.
    Thanks – SC

  9. This is no different from how UA treats Global upgrades for 1K’s. The GUG cannot be used with the lowest International fares. On each trip the passenger must choose whether they want perks or want to be a bottom feeder. I have always felt that passengers who purchased the cheapest seats were buying the left over middle seats and had no right to be seated together with families or traveling companions, and that prime (window, aisle, etc) seats should be reserved for those who paid for those seats.

  10. One would assume they would still let you earn PQM/RDM on these “no frills” fares, I mean they changed their system so you earn based on price paid, not miles flown already, so they don’t need to reward you very much for said cheap fares… Or are they that retarded that they wont even incentivize you to fly them at all.

  11. It is “Game Over” for the big three carriers. They have destroyed the loyalty equation. A loyal business customer wants that appreciation shown when he or she travels with their family. Southwest is the only airline that has a great loyalty program, no change fees and a record of being fair to their customers. Good-bye Big three!

  12. Spot on commentary, Gary.

    1) As a business owner, travel expenses come right out of my bottom line. As the main traveler in my business, I have to balance my comfort and productivity with the costs of a ticket and the ancillary stuff — is x worth more to me than taking home more as profit? I live in CLT and currently AA has essentially decided I can’t go anywhere on them for lower than $500. Am I still going to be paying $500 but now not get a seat assignment or a shot at an upgrade? Or will there be a $350-400 round trip without these perks and the $500 now is the same as $500 later?

    2) Moreover, especially for people like me, this trend is going to turn loyalty on its head. I was CP on US for many years. I booked them when they were more expensive, I booked them when they were cheap, and I was always treated with the respect that being top tier ought to come with. They took care of me, they took care of my wife and family when I was traveling with them, and the whole relationship was about more than just the current transaction. But what’s the point now if being elite is a transactional affair? Why do I have to choose whether or not my elite benefits ought to apply on every single trip? If I have to make that sort of calculus, then I’m going to absolutely be a free agent and pick up the best logical travel value for me on every single trip–no more defaulting to AA and only if they’re super unreasonable looking elsewhere. Every trip turns into no more than a transaction and I’m simply going to find the least cost logical airfare for me on that particular trip, and everything else be damned.

  13. Furthermore, if I’m going to have to pay $400 out of CLT and not get a damned seat assignment or an upgrade, I might as well fly Southwest and get the companion pass. At least my wife would be free.

  14. I assume they will still let you earn miles both qualifying and redeemable, or do they not want loyalty among that segment of the market?

  15. I feel like they’re already denying benefits like even seat assignment at booking unless you fork over significant $$. I just booked an international ticket, and while it was about 2 weeks from flight, the booking tool says all complimentary seats are taken but the entire economy plus cabin was supposedly open. They wanted close to $200 per seat each way for that, putting the cost well in excess of $1k to London. I will be very curious to see how full regular coach is and if that’s the case when we check in.

    In January, flying back from Orlando, American split the two of us up, giving one a MCE seat and the other in the back, despite having the Aviator card and being on the same PNR. Yet I could buy the seat next to the MCE seat for $15 instead of waiting for check in. It’s become a total racket to force you to buy seats on top of the airfare. I miss the days of “all in”. This bifurcation of cabins/seats is really creating havoc for the general traveler, now it seems, as you note, they’re going after the loyal traveler. So it will continue to get worse.

    The airlines have the ultimate power unless there’s action by those who regulate them – and unfortunately the chances are slim/nil for that to happen I think. The airlines are trying to get congressional approval to only show fare w/o including taxes, and in my view would further entrench the piecemeal approach to airfare, all to the detriment of the consumer. At what point does the pain of the piecemeal fares get bad enough for travelers to revolt and more importantly, for it to matter and lead to changes?

  16. The only solution is pay a higher fare and get more benefits. If you want a cheap cheap Spirit type fare then expect to be treated like a Spirit or Allegiant customer. At least UA will have options for people willing to spend more money. The other cheap airlines don’t even give you the option of a better product. The worst part of this will be having to put up with the uber cheap people now flying on AA, UA and DL. It’s basically becoming like a flying Greyhound bus with some economy plus and first class seats.

  17. I operate my own business and whatever I spend on airfare pretty much comes out of my pocket. I do realize that for many reader of this site airfare is paid by corporate and does not affect their bottom line.
    I am often astounded by the audacity of the whining and complaints here. It is not simply that sometimes you travel with family; it is that you want to be treated royally when you travel on your dime in the lowest bucket. The airline knows damn well that you are only a sport when spending the firm’s money and will treat you accordingly. All we need is for all major airlines to get onboard and it is game over.

  18. I became a free agent when American trashed their program 2 years ago (the now infamous unannounced, overnight devaluation). I fly the best option from a value-price basis, and that’s turned into SWA 80% of the time. When I fly to Europe or Asia in paid Biz, it’s on an ME or European carrier (wow, what a difference in those products over AA, UA or DL).

    My quality of life/travel has improved dramatically.
    So much clarity in the decision process when loyalty isn’t a factor.

  19. I think that Southwest and Rapid Rewards looks more and more appealing with the legacies’ attempt to mimic ultra LCCs (I’m an AA Platinum, for the record). For starters, SW is often competitive, if not even, on price with other LCCs’ and DL basic economy fares, especially when the ticket is purchased in advance. For that fare on SW, however, the traveler avoids a lot of extra fees that an ultra LCC makes is money on – seat selection, boarding pass printing, bag fees (checked and carry-on), etc. You also have a ton of flexibility on SW – if you need to cancel your trip, you get the keep the funds for future use without having to pay a change fee, you can change your itinerary to a lower-priced fare without paying a change fee, and, with the anytime or business select fares (which I often fly on when on business), you can change your flight to another without hassle or fees. I even got a refund for changing my itinerary last week – what a concept! Last, if you live outside of a legacy hub, Southwest generally offers more direct flights to more destinations than legacies or ultra LCCs. All of this for an economy product which is at least on par with what every legacy or ultra LCC offers offered at a price point which is competitive with basic economy on legacies (well, Delta) and ultra LCCs.

    For Rapid Rewards, awarding points based upon fare class and fare paid makes a lot of sense because to me, the value proposition is a lot clearer – I can use my points on any flight, without regard for “award inventory” (unless the flight actually sells out) or blackout dates, and know more or less the value I’ll get out of the points (roughly 1.5-1.7 cents per point on the wanna get away fares, though I’ve done better as well). Because of the ease of use (and all of the flexibility perks mentioned above), I’ve gotten far more free flights out of Southwest than American, despite having flown and spent far more money with the latter.

    AA hasn’t introduced the basic economy product yet, but when they do, it will be very difficult for me to justify remaining loyal to them when an easy, flexible, price competitive alternative exists. I won’t have to worry about a differentiated product when I fly for work and for leisure, a key flaw in the legacies’ “segmentation” plan as you note. If I’m going to be flying economy anyway, why not enjoy flexibility, free bags, and, with A-list status, the ability to basically pick any seat I want regardless of the fare I pay?

  20. If people want the potential upgrades, or whatever other benefits, then they’ll pay a few $ more to up their fare class. That’s it. They know what they’re getting or not getting. I don’t see why you can’t grasp that there is a market for this fare type, i.e. no frills. I imagine that they’ve done their homework and concluded that there probably ARE 3 classes of customer type. All in all, that’s not a very difficult question to answer with some basic statistics.

  21. Kudos to this piece which does a better job explaining the value of elite benefits for family travel. As I noted yesterday, elites may not expect CPU upgrades (at least on UA) but certainly we would be annoyed if we lose elite perks like early boarding, E+ seats or even free checked bags. At that point WN and VX will become even more attractive alternatives, particularly as their lowest fares do not come with 100% cancellation penalty (in VX case you need the credit card).

  22. Gary, at the bottom of each piece you write, there are a few articles to click on under the aegis of “more from view from the wing”. Way, way too often, those pieces are many years ok and don’t apply to anything current. Why post articles about expired offers in such a prominent position? I enjoy your articles, but fund it disrespectful of your readers to continue doing this. Please take action, or I may decide to unsubscribe.
    Thank you

  23. I cancelled my Delta SkyMiles Amex card yesterday. ($195 annual fee – no thank you) My Barclays Aviator Red card is next to go. ($89 annual fee with no companion certificate – nope!) Delta Platinum – no more. I’m a confirmed free agent. I just buy the best value. If I want to sit up front and the price is right, I’m there. I’m a free market capitalist – loyalty works both ways. If I lived in a fortress hub, maybe I would sing a different tune but I have (a few ) choices so I try to make the best of it. Vote with your wallet.

  24. Some people have said that buying a first class ticket solves your problems, but my experience has been contrary to this. As a tall man, I grew weary of small seats, so I started buying only first class domestic seats on United. This works fine until a flight is late arriving and you miss your connection, then you will often find that all first class seats are already filled on the next flights. This would be completely understandable if the seats had been sold, but what happens in fact is that many of them were given as free upgrades to frequent fliers. Thus your paid first class ticket gets you a coach seat, while people ride in the front who didn’t even pay for first class. United thinks this is fine, and it considers it to be unthinkable to bump a first class upgrade to the back in order to allow a paid first class ticket holder to sit up front. It is a crazy and unfair system that United is working. United says it wants paid revenue up front if possible instead of giving the seats away, yet it routinely treats paid first class passengers in this way, making them ride coach. I have written to various corporate officials about this, and the most I have gotten in reply is a “sorry Charlie” form letter from some and no reply from others. The airline simply doesn’t care, so beware to anyone who might buy a first class seat. You may easily be boiling mad in a coach seat while staring at your “United First” ticket in your hand.

  25. I think what is lost in all of this by United, et al., is that the vast majority of ticket buyers really don’t have a clue as to what coach fare code they are buying (Q, B, N, S, G, O). They understand First Class, Business Class and Coach. So now on some flights you may be on deep discount steerage economy codes and others not so deep. All the customer knows is that they paid X dollars to get to Y destination in coach. So, when they board or try to pick a seat, they would be met with inconsistent treatment. Do they think that won’t cause problems? FA’s and ground staff are going to have their hands full.

  26. @jim l – “Do they think that won’t cause problems? FA’s and ground staff are going to have their hands full.”. HAHAHA! You think senior management cares about FAs and ground staff anymore than they do about bottom feeder economy travelers?

  27. Good to see the rest of the UA product finally matching their service. The worst of the “Big 3”, by far.

  28. @Gary – Isn’t this just another version of the “airline within an airline” debacle? e.g. Song. No separate branding this time around, which is going to create more confusion if OTA’s begin marketing these fares just like any other fare. It sounds to me like Delta wants to absorb Spirit, offer Spirit’s fares, but fly the same planes.

    It’s certainly possible, but there’s a real risk of the brand becoming confused; consumers are going to be hurt when they buy these fares and they’re going to blame Delta (AA, UA, whoever) for making travel worse. It will literally be just like flying Spirit, where on every trip *someone* loudly complains that Spirit is the worst airline and they’ll never fly them again. Except, now they’ll blame a major airline.

  29. Plans? Already doing it.

    There I was, cruising along, doing a bunch of US domestic bookings for the upcoming trip, first 2 through at normal fares went through for seat assignment in that silly Economy Plus they have ( Plus what? ). Go to the third booking LAX-MIA for $99 and voila, no Economy Plus ( Plus what? ) for you Mister….. don’t you dare think that just because you joined MP in 1990 and have remained loyal for all these years, we’re Yanks, and you will pay the consequences for having the audacity to buy a cheap airfare even though you’re Million Miler, Lifetime Gold, blah blah blah. The US airlines really have fallen into a state of disrepair, haven’t they. But more fool Americans for putting up with the crap these airlines dish out to you. So gullible.

  30. I think Delta (and therefore United) got something right with these bare-bones fares.

    Your average very frequent business flyer typically does not put up the family in a studio apartment, drive a $12,000 Nissan Versa and vacation in Super 8s. They pay up. Delta (and now United) realized this — if the business flyer wants to be a “hero” with the family, he or she should buy up to the “Average” fare, just like he bought up to a large apartment or house, bought up to a midsize or larger car, and bought up the Hilton for a vacation. If he buys the “no frills” airline fare, the he/she is the one to blame, just as he or she would be blamed by the family if they vacationed at a Super 8. And of course, since airlines in the U.S. are an oligopoly, he or she has nowhere else to go.

    Small business owners: it’s the same thing. They choose how much to pay for a rental car, how much to pay for a hotel, etc. Now they can choose how much to pay for airline travel — the more painful, the cheaper (just like with hotel rooms — the lumpier the bed and the thinner the insulation from the next room, the cheaper it is).

    Airlines are finally undoing the damage made by forcing “unbundling” on every single coach flyer (everyone is pitched a fee, and most end up paying one, so everyone is very pissed as shown in surveys). It won’t be long until baggage fees will be again bundled with “Average” fares, to the the relief of everyone who’s had enough of the carry-on overload. And maybe rebundle free food, since everyone eats.

    As far as corporate, nobody who truly travels a lot would be sane to sign an employment contract that says you need to always fly the cheapest fare. Just like they wouldn’t sign one that paid them $8 an hour or didn’t provide them with health insurance. It’s all negotiable, folks.

    @Sir Flys Alot — that’s exactly the rational response for you. Airlines may think it’s not a bad thing, as with cancelling those cards you’re now subject to all of their fees.

  31. UA is fine to sell their TODs and end CPUs for sub-GS Premiers…I’ll continue to pay lowest available fare domestically, but my paid int’l J fares each year will then continue to go to superior foreign carriers.

    Loyalty is a two way street.

  32. @Jack – While I am certain that many people work under an employment contract, the vast majority of corporate employees do not have a contract and cannot dictate the terms of their employment – like what their travel requirements may be. If I ever am able to negotiate an employment contract, I’ll be certain to remember to include my travel requirements….

  33. As a Million Mile lifetime Premier Gold, I have gotten used to being a free agent, as well as paying for first class on occasion. I can now buy “upgrades” on most airlines — line early boarding — at a relatively modest price so do not need to be loyal to get these services. I prefer the way it was, but am no longer bound by United’s schedule and routes. I fly nonstop on whatever airline offers it.

    My beef with United continues to be the unpleasantness and inconsistency of their flying experience. Can never count on power at seats, for example, though I have been on a few flights lately that are better.

    A minor pet peeve I have noticed since buying first class fares is that, on United, first class does not board first, but boards with Zone 1 (which can be huge). Not that it really matters as overhead bin space is available. But that preboarding feeling is something one expects from “first class,” and would cost them nothing to provide since first class could board with Global Services. AA does board first class first.

    As a Premier Gold, I still default to United for normal coach travel as it gives me Economy Plus (with potential of exit row) and Zone 2 boarding which, if I position myself at front of the line gets me overhead bin space. But if I am going to have to pay for these, then I will be completely liberated to buy the best itinerary from any airline. Like others, have noted, when I am paying for international business class I never buy an American carrier if foreign one is available. United never gets my money for its higher end tickets.

    In the end, the airlines must have concluded that brand loyalty is just not worth it to their bottom line. Perhaps they are right. We will see.

  34. So exactly what are these “frills”? that are already supposed to be in place?
    I’ve flown many airlines and had the same unpleasant seats, with the same type of neighbors 2x the size of their seat & needing part of my seat.

    Is it a plastic bag of heart disease (aka faux food) for people who are too stupid to not inhale ANYthing put in front of them.

    Is it to have the corners of your hard top suitcse cracked open?

    Sorry, but I have yet to see “frills” on a US air carrier that are a) actual frills, or b) worth paying $$$$$ for.

  35. What always amazes me is how silos in corporate organizations can result in such silliness as this.. Gary, you point out the flaw of huge organizations where senior management does not have a grasp on the overall company’s organizations and customers needs. They let each group set policies that do not align to an overall philosophy. It’s sad that it’s so prevalent. I’m wishing that some of the icons and founders of great companies were still alive and here now.

  36. I love the use of the phrase “a customers *willingness* to pay a higher fare”. For many it’s a matter of whether one has the *ability* to pay more. Not just people who are casual travelers and are on a tight budget. I work for a non-profit charity, and we are prohibited from buying higher fare. Yet, I travel 14-20 times a year. This year I have seen my mileage accrual and status progress take a huge hit. But as the writer rightly indicated, United only sees their own “three types of customers”, regardless of loyalty, total amount of miles traveled. I’m so fed up, but there are no options. All airlines are operating this way. A race to the bottom.

Leave a Reply

Your email address will not be published. Required fields are marked *