The United Airlines devaluation has been covered by a lot of others already, so I’ll cover just the basics and then give my thoughts on what this means. Note that this change is in earning miles only. They already butchered their award chart earlier this year.
Currently, you earn UA frequent flyer miles based on the distance you fly. If your flight was 2,000 miles round trip and you had no status, you’d earn 2,000 UA MileagePlus miles. Starting March 1, 2015, you’ll earn miles based on how much money you spent on the ticket, regardless of how far you fly. If your ticket costs $300 and you have no status, you’ll earn 1,500 miles. Premier 1K members would earn 5,500 miles for the same $300 ticket.
This is a bad thing, because let’s say that you flew LAX-JFK round trip for that $300 ticket. Today, someone with no status would earn 4,950 miles for that flight because that’s the round trip distance flown. Next year, they’d only earn 1,500 miles because they paid $300 for the ticket, and based on the image above they only get 5x the price in the number of miles. That’s 70% fewer miles earned in this example.
A Premier 1K member would earn 9,900 miles for that same ticket with their 100% bonus. Under the new program, however, they’ll only earn 5,500 miles. That’s 44% fewer miles earned. Note that all the above examples are for redeemable award miles and not Premier Qualifying Miles (PQMs) that are used to determine status.
What United is attempting to do is reward people they consider to be their “best” customers, basically the ones who spend the most money. If you buy a more expensive fare, you’ll earn more miles. They’re copying Delta almost word-for-word here, as Delta made these same exact changes earlier in the year. The difference is that Delta at least is a good airline (with a terrible frequent flyer program).
Traveling on Star Alliance partners, when the ticket is issued from anyone other than United, will still earn miles based on the distance flown.
For a more detailed breakdown, I recommend this post from One Mile at a Time.
This is almost comical. United is literally copying the changes that Delta already announced, and not adding anything new. The difference is that Delta is widely considered to be a better airline, with the only (and significant) downside being their frequent flyer program. Now that United has basically matched Delta’s frequent flyer program, United might very well be the worst US airline there is now. Yup…United is winning the race to the bottom right now.
It’s clear to see what these airlines are trying to do. They want to award their “best” customers, and they define “best” as the ones who spend the most money on them. But there are so many examples in which you can claim this isn’t true. Plus, is it fair to say that a person who buys one ticket and spends $8K to fly only 10,000 miles is a “better customer” than one who spends only $4k but buys 10 tickets to fly 100K actual miles? I don’t think it is. The $8K spender isn’t picking the airline out of loyalty – they’re picking them because it’s most convenient for that one flight.
They’re rewarding people who spend more money on them, but to call this a “loyalty” program is a sham, because you don’t even need to be loyal anymore to earn more miles. They’re hurting their loyal customers with these changes.
What This Could Mean for Businesses that Reimburse Travel Expenses
I worked in consulting before I quit my job in April, and one of my job functions was to review expenses, including airfare, of traveling resources to make sure they weren’t paying too much. We had a general set of rules that said you had to purchase economy tickets for domestic travel, you had to purchase tickets 21 days in advance wherever possible, and you had to book with our preferred airline partners using our custom travel website, which was run by Orbitz. Everyone was responsible for booking their own travel from this travel website, and everyone got to keep their own frequent flyer miles. I know many other businesses and industries work similarly.
Given these new rules, I think it’s very possible, and quite likely, that business travelers will start to abuse the use of their corporate funds in order to earn more miles because of these new rules. They have less of a personal incentive to book 3+ weeks in advance, because the higher the fare, the more they benefit. And really, it’s no sweat off their backs either because all travel is fully reimbursed, usually by a client in the consulting industry.
I think United and Delta have actually given people an incentive to spend more of other people’s money for their own personal benefit, and businesses who reimburse travel expenses will probably see an increase in expenses starting next year until they figure out how to monitor them more closely.
American Airlines is the Last Domino
American Airlines (merging with US Airways) is now the last of the three major carriers to offer miles based on the distance flown. I try not to make too many predictions, but I think we’re kidding ourselves if we say AA won’t follow suit here. They won’t do it immediately, especially because they’re working on the merger and will be for another year or more, but I have to think they will soon after that process is completed.
For AA, it just makes good business sense. They can win all the disgruntled UA and Delta customers right now and say their loyalty program gives you more miles than any other and still has a reasonable award chart. Then, whenever the merger is done, they can switch to the revenue-based program that UA and Delta have. United’s old customers won’t go back to UA because, well, they’ll have realized how much better AA is compared to UA. And other customers won’t want to make the switch because there’s nothing to gain unless it’s more convenient based on where you live. AA will end up with more customers.
Manufactured Spending is More Valuable than Ever!
These changes make manufactured spending more valuable than it’s ever been. Yes, we always could earn more miles by manufacturing spend, but we’re now living in a world where I can earn more United miles by buying $400 in gift cards for a fee of $14 at Staples with a Chase Ink card (2,070 miles) than spending $400 on airfare and flying cross-country with United. That’s ridiculous!
It means that when these changes go into effect on March 1, 2015, people will have fewer miles than ever. That means award availability should increase, and manufactured spenders are the ones that will be ready to swoop in and benefit because they’ll have the miles to burn. It’s almost like airlines make more money by selling miles than having people book airfares with them!
- United has made changes that are terrible for everyone that flies UA except those who spend a lot of money on them.
- I can also see it being terrible for businesses that reimburse travel expenses because employees will be given a personal incentive to spend more money on travel.
- American Airlines will grab all the disgruntled UA and Delta customers, but probably (in my opinion) make the same switch once the merger is completed.
- The unlikely winners in all of this are actually manufactured spenders, because there will be fewer miles to go around and more award availability.