Discussion: what's stopping AA/UA/DL from moving to fixed value mile redemption?
Apr 24, 2014, 11:08 pm
#17
Join Date: Nov 2010
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It can "work" in the sense of people who are picking the cheapest fare anyways aren't going to suddenly stop booking with you, but now you're failing to wring every bit of value (whether a last minute award booking that decrements liabilities or actual cash) from your destressed inventory (premium cabin inventory that can and will go empty).
Apr 24, 2014, 11:17 pm
#18
Join Date: Jul 2002
Location: New Orleans, AA EXP, DL PM, SPG PLT, HH Diamond
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I suppose by short haul you mean international. WN flies MSY-LAX, an almost 4 hour flight, not exactly a short haul, IMO.
It can "work" in the sense of people who are picking the cheapest fare anyways aren't going to suddenly stop booking with you, but now you're failing to wring every bit of value (whether a last minute award booking that decrements liabilities or actual cash) from your destressed inventory (premium cabin inventory that can and will go empty).
Apr 25, 2014, 3:45 am
#19
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Indeed. There are things that AA/US, UA and DL do with regard to their "loyalty" program customers abroad that WN's lawyers don't even consider.
North America is a region of the globe. Does WN fly to any continent beyond North America? It seems to me that WN is more of a regional airline than a global airline. AA/US, UA and DL fly to at least three continents around the globe. Does WN even have scheduled commercial passenger flights that go to South America, Europe, Asia or Africa? My understanding was that WN is pretty much just in the North American region.
North America is a region of the globe. Does WN fly to any continent beyond North America? It seems to me that WN is more of a regional airline than a global airline. AA/US, UA and DL fly to at least three continents around the globe. Does WN even have scheduled commercial passenger flights that go to South America, Europe, Asia or Africa? My understanding was that WN is pretty much just in the North American region.
Apr 25, 2014, 4:00 am
#20
Join Date: Feb 2002
Location: NYC: UA 1K, DL Platinum, AAirpass, Avis PC
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When you see a results screen it will show point values for the dynamic fare based awards. But the points price for the classic awards doesn't display unless you hover your mouse over the seat icon.
It's designed to quietly steer people to the usually higher dynamic fare awards.
Apr 25, 2014, 4:30 am
#21
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Going to a revenue-based fixed value redemption model that is largely indistinguishable from a fixed cash rebate percentage poses at least two risks to US program operators: lose customers to non-airline cash-back programs; and create tax liability exposure risks for HVCs using OPM.
Apr 25, 2014, 4:50 am
#22
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An interesting paper on accounting rules/procedures for FF programs:
http://greenandgold.uaa.alaska.edu/w...irline-FFP.pdf
http://greenandgold.uaa.alaska.edu/w...irline-FFP.pdf
Apr 25, 2014, 6:49 am
#23
Join Date: Dec 2007
Posts: 3,607
The bigger question is whether it would be to their advantage to do so. If the miles are fungible then why wouldn't they just offer a 5% lower ticket prices?
Have you ever noticed that loyalty cards always offer fixed awards? Every n drinks of any sort with any extras you get a free medium cofee. Ever n meals you get a free sandwich. So on.
Part of that might be that it makes the accounting easier. But I think a factor is that this lets them pick the highest margin item maximizing the value the consumer thinks they're getting but minimising the actual cost to the merchant.
The current system actually suits the airlines quite well. If it were really hurting they would have changed it ages ago. The current system lets them give away flights without hurting their bottom line.
Have you ever noticed that loyalty cards always offer fixed awards? Every n drinks of any sort with any extras you get a free medium cofee. Ever n meals you get a free sandwich. So on.
Part of that might be that it makes the accounting easier. But I think a factor is that this lets them pick the highest margin item maximizing the value the consumer thinks they're getting but minimising the actual cost to the merchant.
The current system actually suits the airlines quite well. If it were really hurting they would have changed it ages ago. The current system lets them give away flights without hurting their bottom line.
Apr 25, 2014, 9:29 am
#24
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The way it is now, they can offer arbitrage opportunities that offer the equivalent value much higher than 2%, because they limit the availability to only those seats that they think will otherwise go unsold.
Apr 25, 2014, 10:03 am
#25
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But Chile or Argentina, no way!
Apr 25, 2014, 10:16 am
#26
Join Date: Sep 2012
Location: Vancouver
Posts: 194
Not much to it.
When you see a results screen it will show point values for the dynamic fare based awards. But the points price for the classic awards doesn't display unless you hover your mouse over the seat icon.
It's designed to quietly steer people to the usually higher dynamic fare awards.
When you see a results screen it will show point values for the dynamic fare based awards. But the points price for the classic awards doesn't display unless you hover your mouse over the seat icon.
It's designed to quietly steer people to the usually higher dynamic fare awards.
Thanks
I now understand why I wasn't previously seeing the choices you mention -- My award searches on the QF system are for always CX flights, so the results are already filtered for classic awards only.
Apr 25, 2014, 11:28 am
#27
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I think that's the biggest of the two. Unless the redemption rate offered substantially more than 2% rebate, there would be no reason to get an airline affinity card when someone can just get a 2% cash back card. And, I don't see why an airline would offer an exchange rate much higher than what they get paid by the bank for the miles (it could be a little higher and still work, due to breakage).
The way it is now, they can offer arbitrage opportunities that offer the equivalent value much higher than 2%, because they limit the availability to only those seats that they think will otherwise go unsold.
The way it is now, they can offer arbitrage opportunities that offer the equivalent value much higher than 2%, because they limit the availability to only those seats that they think will otherwise go unsold.
One possibility, though, would be a value like 1.5 cents for coach awards, but a much higher value for premium cabin awards and upgrades. This would be an indirect way to offer discounted F and C. I'd be okay with that if it were something like 3 cents or more for the premium awards.
Apr 25, 2014, 12:48 pm
#28
Join Date: Jan 2008
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Southwest has done just fine with a fixed value earn and redemption system.
I think many of us suspect one if not all of the three legacy airlines left in the USA want to move to a similar system sooner or later. What's stopping them from doing it now?
There is little competition and few empty seats compared to the past. An attractive FF program is no longer required to fill loads of empty seats and boost revenue. Here are a few possible reasons I can think of why they don't just make the change now:
1) They believe that moving to a fixed value point system would actually harm their business and too many flyers would defect to the competition. Nobody wants to go first.
2) Converting banked miles to a fixed redemption value could cause a huge rush of redemptions as FFers with millions of banked miles spend them in lieu of spending cash. This could cause a huge short term cash flow disruption. I love hoarding miles knowing I can redeem them for intl F/J, but I would not hoard them if miles had a fixed value. I spend Southwest points as fast as I earn them.
3) Potential effects on Alliance partners. I'm not sure how it would work within OW/*A/ST if a major member converted to a fixed value point system. This may actually save AA/DL/UA money if they no longer have to pay for expensive partner award flights. For example I have seen threads indicating that some OneWorld flyers only use AA as a mileage "bank" and don't actually fly the airline regularly since AAdvantage is a generous program. I can't imagine that behavior is profitable to AA. This is mostly speculation on my part but food for thought.
4) Perhaps the airlines generate substantial revenue from credit card companies that would be compromised in a move to a fixed redemption value. For example if an AA mile suddenly becomes worth a fixed $.015 and correspondingly reduces cash revenue by that amount that may hurt profits. I doubt the average actual "cost" to AA/UA/DL per mile redeemed is more than a cent considering that upgrades and otherwise empty seats have an almost zero tangible cost. Partner flight redemption is the only serious cost incurred.
Thoughts?
I think many of us suspect one if not all of the three legacy airlines left in the USA want to move to a similar system sooner or later. What's stopping them from doing it now?
There is little competition and few empty seats compared to the past. An attractive FF program is no longer required to fill loads of empty seats and boost revenue. Here are a few possible reasons I can think of why they don't just make the change now:
1) They believe that moving to a fixed value point system would actually harm their business and too many flyers would defect to the competition. Nobody wants to go first.
2) Converting banked miles to a fixed redemption value could cause a huge rush of redemptions as FFers with millions of banked miles spend them in lieu of spending cash. This could cause a huge short term cash flow disruption. I love hoarding miles knowing I can redeem them for intl F/J, but I would not hoard them if miles had a fixed value. I spend Southwest points as fast as I earn them.
3) Potential effects on Alliance partners. I'm not sure how it would work within OW/*A/ST if a major member converted to a fixed value point system. This may actually save AA/DL/UA money if they no longer have to pay for expensive partner award flights. For example I have seen threads indicating that some OneWorld flyers only use AA as a mileage "bank" and don't actually fly the airline regularly since AAdvantage is a generous program. I can't imagine that behavior is profitable to AA. This is mostly speculation on my part but food for thought.
4) Perhaps the airlines generate substantial revenue from credit card companies that would be compromised in a move to a fixed redemption value. For example if an AA mile suddenly becomes worth a fixed $.015 and correspondingly reduces cash revenue by that amount that may hurt profits. I doubt the average actual "cost" to AA/UA/DL per mile redeemed is more than a cent considering that upgrades and otherwise empty seats have an almost zero tangible cost. Partner flight redemption is the only serious cost incurred.
Thoughts?
Apr 25, 2014, 12:51 pm
#29
Join Date: Jan 2008
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I agree. A whole bunch of people who steer their spending to airline affinity cards would jump ship if they shift to a Southwest-like points system. Should that happen, we might as well just get cash back unless, like you say, the points would have a high value upon redemption.
One possibility, though, would be a value like 1.5 cents for coach awards, but a much higher value for premium cabin awards and upgrades. This would be an indirect way to offer discounted F and C. I'd be okay with that if it were something like 3 cents or more for the premium awards.
One possibility, though, would be a value like 1.5 cents for coach awards, but a much higher value for premium cabin awards and upgrades. This would be an indirect way to offer discounted F and C. I'd be okay with that if it were something like 3 cents or more for the premium awards.
On the other hand they are going to have to make an adjustment at some point. Over time inflation means that the credit card miles grow and grow, while the miles earned for travel are fixed (except for the occasional relocation of a city or adjusting for continental drift). Either they have to reduce the earn rate on miles or make some adjustment to flight earnings, or else the miles earned for flying will become a rounding error on the rest. And with the additional restrictions on elite benefits it's hard to see why a large segment of the public would care which airline they're on from an earning perspective. They will just book flights on the airlines that suits them best (which, sadly, is unlikely to be United unless United is the only flight available for redemption).
Last edited by Boghopper; Apr 25, 2014 at 12:57 pm
Apr 25, 2014, 3:05 pm
#30
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Airlines make billions from credit card millage sales. If they went "fixed" point value in their programs that revenue would dry up rather quickly when consumers would get to see head to head what the best "rebate" deal is out there. There are cards that give 2% cashback already on the market place...going fixed value would chop the legs out from under the credit card miles business.
...in the short term the conversion to a fixed value program could be mitigated with 2-4-1 voucher on spend offers to cc customers, etc. Long term, the revenue is gone as people shift their spend to other products. The credit card issuers could care less whether you use their airline/travel affiliated card vs a cashback product, etc...we will still use credit cards, its the airlines that'll hurt their most lucrative stream of revenue.
...in the short term the conversion to a fixed value program could be mitigated with 2-4-1 voucher on spend offers to cc customers, etc. Long term, the revenue is gone as people shift their spend to other products. The credit card issuers could care less whether you use their airline/travel affiliated card vs a cashback product, etc...we will still use credit cards, its the airlines that'll hurt their most lucrative stream of revenue.