United’s Changes Are Bad for Everyone, and That’s Not News

I’m not the first to break the news about the most recent devaluation (of many) for United Airlines’ MileagePlus, nor am I the first to remark that United is simply copying Delta’s changes to its own Sky Miles program. My feelings are on par with Wandering Aramean’s, who believes it was simply a matter of time.

Amol previously wrote a good post on the changes to Delta’s loyalty program. But since I used to be a United customer before leaving them for American Airlines and Alaska Airlines, I’ve invested a little more in criticizing this change than simply providing a copy-and-paste treatment. And one benefit of being on vacation and delaying my response is it gave me more time to reflect before sitting down to write.

Consequences of a Revenue-Based Program

Earning award miles with MileagePlus will be based on the cost of your ticket, not the distance flown. This change takes effect on March 1, 2015 (so you can still earn some distance-based miles during the 2015 program year), and is very similar to the changes that Delta recently introduced to its Sky Miles program. In fact uses the same multipliers for each elite tier. Worth noting: United’s Premier 1K tier is a bit easier to earn than Delta’s Diamond Medallion tier, so you’ll be getting 11 miles per dollar that much sooner.

  • General Member: 5 miles per dollar
  • Premier Silver: 7 miles per dollar (40% bonus)
  • Premier Gold: 8 miles per dollar (60% bonus)
  • Premier Platinum: 9 miles per dollar (80% bonus)
  • Premier 1K: 11 miles per dollar (120% bonus)

Depending on your perspective, these award rates might actually look attractive. The current program awards Premier Silver members only a 25% bonus, and Premier 1K members get a 100% bonus. Now those customers get bonuses of 40% or 120% over general members, so either general members are being penalized or elites are being better rewarded.

I’m inclined to say both are being punished.

A general member who flew a couple times a year might at least get, say, 12,500 miles (enough for a free one-way domestic award) after two round-trip transcons purchased for $250 each with plenty of advance notice. Now, that $500 in ticket purchases will earn only 2,500 miles. Infrequent customers — especially leisure customers who buy tickets in advance and are price-sensitive — are hugely penalized under the new rules.

An elite member is also penalized, but in two different ways. First, the marginal bonus between elite tiers has diminished. A Premier Gold member who earned 50% bonus miles currently earns 100% more bonus miles than a Premier Silver with a 25% bonus. Now that differential has dropped to 50% more. Premier 1K members currently earn 4X more in bonus miles than Premier Silver but will soon earn only 3X more.

The second way elite members have been penalized is that this is a subtle way to increase even further the amount customers spend to keep pace with historical benefits. When I started in this game I could wait for cheap fares for visiting family and taking vacation, throw in a few mileage runs, and get Premier 1K status for about $6,000 per year. I even got ridiculed by those who said I was spending too much. But now PQDs require roughly $12,000 in spend. (Although the official number is $10,000, this excludes mandatory government taxes and fees.)

United new fare multiplier

Consider that as a Premier 1K, flying 100,000 miles to earn 100,000 EQMs meant I also earned 200,000 award miles with a 100% bonus. In order to earn those same 200,000 award miles I now need to spend over $18,000. The minimum cost of Premier 1K status — to get everything, including the elite benefits as well as the award miles earned — first doubled and will soon triple. And there’s no foreign address or MileagePlus credit card PQD waiver to save you this time.

What’s Not Changing

Earlier last year, United announced it was revising how members earn elite status. It now considers both Elite Qualifying Miles (the old way) as well as Elite Qualifying Dollars (the new addition). While EQMs suggest, in theory, that elite status is based on distance, the EQD component reminds United’s customers that their value to the company is only as great as their pocketbooks. This aspect of the program is not changing as a result of the recent announcement. All that was announced this week were changes to how redeemable award miles are earned, not the miles that count toward elite status.

In another announcement last year, United said it would begin charging many more miles for award flights on its partner carriers, such as Lufthansa, Thai, and Singapore. (In fact, United no longer lets you search for Singapore’s award space on its website, requiring that you call in or search elsewhere. It still charges the phone booking fee despite the inability to book online.) Again, the most recent announcement this week does not say anything about further changes to the redemption side of the equation. We might see those changes in the future, perhaps even a five-tier award chart like Delta plans, but for the time being we only know that new miles are going to be harder to earn for most customers. I would not be too worried about redeeming existing miles.

Other Considerations

There will be no fare class multiplier. Currently more expensive fares earn an extra 25-150% more miles on top of the 100% award miles all fares earn based on the distance flown. Now that award miles are based on price, and because more expensive prices are baked into higher fare classes, there’s no need to add an additional multiplier.

United award miles multiplier

There will be a maximum cap of 75,000 award miles per ticket. Ironically, this penalizes United’s most frequent customers. If you are a Premier 1K flying on full-fare business or first class tickets, anything above ~$6,800 will be a wasted opportunity given the 11X multiplier. This will also have the greatest effect on international Global First, for which tickets can easily cost over $10,000 round-trip. This was less of a problem for Delta, which doesn’t have an international first class cabin, but it could spell the beginning of the end for three-cabin service on United if these rules prevent it from rewarding those customers willing to pay more.

There will still be an opportunity to earn miles based on distance flown at the cost of elite status. Currently only tickets for flights operated by United or issued on United ticket stock (starting with 016…) are eligible to earn the Premier Qualifying Dollars now needed for elite status, although you can earn Premier Qualifying Miles without 016 ticket stock. Under the new system for award miles, flights on partner carriers not issued on 016 ticket stock — meaning they don’t earn PQDs — will earn award miles based on distance flown and fare class as under the current system.

My Reaction

As I said at the beginning, I’m not surprised to see these changes. United is playing catch up with Delta, either because it thinks Delta is truly leading a new model for airline loyalty programs or because its management is flailing and doesn’t know what else to do to please investors as they continue to lose money. (United couldn’t very well copy Alaska, which is even more rewarding to customers, or American, which recently escaped bankruptcy.)

Some have said that United is wrongly penalizing its customers when it should be penalizing the manufactured spenders who get their miles from banks and redeem them for free travel. I agree. But what’s done is done. Now that United has taken this approach, I recommend that you double down on manufactured spend for travel on United. If you have to buy tickets on United for work or other reasons, you might want to look at crediting those miles to another Star Alliance carrier.

United tried to throw in some goodies with this announcement by saying it will create ways to redeem miles for checked baggage fees, Economy Plus upgrades, and more. Another way to interpret this is that they have reduced the number of free checked bags and restricted access to Economy Plus for elite members in past announcements, made it harder to earn that elite status, and are now providing a way to get those lost benefits by redeeming your hard earned award miles — of which you’ll soon have even fewer. It almost looks good on paper until you consider it in historical context.

Impending Doom at American and Alaska?

I don’t have anything against revenue-based loyalty programs. They are one of the most conservative ways for a company to track and reward the value that customers bring to the business. They may not be the best way — for example, there’s nothing obviously wrong with allowing a customer to book a longer but cheaper routing on flights that otherwise would have had empty seats — but I will concede that it’s easier to hand out benefits when you have a consistent measure of the revenue delivered by those customers.

My preference, of course, is for those programs that still allow me to exploit their system by earning miles more cheaply than I redeem them. I can respect United’s decision from a business perspective even if I recommend against it from a customer’s perspective.

American Airlines (including US Airways) and Alaska Airlines are the two biggest U.S. carriers that still provide loyalty programs that award miles based on distance flown, plus a fare multiplier. American may go this route eventually but must wait at least a year if it hopes to avoid upsetting too many customers during the inevitably bumpy process of an airline merger. Alaska Airlines has a knack for doing things differently, but it has brought up the topic of a revenue-based program in some customer surveys.

At the moment I would say try not to worry too much about what might happen. If you continue to play the arbitrage game like me, do what you can while you can, and re-evaluate the situation when the time comes. I re-evaluated my loyalty to United when PQDs were announced and thought it was enough to shift my business to American and Alaska. (I actually fly Alaska more often despite having a lower goal of 40,000 miles this year vs. 100,000 for American.)

Some stayed behind at United, convinced that PQDs would thin the ranks and make upgrades easier. Have they? Everything I read on FlyerTalk suggests this is still up for debate. My point: You can’t predict how changes in a program are going to affect you in the long run two or three years down the road when the dust settles. You need to make your decision now as best you can. Fortunately both American and Alaska have very generous status matches, which I’ll rehash soon in future posts.

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Scott created Travel Codex after learning how to travel better on a budget during grad school. He now flies over 150,000 miles every year.
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  • Carl

    Scott, I want to make a couple of points. The first is that earning is going to be even worse than you (and most others) think. Because they won’t award 5 miles/dollar spent on that $250 ticket. While that’s the price we pay, that price includes the TSA fees, it includes the PFC fees, it includes the segment tax. I’m virtually certain all of those will be deducted before the miles are calculated, just like they don’t count in the PQD calculation. I am not sure whether they also exclude the ticket excise tax, which is 9% of the fare, I think; the others are all fixed dollar amounts and I know they are deducted in the PQD calculation. So you may only earn RDMs on $200 of that $250 ticket.
    Roughly speaking, you need to be spending 20 c/mi to come out even – and that needs to be 20 c/mi plus fees. We often try to spend 4 c/mi, and most economy travelers are spending 10 c/mi or less, so it really is around a 50% reduction in earning for most on the average. And even if you pay higher fares for some premium travel or last minute travel, most travelers do a mix of travel which includes some leisure and domestic travel, so even if they’d earn well on some trips, it’s doubtful that the average traveler will come out ahead, and I’ll go so far as to say that 99% of travelers will earn less. Keep in mind that UA’s yield is around 16 c/mi and that includes the effect of all the premium tickets they sell.
    I don’t think it’s all the useful to compare the elite bonus and say, wow, you are getting a 40% bonus or 120% bonus, when you are getting that bonus on a base that’s been cut in half!
    Let’s face it, UA expects to award 40% fewer RDMs for flying UA under the this program, which is similar to what DL expects.
    I have more thoughts that I will put in the next comment

    • Darrin Earl

      Making assertions like “I’m sure 99% of travelers will earn less” are just ridiculous, unless you have inside information.

      When DL did this, my work team did some analysis of our past couple years travel and we came out WAY ahead… because we’re a mixture of Platinum and Diamond Elites, who are actually flying on revenue tickets to where business is done, often not booked at ideal times – which, for us, is a mixture of regional flying, some national flying, and a good bunch of international flying.

      What we aren’t doing is finding “mileage run worthy” fares – which will obviously be extinct under these new earning rules – because for leisure travel we travel when we can (not on Wednesdays) and use our hard-earned miles… in any case we aren’t finding these mystical <$300 transcon tickets that every blogger under the sun keeps bringing up as the case study of how apocalyptic these changes are.

      I'd LOVE to see actual statistics of what per mile costs are for airline tickets overall are, before people in the FF communities keep coming up with examples of how bad this all is.

      Obviously they're making these changes to benefit their bottom line first – but is it so hard to imagine that (secondarily) these may actually benefit their most important customers? (Note: most important customers are not actually mileage runners)

      • Scottrick

        I could bring up the price to $500 for a transcon. I’ve almost never spent more than that, and I don’t try particularly hard or using mystical blogger ninja skills. I just book in advance like an ordinary leisure traveler. Even business trips when I’ve had advanced notice are usually less than that. At that price I’d still earn fewer miles as a 1K: 5,500 vs. 12,000.

        But to your other point, regarding the lack of insider information, I think it’s equally misguided to believe the marketing spin they use to sell it to their customers.

      • oleg

        Take a look at PRASM reports. United will be giving out substantially less miles. When you factor in the small fraction of elites as a part of general public, those benefiting from this are far fewer than 1%.

  • Matt

    75,000 mile cap is idiotic. If someone spends $10,000 on a ticket and is top tier they should get the 110,000 pts.

    • Scottrick

      I agree. If nothing else, this cap should be repealed. It goes directly against any other claims about rewarding their most frequent and profitable customers.

  • Joey

    I agree with you and Wandering Aramean that it was just a matter of time. However, what surprised me was how quickly UA followed DL’s approach. I would have thought UA would at least observe whether DL’s new program is successful (i.e. did DL flyers flock to UA/AA instead of keeping their loyalty to DL?) In addition, if I were a DL frequent flyer thinking of jumping ship to UA this year due to DL’s changes next year, I’d certainly keep my loyalty to DL after this UA announcement since overall, DL has better customer service and hard product than UA.

    • Scottrick

      I don’t think this is about recognizing whether Delta’s changes help acquire more customers. I think it’s about a short-term gimmick to reduce the number of miles issued (and liability incurred) for the sake of placating Wall Street investors. United promised savings after the merger. Now it’s losing hundreds of millions of dollars.

      • Carl

        Totally agree. They probably take some kind of accounting charge for the miles issued, and with this change they’ll issue fewer miles, so they’ll count that as a cost savings.

  • Carl

    Second comment: This seems like a dangerous move by United, especially at this time. While they can spin it that they are copying DL and therefore they are competitive with DL, simply put UA isn’t DL. UA’s management has degraded their product, the employees aren’t particularly happy, UA has too many RJs, UA is at the bottom of customer satisfaction surveys and on-time performance, and compared to virtually every other carrier, UA is shrinking while others are growing. In the past UA had by far the best frequent flyer program (and CO’s was good too), and flyers stayed loyal to the airline even when it went through bad periods. DL has addressed some of its program weaknesses, particularly in the ability to upgrade on international flights. UA has already worsened its program’s value for international premium tickets, particularly on partner airlines. It seems suicidal for UA to give its elite members yet another reason to leave. It seems likely that American will not do this for at least a year or more as they work through their merger. Seems to me that most anyone who is not a hub captive or corporate contract captive will have every incentive to switch either to AA (for better earning) or to DL (for better service with equal earning) or to become strictly transactional. In the past UA’s program would make flyers go out of their way to fly UA, even if it meant a higher fare or less convenient routing. Seems like they are firing those customers now, and if the product is inferior the only way to fill those seats will be by discounting the price further. In business it’s usually cheaper to sell to an existing customer than to find a new one. The existing elites have spent plenty of time flying UA and know what to expect and put up with. Those new customers might prefer DL or AS or VX, and only fly UA if it is a lot cheaper.
    I would have thought UA needed to get its product up to parity before doing something like this.

    • Scottrick

      I agree with these points, but less so with those in your first comment. I may just not know as much about UA’s revenue.

      If AA is smart they’ll let their fleet upgrade proceed a while yet before making any drastic changes to their loyalty program.

      You didn’t bring it up, but AS has stated publicly that they like to keep their first class seats available as an elite benefit rather than phase them out (which might make sense b/c they’re mostly a domestic carrier like Southwest). Oddly enough, the lack of investment in their first class product isn’t such a bad thing if it makes it affordable to maintain for the long term. Some will pay for it, and those who don’t leave those seats available for upgrades.

      • Carl

        Yup, AS is content to have a weak F product. It’s still better than coach… And the ability to upgrade gives them a competitive advantage vs. WN to retain elites and makes it easier to compete on Hawaii and transcons, and gives Mileage Plan members a place to burn aspirational miles. It makes sense. I’m glad they are keeping it. My main wish: I wish the seat would recline more for sleeping.
        PS: AS would like to move to revenue-based earning as well. They may wait until AA does it.

  • Geoff

    Scott, you mentioned the you agree that UAL(and DAL) should be “penalizing” those who MS. Why?
    Is it not obvious that airlines want this sort of spending behavior?
    In fact, it appears that both airlines are purposely driving customers in that direction.
    To go back to yesterday’s ugly thread(sorry), would not agree that the card companies as well as the airlines know exactly what is going on and seem to be encouraging it?
    I can’t speak for the airlines(obviously) but Delta seems pretty smart and United(bless their money-losing hearts) seems to think so as well.
    Either way, these changes were implemented by management to make money with full knowledge of card carrier habits.

    • Scottrick

      It makes more sense to me that an airline would want to sell seats on its flights to paying customers (and give them a reward), rather than the more complicated route of discouraging paying customers, selling miles to a bank, getting the bank to market a credit card, having cardholders go through the hassle of manufactured spend, and then offering their distressed inventory (because they can’t sell it in the first place) for award redemptions.

      When a business gets distracted from its core function, it usually ends badly for all concerned.

      • Geoff

        It seems to me based on current airline changes that it must be awfully easy and lucrative to simply collect money from card companies rather than sell a seat. Money is money and Wall Street seems to love it.
        After all, the carriers are in business to make money for stockholders(owners). Period.
        And it seems to be working(except for UAL). Your “distraction” reference is an interesting one though. Perhaps for a separate post.

  • Carl

    Here’s another thought. By skewing the redeemable miles towards the high fare customer, are they actually rewarding the right customer, and is it actually the revenue and profit maximizing strategy?
    What is the purpose of the loyalty program? Aside from the fact that they can sell miles to credit card companies and other partners, presumably the value of the loyalty program is to encourage frequent rebuying of the product, and in particular frequent rebuying of product that otherwise would go unsold, and buying at higher fares rather than lower fares. To maximize revenue, you have to look at the marginal revenue it generates. Meaning if a flight is going out full on Sunday night, there may be no marginal revenue, even if it is a full Y fare. But on an empty flight on Tuesday afternoon, even a cheap fare is valuable since it drops to the bottom line.
    I don’t think it is the intent of the program to convince someone to purchase a Y or B fare when there is W or T fare available in the market. In fact, there are already incentives to buy a Y or B fare to get a confirmed upgrade. But it would be diseconomical for anyone paying for their own travel to buy a higher fare to earn more miles (there are cheaper ways to get miles) and it would be unethical for someone using someone else’s money to do so (it may happen on the margin but employers will figure out ways to stop it.)
    The way they are tying it so closely to dollars spent, it really becomes a form of discounting. If we value miles at 2 cents, then it’s a ~20% discount for top elites and 10% for general members.
    The question is, do the premium members need this discount? If you book last minute and only high fares are available, is getting this discount making you more likely to book? Or do you have to go to the meeting/funeral, are willing to pay whatever it takes, and will book whoever gets you there? Does this discount generate meaningful marginal revenue or are you discounting to the wrong person, the one who is going to fly you anyway? The same question can be asked of international premium fares. Are people who are paying C or D fares really motivated by earning these miles? Or are they picking your airline because you go non-stop on the route they want and you have a lie-flat seat.
    I think there’s a good chance that for expensive tickets, they are giving out unneeded discounts that don’t generate enough marginal revenue to be effective.
    There is also a real risk that employers will cut deals with the airlines to capture the value of the points, whether by collecting the points at the corporate level, or negotiating for non-earning tickets. And that it will become possible for the IRS to tax these.
    It seems to me that it would have been prudent for UA to wait it out and see the impact on DL and see if they retained important customers before following blindly. If revenue management is working properly in how it is pricing tickets, I don’t think that it’s at all certain that rewarding miles purely based on dollars spent is the profit maximizing strategy.

    • https://www.facebook.com/joy.kenen MARepublicangal

      Employers already DO negotiate with travel agencies/airlines. The head people get the perks; the peons get squat. I was an agent and I regularly saw passes going to the management while the agents got 1 per year; our corporate clients were dealt passes based on how much revenue they produced. I have no idea how/if the IRS was involved.

    • Scottrick

      I think leisure travelers appreciate the discount, but theirs is being cut. Business travelers (IME) tend to see the miles as a windfall, and oddly enough may not have the time or interest to travel more and use them.

      Is it possible that the liabilities incurred to the program by both a general member and an elite are roughly equal? A leisure traveler may seek to maximize his or her redemption. A business traveler may waste them on some electronics purchase from the catalog. Even if a business traveler has more miles to spend them on a premium cabin award, it now takes more miles to fly on a partner, and I don’t think the airline’s reimbursement cost of acquiring that seat has kept pace with the price borne by the member.

    • RJP

      DING DING DING!!!

      Rewarding customers for exhibiting behavior that is consistent with the company’s business objective – how dare they consider such heresy!?!?

  • Carl

    One other point. Their announcement very clearly said that for 2015 elite qualifying isn’t changing. I don’t think that legally they had any need to add that qualifier, but the language is pretty darn clear they reserve the right to change elite qualifying in 2016.
    Seems like are culling their elite ranks, whether intentionally or as collateral damage

  • BradR

    I’m torn – on AS and UA combined I’m at >80k eqm this year (75% to AS), with about $26k in spend – and a total of 150 in pqd given carrier choices. Could I be one of the well-rewarded by this program if I flew UA more? Hell yea. And with a chase prez plus card I get a pqd waiver. But if I continue to fly the better *a carriers vs UA, I’ll actually get less miles overall. As I’m already gold on AS for the year, I’m debating if the balance will be to do more on UA and get a higher multiplier next year, or go higher on AS and look to status match to AA or TK next year.

    • Scottrick

      As I pointed out, even with the better multiplier you’ll need to devote much bigger chunk of your business to United to keep earning 200K miles as a 1K used to (75% on UA instead of the 75% on AS you do currently). One benefit to spending more on AS is that MVP Gold 75K gets an extra pot of miles upon reaching that level.

      It seems like for the few cases where you still have to fly UA (probably international?) you could credit to Turkish or Aegean to get the Star Gold status. If you’re traveling regularly each year, you’ll still earn enough miles for an award flight at some point, and it will just be more difficult than usual to book through one of them.

  • AEG87

    Overall, I thought this was a nice look at the issue.

    You bring up the general member who pays $250 per ticket for a couple of trans-cons per year and how this is bad for them. true. First of all, how often are you getting trans-con tickets for that cheap? Because I would like to buy them from the same place you are. I think a) tickets are rarely that cheap and b) the majority of flights aren’t that long.

    I know this is an anecdote, but I fly DCA-ORD pretty regularly. That’s 612 miles each way, which as a non-elite gets you 1224 miles for the flight. Under the new system, I would have to get rewarded for less than $245 of my fare ($245*5=1225) for this to be worse for me. So let’s call that a $275 ticket which is a pretty good price…I normally pay well upwards of $300. This new system also takes the sting out of those occasional very high fares. I had to book this flight recently and paid $460 which is a painful way to earn 1224 miles, now I would be pulling in upwards of 2000 miles. Not bad.

    Remember, for every road warrior flying all over the country/world, there are a lot of folks covering a region or territory and making flights of 750 miles or less. This is probably going to be pretty good (or at least not bad) for them.

    • Scottrick

      Not always that cheap, but often enough. The Flight Deal just advertised a United flight from Portland to Fort Lauderdale for $269. I’ve booked Seattle to Miami for $174, but that was over a year ago. The point is, I let price determine my destination and dates.

      DCA-ORD is a short flight between two busy markets. There are a lot of fixed costs involved and a lot of demand to support higher fares.

      And on the topic of regional territories, I am well aware that some regions are smaller than others — but not every region is the Northeast. I’ve seen regional territories that are literally just the city of Boston, while the same company gives the entire Pacific Northwest, Mountain States, and Alaska to someone else.

  • Deltasegmentflyer

    As a domestic segment flyer out of would come out way ahead on a program like this. It does reward a flyer like me.

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