Chris McGinnis won the internet yesterday by featuring a graphic by Charles M. Kunz aka CMK10 showing what United has done to their frequent flyer program.
United’s decision to make its points-earning through flying a nearly carbon copy of Delta’s 2015 program was yesterday’s story that rocked the frequent flyer world.
Miles can do more than they ever did in the past. Alliance awards – using your miles on several partners on the same award itinerary – didn’t exist 15 years ago. With the price of air travel is way up, miles are getting us something that airlines are charging more and more for.
But we’re seeing a lot of change in how miles are earned and how awards are priced. Delta has been a real destroyer leader in this. United had already gutted its premium cabin international awards on airline partners.
Delta’s story is that they’re running a good airline, they have a good product, and they want to focus on their high value customers.
- The story breaks down a little bit in the details, of course. Delta rolled out a spending requirement for elite status that went into effect this year, and you have to spend an average of 10 cents per qualifying mile to earn the tier you’ve flown enough for. But to break even in mileage earning you have to spend twice as much as you do for status. And contrary to the idea that the biggest spenders do the best under their program, they’ve limited the number of miles you can earn on a ticket (no matter how expensive) to 75,000.
But Delta has a clear story. United does not.
- United is hurting too badly, they aren’t Delta and they don’t have Delta’s product. Delta is willing to lose customers over this. United has already lost a few million of theirs. I’m not sure they’re in a position to be losing more.
- There’s no narrative. United made big changes to its award chart in November and rolled out in February. Then in June they made changes to points earning.
They didn’t come out with any stories about what they’re trying to do, what other changes could be coming, or what customers should take away from it. The only story that seemed to be getting through is that they’re copying Delta. Right down to the points earned per dollar, and the 75,000 mile cap per ticket.
- United can’t even track ticket spend correctly for elite status but they’ve set a timetable for when systems that don’t work roll out to all 90 million members. In March. I think we’ve played this game before.
So what comes next?
American Airlines and US Airways are focused on their merger. AAdvantage and Dividend Miles will combine sometime in 2015, and flying in 2015 across those two airlines will determine the status on the New American in 2016.
With all their efforts focused on integration, customers get a breather. The airline based in Dallas gets to watch what happens with Delta, and with United, under their new programs and take the results into account when they decide whether to plot their own course going forward or follow the pack.
The distraction of merger paradoxically makes it a good time for many flyers to be members of AAdvantage.
There are a lot of loyalty programs in the world, though, and for the occasional flyer who isn’t going to make out well with these changes it’s a good time to diversify points – to earn points with credit cards not tied to their primary airline, and to explore some of the international airline partner programs that provide great value to members like:
- Korean Air SKYPASS (Skyteam)
- Avianca Lifemiles, Singapore Airlines Krisflyer, Aeroplan, and ANA Mileage Club (Star)
- Japan Airlines Mileage Bank and British Airways Executive Club (oneworld)
Times are good, planes are full. The economy is better than it was 5 years ago, better than it was 12 years ago. So airline programs, and hotel programs too, are less generous. They don’t need to bribe us to put butts in seats or heads in beds.
As soon as that turns, though, they’ll be back and generous again. Travel is a very cyclical business.
Update: In my original post I had misattributed the graphic at the top to Chris McGinnis. I saw it on his blog, and hadn’t realized he credited Charles M Kunz aka CMK10 for creating it. I’ve corrected the attribution.
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I don’t expect any realistic chance of the US legacy airline programs being anywhere close to as generous in the next several years as the programs have been the last 10-20 years or even in the last couple of years. Once a company is hooked to cutting customer benefits and the costs related to such — “rebate” reduction in this case — and is operating in a relatively oligopolistic market with just three big cartel kingpins running the main show, the game is substantially changed for consumers and the odds of consistently getting the same “rebate” ratio is severely and structurally undermined.
Don’t think it was Chris who put together the graphic. Note the caption: (Source: Charles M. Kunz, CMK10 on Flyertalk)
United is hurting too badly
Travel is indeed a very cyclical business. Fro leisure, it depends on discretionary income and the consumer’s perception that they can afford it. For business, it is typically one of the first victims when corporations retrench and perceive they must cut costs. And miles/points hounds have gone from one of the most fertile atmospheres ever to an average to dry one in a matter of perhaps 5 years.
But DL and UA have announced a sea change. And I do not believe that it is a result of relative consumer weakness just now. Rather, I posit that programs are buckling under the weight of non-flight miles, many of which are pegged to spending in some way, shape or form. DL and UA have merely acknowledge what has been true for some time – they do not operate frequent flyer programs at all. Even Justice Alito acknowledged in dicta (in whatever the case was involving the dude who was a burr under NW’s saddle) that in the future, FF programs might not be substantially related to the terms and conditions of carriage.
And the fact that well written, popular, blogs exist to publicize more and more ways of earning miles – mostly not based on actual flying – further confirms that while they may be “loyalty” or “affinity” programs, the notion of a “frequent flyer” program has rather much gone the way of Eric Cantor. And I do not think such is bad – but lets get real here – frequent flyer programs exist primarily for elite benefits, not points earning.
Gary, I do not know, but do you have information identifying whether methods of points earning preponderates in non-North American programs to the extent that it does in North American programs?
Yeah, Korean Airlines. Love, love, love. Saved saved saved miles with them. Still earning. Great airline.
Gosh, if things keep going this way, then I can see a situation in a few years where, if we need to fly somewhere, we just find the airline with the most direct route, best timing, and lowest price, and we pay for the amentities and level of service that we want. A shocking thought!
I kid, I kid…
@jfhscott – yes and no, no one has as many partners as united and american. no program is as big, either. Credit card earning isn’t as relatively significant in most of the world, but Australia has signup bonuses as big as ours. Avianca Lifemiles sells miles like there’s no tomorrow. And you can certainly earn and burn broadly across Europe and Southeast Asia. But of course programs do have fewer partners. Most programs add fuel surcharges to awards, and most have been awarding less than full miles on discount fares for years.
You’re right, UA does not seem to have a Mileage Plus strategy, and we know they’re not making money. So, copying DL’s 2015 program was pretty much a no-brainer and here’s why:
DL probably spent several months (if not years) modeling a revenue-based program. That means DL Finance staff and likely some outside consultancy (i.e. McKinsey, Accenture, PwC). Let’s say they spent in the lower millions ($1-10M) to determine that it would be a more profitable way to structure their FF program.
So, UA just has to put a few lower-level analysts on a short-term project to take the DL model, plug in some UA figures and see what the profit opportunity is. Very little investment on their end, and all gravy. Perhaps the smartest thing that CEO Smisek has done in an otherwise poorly-regarded tenure at UA.
Frequent flyer programs have very little to do with emotional loyalty and most to do with economic loyalty. I live in MSP, and am currently a DL Gold flyer, but I have little real love for DL – it’s just a matter of convenience. However, if I’m gonna fly, I want to fly nonstop and I may as well get my just rewards for typically paying a premium for those nonstop flights.
Hey Gary, I would like credit if you’re going to use my photo please. It’s properly cited on Chris’s page and I’d like my name on your page too.
Charles
“Chris McGinnis…[put] together a graphic”? Umm, did you completely miss the attribution beneath the image on the very page you linked to? It says:
“(Source: Charles M. Kunz, CMK10 on Flyertalk)”
I think credit should be given where credit is due.
I find these changes to the earn side of FF programs interesting, but only in the abstract. For non-business travelers, it’s pretty easy to insulate oneself from changes that make the earn-side more revenue based. Personally, almost none of my earning comes from flights. What terrifies me is changes the prospect of revenue-based changes to the redemption side. Of course, as Gary has noted before, such changes would destroy the “aspirational” value of miles and really damage the programs.
All of us need to be calling and writing UA and AA. AA needs to hear how unhappy we are with the Delta/UA changes to being revenue based, so that they can hopefully not follow down that path. UA needs to hear overwhelmingly from their customers (especially 1K and GS members) about how terrible this is. I don’t expect them to make a 180, but perhaps a huge backlash will at least prompt some minor improvements.
Gary,
As someone who is pursuing million mile status on United, I’d appreciate a post (or comment) about how United will tally lifetime miles. Will they still use actual miles flown or the new revenue-based points system?
Eh I suspect the winners here will be the Southwests, Virgin’s and JetBlue’s of the world. I know I plan to spend more on them, no reason now to give extra business to UA, beyond flights that are well priced or fit my schedule. I don’t think UA will come out ahead, throwing extra miles at high rev flyers will lead to diminishing returns. Those flyers are a function of the state of the economy and select routes based on convenience. One thing they will need to do is exercise capacity discipline more as they won’t fill empy seats with flyers willing to make a connection as easily as before.
How about properly attributing the graphic to CMK10 on FT who actually created it (and is receives credit on the very blog post that you link at the outset).
Thank you Gary.
It appears as if we are entering a new era where the savvy (which is likely a minority or market participants) will evaluate all of their earning options when flying. A really cheap GOV-Y fare should be used for partners, while an expensive F fare should accrue to DL or UA.
@Phillip – it seems for now that they aren’t likely to change, and especially since elite status remains mileage-based with a minimum spend reuqirement, that lifetime elite status will remain mileage based. Delta still does it that way, and United doesn’t seem to be in any mood to chart their own course. Plus they got tons of heat last time in revamping the million miler program..
I had not noticed the attribution on Chris McGinnis’ blog (I didn’t read the small type underneath the graphic, that’s my bad).
That’s been corrected. I thought the graphic was brilliant stuff, and am glad to be able to recognize the originator!
Thanks for the shout out, Gary! And to Charles Kunz for creating such a fetching image! 🙂 — chris
Not sure they need a story? Planes fly full, so what is the purpose in any airline loyalty program? Why not slowly back away from offering incentives for people to fly, where it’s more profitable to fly fewer people willing to pay more on average? Asking not telling. I’m not an economist nor do I play one on TV but I think that people will just have to adjust to flying less as prices rise to push out the bargain seekers. I just have questions not answers. But we may have enjoyed a unique moment in time that’s now passing.
@peachfront: With many frequent flyer programs effectively acting as independent profit centers for their airlines (because an increasing percentage of miles are sold, not credited for flying), I don’t see the FF programs being tapered off completely. I’d be interested to see some figures on what percentage of miles are issued to incentivize something other than travel (credit card spending, magazines, plonk wine, etc.).
I wonder if with programs being spun off from the airlines that birthed them, we may see competing PROGRAMS all able to receive credit from airlines in the future. I can see this causing competition between PROGRAMS.
United is always a leader
Always has and always will LOL!!!!!!
United Rising up to another Bankruptcy
I already avoided it now I avoid it at all costs
Signed a former 1k
American and other carriers would like to thank all those at United for their stupidity. And you know who you are 🙂